Released in 2011 “Start-up Nation: The Story of Israel’s Economic Miracle” was a book that claimed the idea that Israel was an unusual type of country. It had produced and was on the verge of producing a huge number of tech startups, given its relatively small size. The moniker has become so ubiquitous, both at home and abroad, that “Israel Startup Nation” is now the name of the country’s professional cycling team.
But this stance has been difficult to challenge over the past decade as the country has taken the lead, producing groundbreaking startups like Waze, which was ultimately taken over by Google for over $ 1 billion. dollars in 2013. Waze’s 100 employees received approximately $ 1.2. millions on average, the largest payout to Israeli high-tech employees at the time, and the exit has created a pool of new entrepreneurs and angel investors since then.
Israel’s intoxicating mix of a culture of questioning, a tradition of national military service, higher education, widespread use of English, risk appetite and team spirit in makes it a fertile place for fast-growing businesses.
And although Israel does not have a Silicon Valley, it has named its high-tech cluster “Silicon Wadi” (“wadi” means desert riverbed in colloquial Arabic and Hebrew).
Much of Israel’s high-tech industry has come from former members of the country’s elite military intelligence units such as the intelligence division of Unit 8200. From the age of 13, Israeli students are exposed to advanced computer studies, and the cultural push to get into technology is strong. Traditional professions attract low wages compared to software professionals.
The Israeli startup industry began to emerge in the late 19080s and early 1990s. A significant event occurred with AOL’s acquisition of the ICQ messaging system developed by Mirabilis. The government’s Yozma (Hebrew for “initiative”) program in 1993 was instrumental: it offered attractive tax incentives to foreign venture capital firms in Israel and promised to double any investment with government funds. It came decades before most Western governments.
It wasn’t long before venture capitalists were springing up and big tech companies like Microsoft, Google and Samsung had R&D centers and accelerators in the country.
So how are they doing?
At the start of 2020, Israeli startups and tech companies were looking back on a good 2019. Over the past decade, seed funding for Israeli entrepreneurs had increased by 400%. In 2019, there was a 30% increase in start-up funding and a 102% increase in M&A activity. The country was experiencing an increasing funding trend over 6 years. And in 2019, Bay Area investors invested $ 1.4 billion in Israeli companies.
At the end of last year, Israel’s annual tech review 2020 showed that Israeli tech companies had raised a record $ 9.93 billion in 2020, up 27% year on year, in 578 deals – but merger and acquisition agreements had collapsed.
Israeli startups closed December 2020 by raising $ 768 million in funding. In December 2018 that figure was $ 230 million, in 2019 it was just under $ 200 million.
Early stage companies attracted $ 8.33 billion, up from $ 6.51 billion in 2019, and there were 20 deals over $ 100 million for a total of $ 3.26 billion, against 18 for a total of 2.62 billion dollars in 2019.
The major IPOs among startups were Lemonade, an AI-based insurance company, on the New York Stock Exchange; and the life sciences company Nanox which raised $ 165 million on the Nasdaq.
The winners in 2020 were cybersecurity, fintech and the internet of things, with food technology on the rise. But as the country has gained fame for its cybersecurity startups, AI now accounts for nearly half of all investments in Israeli startups. That said, every sector is growing. Investors are also now favoring companies that talk about the Covid era, such as cybersecurity, e-commerce and remote technologies for work and health.
There are currently more than 30 tech companies in Israel worth over $ 1 billion. And four startups topped the $ 1 billion valuation last year: mobile game developer Moon Active; Cato Networks, a cloud-based enterprise security platform; App developer Gett raised $ 100 million ahead of its IPO; and the behavioral biometrics startup BioCatch.
And there was a reminder that Israel can produce truly “ magic ” technology: Tel Aviv battery storage company StorDot has raised funds from Samsung Ventures and Russian billionaire Roman Abramovich for its battery that can fully charge a scooter in five minutes.
Sadly, the coronavirus pandemic brought mergers and acquisitions to a halt in 2020 as the global economy shut down.
Mergers and acquisitions only accounted for $ 7.8 billion in 93 deals, compared to more than $ 14.2 billion in 143 M&A deals in 2019. RestAR was acquired by US giant Unity; CloudEssence was acquired by an American cyber company; and Kenshoo acquired Signals Analytics.
And in 2020, Israeli companies struck 121 financing deals on the Tel Aviv Stock Exchange and global financial markets, raising a total of $ 6.55 billion, compared to $ 1.95 billion raised in capital markets. in Israel and abroad in 2019, IPOs having become an attractive exit alternative. .
However, early cycle investments (Seed + A Rounds) slowed due to pandemic uncertainty, but picked up towards the end of the year. As in other countries in ‘Covid 2020’, venture capital tended to focus on existing portfolio companies.
Covid brought unexpected benefits: Israeli startups, typically faced with long flights to Europe or the United States to raise larger rounds of funding, suddenly discovered that Zoom was attracting investors to them.
Israeli startups have adapted extremely well to the Covid era and that doesn’t seem to change. Startup Snapshot revealed that 55% of profiled startups have changed (or are considering changing) their product due to Covid-19. Meanwhile, remote working – which comes naturally to Israeli entrepreneurs – “flattens” the world, giving a big advantage to normally remote startup ecosystems like Israel’s.
Via Transportation raised $ 400 million in the first quarter. Next Insurance raised $ 250 million in the third quarter. Seven exit transactions over $ 500 million took place between Q1 and Q3 of 2020, up from 10 for all of 2019. These included Checkmarx for $ 1.1 billion and Moovit, also for one billion.
There are three main hubs for the Israeli tech scene, in order of size: Tel Aviv, Herzliya, and Jerusalem.
Jerusalem’s economy and therefore the startup scene suffered after the Second Intifada (the Palestinian uprising that began in late September 2000 and ended around 2005). But today, the city is much more stable, and therefore attracts a growing number of startups. And let’s not forget that the visual recognition company Mobileye, which is now worth $ 9.11 billion (£ 7 billion), came from Jerusalem.
The Israeli government is very supportive of its high-tech economy. When it noticed that early stage startups were slowing down, the Israel Innovation Authority (IIA) announced the launch of a new funding program to help early stage and early stage startups, allocating 80 million shekels ($ 25 million) to the project.
This will provide participating companies with grants worth 40% of an investment round of up to $ 1.1 million and 50% of a total investment round for startups in the country or whose founders come from under-represented communities – Arab-Israeli, ultra-Orthodox and women. – in the high-tech industry.
Investments in early stage Israeli startups declined both in absolute terms and as a percentage of total investments in Israeli startups (to 6% from 11%). However, the decline may also be a function of the establishment of incubation hubs by large tech companies to reduce and absorb talent.
Another notable aspect of Israel’s startup scene is its sometimes hesitant attempt to engage with its Arab Israeli population. Arab Israelis make up 20% of the Israeli population but are extremely under-represented in the tech industry. The hybrid program is designed to address this disparity.
This, and others like him, is a reminder that Israel is geographically in the Middle East. Since the recent normalization pact between Israel and the United Arab Emirates, relations with the Arab states have started to thaw. Indeed, more than 50,000 Israelis have visited the United Arab Emirates since the agreement.
At the end of November, DIFC FinTech Hive, based in Dubai, the largest center for financial innovation in the Middle East, signed a historic agreement with the Israeli company Fintech-Aviv. The two entities will now work together to facilitate the cross-border exchange of knowledge and business between Israel and the United Arab Emirates.
Perhaps this is a sign that Israel is more and more comfortable with its place in the region? Of course, both the Israeli tech scene and the Arab world should benefit from these more cordial relations.
Our investigation of Israel is here.