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The startup ecosystem of Israel

The startup ecosystem of Israel

21 Feb 2020

Alright, try to guess the country by its description: this state appeared on maps in the XX century. However, its history is old enough; this country was first to invent a flash drive and prototype of modern messengers — ICQ; last but not least — a large part of the country is located in the desert but the country manages to supply products of agriculture both to the country and to trading partners.

Startup Jedi

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There is no point in continuing this as I am sure that you have already guessed the country. Of course, it is Israel! The time has come to tell you about the startup ecosystem of this country.
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General information

In Israel, there are approximately 9 million habitats, the square of the country is quite small and the inner political situation is rather complicated. However, the state is one of the most developed in the world and in the IT cluster too. Here are some facts:

  • Over the past 28 years, the GRP of Israel has grown 15.5 times — from $ 23.8 billion in 1980 to $ 370.6 billion in 2018.

  • Israel is a world leader in expenditures on Research and Advanced Development (R&D). 4,3% of GDP is spent on this sector. What is interesting, most of the countries including the USA, Germany and Great Britain spend on R&D up to 2,4–2,5% of the GDP.

  • In the Bloomberg ranking of innovative states, published in 2019, Israel takes the 5th place. The compilers of the rating were based on such indicators as research and development costs, production capacities, the concentration of high-tech public companies, the level of higher education, the number of patents and the added cost of production. In this ranking, Israel overtook countries such as the USA, Singapore, Sweden, Japan, and Great Britain in 2019. In the updated rating of January 2020, Israel is already in 6th position.

  • In the rating of patent activity of countries worldwide 2017 (the rating was published in 2018), Israel ranks 24th (among 174 countries) with a total number of applications equal to 6,813;

  • In Israel, there are Research and Development centres of such corporations as Apple, Microsoft, Intel, Google, Facebook, IBM, Cisco, Oracle, Dell, SAP etc.

  • Israel ranks third in terms of the number of companies listed on the NASDAQ, the American stock exchange that specializes in high-tech stocks.

  • By the way, thanks to the high-tech companies the country managed to build a successful economy. In this aspect, Israel is an undoubted example of how innovations can influence the development of a country’s economy.

    Israel in general and its technological capital Tel-Aviv, in particular, can be named the state and the city of startups. The country is ranked the second in startup industry development, and in Tel-Aviv, there is the most number of startups per capita! Also, Israel ranks second in the world in the success of the startup ecosystem, Silicon Valley being the first one.

    In 2017, the volume of investments in Israeli startups amounted to $5,5 billion, in 2018 — $6 billion (according to the reported data of Start-Up Nation Central). The total volume of closed deals, where Israeli startups were bought, amounted to $24 billion in 2017. In 2019, the total volume of exits among high-tech Israeli startups amounted to $21,7 billion in 138 deals.

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The startup ecosystem of Israel

Unicorn Startups

The startup ecosystem of Israel started developing in the 90th of the last century. Startups focus on the global market right away as the inner venture market is not big enough.

The startup ecosystem of Israel is a result of a collaboration between the state, venture capital firms, successful entrepreneurs, educational system, business system, incubators and accelerators.

Universities play a significant role in the country, as many ideas, if not the most of them, are born and tested there. Hebrew University of Jerusalem, Tel Aviv University, Technion (Israel Institute of Technology), Ben-Gurion University of the Negev, Haifa University are among the top educational institutions.

There are more than 6 600 startups in the country and 20 of them are unicorns. Let’s check which projects from Israel or with Israeli roots have made it to fame and glory, and made them most expensive ones.

WeWork

This startup offers a service of a flexible work-space for technological startups and other companies. It is worth $20 billion. The project was founded by Israeli entrepreneur in 2010 in New York, and now the company has 373 offices in 69 cities in the world.

In 2017, Japan’s Softbank invested $300 million in the project, and at that time, the project was valued at $20 billion. In the same year, WeWork entered TOP-7 of the most expensive startups in the world.

Mobileye

The project was founded in 1999. The startup specializes in the development of Advanced Driver Assist Systems (ADAS). Besides, Mobileye works autonomous driving technology. The company’s headquarters are located in Ierusalem, and sales offices are in Manhattan, Shanghai, Tokyo and Dusseldorf.

As for now, Mobileye employs more than 1700 people, the company has partnerships with 25 car-manufacturing factories. In March 2017, Intel bought the startup for $15 billion.

Magic Leap

The project was founded by Israeli born in 2011, the headquarters are located in the USA. The startup develops a gadget called Lightwear — an augmented reality goggles: three-dimensional pictures from augmented reality are overlapped on the objects from the real world. On the contrary to analogues — augmented reality goggles — you can see all unreal objects incorporated into reality.

In 2018, the project valued $5 billion. Today, Magic Leap goggles can be bought directly on the company’s website — the cheapest product copy costs $2 295, the purchase can be on the instalment plan for 24 months.

