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Tel Aviv and Jerusalem ranked together in sixth place in Startup Genome’s Global Startup Ecosystem Report (GSER) for 2020. This is the second year in a row as they showed the same result in 2019. The rankings are noteworthy as The Global Startup Ecosystem Report 2020 reflects the impact that COVID-19 had on the global startup economy.
We talk to startups and investors, you get the value.
Therefore, it would be fundamentally wrong not to talk about such outstanding representatives and their contribution to the startup ecosystem of Israel as a whole, especially since a significant contribution to their development and formation belongs to immigrants from former USSR countries.
In today’s review, we’ll look at the strengths and weaknesses of the Tel Aviv and Jerusalem ecosystem, talk about its main players, both among startups and investors, and, of course, education. After all, many startups start at the university.
The availability of money to entrepreneurs is the first thing that determines the successful development of the startup ecosystem. Sufficient financial support means the opportunity for entrepreneurs to raise large sums of money for their projects and not be afraid to make mistakes. The startup ecosystem of Israel is valued $47B with early-stage funding totaling at $3B. These numbers put Tel Aviv in second place in terms of the number of startups per capita after Silicon Valley that traditionally leads the rankings as the “trendsetter” in the business community.
Jerusalem Venture Partners (JVP) is one of the oldest funds in Israel that has invested over $ 1.4B in over 150 companies in Israel, USA and Europe over the 27 years of its existence. According to Preqin they became one of 10 most stable venture funds in the world. Within the framework of the fund, a unique model of the startup city of Margalit is being implemented. It’s a series of hubs, campuses and innovation centers located in Jerusalem, Beer Sheva and New York, where companies from the fund’s portfolio at an early stage are provided with a set of individual services, including office space, practical management support, strategic direction, and access to mentors and a network of strategic partners. The fund focuses on cybersecurity that became an investment hit in 2020, which we will talk about a little later.
OurCrowd adheres to a totally different approach to funding. It’s a crowdfunding platform established in 2013 that helps Israeli entrepreneurs obtain funding directly from accredited investors. Today, OurCrowd is Israel’s most active venture investor and global venture capital platform that empowers organizations and individuals to invest and participate in emerging companies. For its portfolio companies, OurCrowd creates opportunities to grow and add value through mentoring, hiring industry consultants, and through their network of multinational partnerships.
Terra Venture Partners cannot boast as rich a history as JVP, as it was only founded in 2006, with a focus on CleanTech and ImpactTech for those entrepreneurs who care about the environment. The portfolio of this fund includes companies such as 3DBattery, which is developing a new generation of Li-ion batteries, AugMedics that’s a startup which allows to transfer surgery to augmented reality, or Fieldin, an IoT startup for cultivating particularly valuable plants, such as orchids, vineyards or forests.
The second factor that determines the success of Israel in general, and Tel Aviv and Jerusalem in particular, is the existing education system which shapes entrepreneurial talent among university graduates and students.
Let’s start with the Hebrew University of Jerusalem, founded in 1918. It is ranked in the top 100 universities in the world and is considered the best among Israeli universities. It has about 25 thousand students at 7 faculties, which are located on 4 campuses. Mathematics, statistics and information systems are considered to be some of the strong points of the university. This university is a powerful scientific center as 40% of all civil scientific developments and research in the country are conducted here. Notable alumni from this university include Leo Apotheker (former CEO of HP and SAP), Dina Dublon (board member of Microsoft, Accenture and PepsiCo), and Maxine Fassberg (former CEO of Intel Israel).
Tel Aviv University boasts of establishing its own $ 20 million venture capital fund in 2018, TAU Ventures. American universities — MIT, Berkley or Stanford — have similar funds but the amounts they possess differ significantly. The graduates of this university founded over 300 companies including Redis Labs well-known among developers, estimated at around $ 1 billion, or a cute task management app Any.Do with a much more modest estimate of up to $ 20 million.