WIX

An international cloud platform for internet projects creation and development, it allows to design websites and their mobile versions. The service is available in 19 languages. The project appeared in 2006, the headquarters is located in Tel-Aviv. In 2018, WIX employed 2400 people, and the company itself valued $5 billion.

Houzz

The American-Israeli project, that was founded in 2009 by students of Israeli college. It is a website-service and application for designers. The idea of the project hit founders after an unsuccessful personal experience of maintaining a flat.

As of 2017, the startup valued $4 billion.

Monday.com

In June 2019, the word spread that in Israel there is a new unicorn — Monday.com. The project develops an online platform for the process of working together on projects. In a year, its value increased three times more and at the time the news appeared, it amounted to $ 1.9 billion

Payoneer

A fin-tech service for digital payments. The project was launched in 2005. The service is used for providing massive payments for such companies as Google, Airbnb, Amazon, Upwork. Company offices are located in Israel, India, Japan, Great Britain, Filipinos and the USA.

The project’s value — $1,5 billion.

Waze

The project was launched in Israel in 2008. Waze is an application for navigation that helps to track the situation on the roads in real-time, lay the optimal routes, find out the location of visual verification cameras, alert other users about changes of the road conditions. In 2013, Google bought the startup for $1,1 billion. Now, the application is used by 115 million car drivers.

Trusteer

The startup’s product is the system of managing electric access to client’s websites/databases: the service helps to recognize employers and hacker actions. In particular, the application detects illegal access to the client’s system. IBM purchased the project for $1 billion in 2013.

ICQ

The messenger was launched in 1996. It was developed by Mirabilis, a company of four enthusiasts who took a loan of $10 000 from the father of one of the creators. 2 years after, the “investment” paid off — in 1998, AOL Inc. corporation bought Mirabilis for $407 million, and since 2010, Mail.ru Group owns the project.

Gett

The service for ordering a taxi through a website and mobile application. It is launched and works in 120 cities of the world — in the USA, Great Britain, Russia. In 2016, Volkswagen Group invested $300 million in the project, and in 2018, the same company invested $80 million more.

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The startup ecosystem of Israel

The infrastructure for Israeli startups

On every development stage, startups can find support here. So, only at the idea stage, you can develop your project:

  • being inspired by materials in such start-media as Ctech, NoCamels, Startup Digest Tel Aviv and others;

  • by visiting workshops and conferences for startuppers, for instance, events from “Bad-Idea-Start-Up”-Meetup (workshops that help to rework bad ideas into a worthy project, AI Week conference sessions (the event is held at the base of Tel-Aviv university, and it is dedicated to innovations in the AI sphere, study of data, computer-assisted teaching), Cybertech Tel-Aviv conference etc.

  • on the regular pieces of training and meet-ups, that are organised on such platforms as B2B Marketing of Software, Technology and Startups; City Accelerator TLV Meetup etc.

  • by creating the product’s prototype on hackathons like Civie Hack, DigiEduHack, FullStack Hackton etc..

On the launch stage, startups have even more possibilities. First of all, in Israel, a range of juridical companies and banks help innovative entrepreneurs. Secondly, these startups can apply to different incubator programs, and there is an abundance of them in the country. Below you can find the description of some of them.

Ashoka Fellowship — an incubator that specializes in social entrepreneurship and they are interested in cooperation with projects, whose product is orientated on the global market. The platform helps those projects that want to change society for the better, to improve the life quality of millions of people. In Israel, Ashoka Fellowship project is a part of the Ashoka Worldwide global project, their offices are located in 35 countries, and more than 60 events are held under the aegis of this organisation.

Campus Tel Aviv — a joint project with Google for Startups. In the framework of cooperation, there is a school for startups. They take a course of training events on innovative entrepreneurship. Mentors from Google and founders of successful startups share their experience and provide Q&A for rookies on a weekly basis.

AWS Floor28 — an educational platform in Tel-Aviv for everyone who is interested in innovations. Many free thematic events and meetings with experts are held at this platform. AWS Floor28 is a project powered by Amazon Web Services (AWS) — the most widespread cloud platform in the world.

DRIVE FastLane Program — a paid program with a global mentoring network for young startups, its cost is $250 000. The program cooperates with startups which have the product’s prototype. However, they can consider projects that still don’t have MVP. The program duration is 5–6 months. The best graduates can be funded by Next Gear fund, one of the DRIVE FastLane Program partners.

eHealth Ventures — the incubator for med-tech startups. It started working in 2017. It helps startups to develop their product from an idea to the product commercialization.

Kamet Ventures — A startup-studio and platform for startup development, they cooperate with projects from insurance, health care and mobile technologies spheres.

There are a dozen acceleration programs for startups on the stage of launch. We can highlight the following:

  • 365x — the accelerator with offices in Kfar-Saba (Israel) and New York (the USA). Startup selection criteria — IoT-product, innovativeness, and survival. The program lasts 6 months. During this time, entrepreneurs perfect project development strategies, its roadmap, structures, and prepare the project for scaling. The accelerator has 4 strategic partners — Microsoft, Prodware, TechData, Salesforce, and the number of corporate partners.

  • 8200 Impact — a non-commercial accelerator for social startups. Projects that are developing with this accelerator, communicate with mentors, receive financing (from project partners) and move to office space. In the framework of the acceleration program, startups communicate with professional entrepreneurs and investors on specialized sessions, discuss such topics as usability, financing, juridical questions of the startup’s work, product-market fit etc. The acceleration program selects 10–15 startups, which work on their startups for the next 5 month.

  • iLog Accelerator — this accelerator is a result of joint Slovak-Israeli initiative. Currently, iLog Accelerator selects projects for the program in 2020. The accelerator helps countries that are interested in innovations, boost their startups to the new level.

  • MindCET Accelerator helps startups at the early development stages to grow the product from an MVP to the market entrance, and attract financing. The program lasts for 4 months, and the nearest start is in April 2020.

  • SigmaLabs Accelerator — a three-month acceleration program that helps to increase the value of the product, find the product-market fit and build up the effective strategy for further work. The accelerator has offices in Tel-Aviv and Haifa. The accelerator was founded in 2015.

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The startup ecosystem of Israel

Venture investors

Startups are actively searching for financing at the growth stage. It is not a hard task to receive it in Israel. If we take into account angel resources, then according to the data from angel.co, there are 363 private investors in Israel. Besides, more than 5800 international business angels are interested in financing Israeli startups.

In the country, there are many organisations that connect venture investors and business angels. For example, only in Tel-Aviv there are 13 crowdings of this kind. Here are some of them: iAngels, iStartup Angels, Angel Investment Network Israel, Access Silicon Valley Tel Aviv, Spinach Angels. Below, there is a list of the most active Israeli venture investors for the last few years.

OurCrowd

Website: www.ourcrowd.com

The volume of attracted investments: $112,5 million

The total number of investments: 160

A global crowdfunding platform and investors community with the headquarter in Ierusalem. The company started working in February 2013, and in the course of work, they have attracted $1,3 billion in their projects. As for now, OurCrowd has offices on four continents: America, Europe, Asia and Australia. The OurCrowd Community consists of more than 39 000 investors from 183 countries.

The company prefers to invest in business products and services, mobile applications that are connected to consumer products manufacturing, startups from energy sphere, health care, information technologies, SaaS, security and e-commerce.

Among investor’s projects — skyTran. It is a new type of transport that can avoid traffic jams and can travel with the speed three times faster than a car; an eco-friendly alternative to surface transport.

AltaIR Capital

Website: https://altair.vc/

The total number of investments: 228

A venture fund that invests in fin-tech, insurance, blockchain, SaaS, med-tech, artificial intelligence, cybernetics, consumer products manufacturing, internet projects. The company headquarter is located in Tel-Aviv, they also have offices in San-Francisco, Moscow and Vienna.

One of the investor’s projects is Cancelon service, whereby individuals and companies can sell and buy unused hotel bookings.

83North

Website: https://www.83north.com/

The total number of investments: 192

A venture company with a headquarter in London (Great Britain) and Herzlie (Israel). They invest in European and Israeli startups from consumer and entrepreneurship sectors.

Celeno is one of the projects the company invested in. The startup designs components and subsystems for multimedia Wi-FI networks. The startup’s product realises the concept of a hyper-connected world and develops for smart-cities and smart-houses.

Pitango Venture Capital

Website: https://www.pitango.com/

The total number of investments: 266

A venture company with a headquarter in Herzliya (Israel). Investor’s offices also work in California and New York. Pitango Venture Capital invests in projects which develop software, hardware-startups, and in startups that develop cloud technologies, create user products, mobile applications, digital media, new health care technologies.

The investor invested in the BrainsGate startup, it creates a medical gadget for patients, who suffer from disorders in the central nervous system.

Magma Venture Partners

Website: https://www.magmavc.com/

The total number of investments: 105

The venture investor that invests in startups in the field of information-communication technologies including the development of software, semiconductors and new media.

Appreciate startup is one of the projects the company invested in. It is a multifunctional application for creating and managing advertising campaigns.

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Conclusions

The level of the startup ecosystem in Israel is striking — both achievements and the impetus for further growth. In a tiny country with a population of 9 million. It seems that the most beneficial environment has been created for startups. Since, the government has relied on the development of innovation in the twentieth century, now you can observe the results of the coordinated work of the state, entrepreneurs, public organizations, universities, investors. According to the latest data, there are 20 startups with Israeli roots in the world that have reached a capitalization of $ 1 billion or more. And this is not the limit — many projects in the country claim to become unicorns in the next one or two years.

In Israel, for the startups’ creation and development, high-quality infrastructure is not just createdю It is built so that projects at different levels of development can easily find sites, mentors and opportunities to create a product prototype.

In the country, there are many business angels and venture funds who invest in both local and international projects. What is more, international investors invest in Israeli startups willingly.

21 Feb 2020

 

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