Another higher education institution worth mentioning is the Jerusalem College of Technology, a private university founded in 1969 that is the second largest academic institution in Jerusalem. It specializes in high-tech engineering, computer science, industrial management, and health science along with a Jewish Studies program. In addition to the standard bachelor’s and master’s programs, the college offers special programs, among which we are most interested in Cyber Elite for preparing students for further service in the cybersecurity units of the Israeli army and the first master’s program in Israel in medical informatics. The latter prepares specialists for data analysis and searching for treatment of patients with various diseases using the capabilities of the latest algorithms and technologies.
It would be fair to also note the downsides that are inherent in the ecosystem of Tel Aviv and Jerusalem, so as not to develop too rosy an attitude towards these two cities.
First of all, it is worth noting the limited market. The cities are not huge megacities compared to New York or London, for example, which in turn pushes entrepreneurs to enter the global market as soon as possible.
Then there is time difference both with the American continent and with China / Japan, which complicates partnership formation. At the same time, this problem is well known to entrepreneurs in Eastern Europe, who may experience serious sleep problems due to the time difference.
And finally language issues. Hebrew and Yiddish are the official languages of the country and are fundamentally different from European languages. This forces entrepreneurs to switch to English as the language of international communication straightaway, which at the same time resolves the first mentioned weakness.
There are several technological areas that stand out in the ecosystem of Israel, namely biotechnology, cybersecurity and e-commerce.
There are one and a half hundred cybersecurity companies in Tel Aviv alone. Among them, we’d like to highlight Cato Networks founded in 2015 that is valued at almost $1B; Hunters AI that was founded in 2018 and harnesses the power of machine learning algorithms to detect and remediate security threats, with an estimate of less than $100M; Secret Double Octopus that stands out not only for its name, but also for the technology that allows you to establish secure passwordless access for corporations, the valuation of the company, which is the leader in this segment, also does not exceed $100M.
If we talk about the MedTech sphere, it is worth noting several companies that have already managed to make a name for themselves:
ElMindA, created in 2006 after 30 (!!!) years of scientific research by Professor Amir Geva from Ben-Gurion University, in 2015 received recognition at the World Economic Forum, and in November of the same year raised $ 28 million in Series C (after that in 2017 and 2019, they managed to receive grants from the Council of Europe for innovation worth just over $2M). The main development of the company is a “helmet-like” interface for tracking more than 7,000 parameters of the brain, which is important for further research into its work.
Intendu is a more customer-centric company. Founded in 2012, it develops software to “train” the brains of patients with diseases ranging from Alzheimer’s to schizophrenia. In June 2016, the company received $2.2M in round B, and in July 2019, according to unconfirmed information, they closed round C of investments. The company is valued at about $10M.
In e-commerce a few young but already successful companies should be noted:
Silverback.ai was founded in 2014 and got SAP, Google, TelekomSlovenije as its clients in 6 years. It is noteworthy that, according to unconfirmed information, the team raised only the Seed round in January 2016, and since then there has been no information on investments. The company’s product is the ability to predict sales (predictive sales based on both price comparison and competitive analysis and business analytics).
Commerce Science is another Tel Aviv-based e-commerce product company founded in 2011 and acquired in 2017 by another Israeli company Taboola to enhance personalization of e-commerce content. The deal value was not disclosed.
Mystore-e, also known as storee.ai, allows retail managers to make the right product placement decisions by automatically creating staff tasks, tracking analytics and reducing costs. The company was founded in 2015 by Asaf Shapira, today its valuation is almost $ 20 million.
Tel Aviv Global deserves a separate mention. It was founded in 2010 on the initiative of the city mayor to increase the number of technology companies in the city and aimed at positioning Tel Aviv as a leading international innovation-focused business center.
Margalit Startup City, an innovative quarter of 50 thousand square meters was also implemented in Jerusalem in October 2020. The initiative was created with the support of the investment fund JVP. It aims to locate startups, multinational companies, investment and international research centers in the quarter, which will generate thousands of additional jobs in the city. The quarter will also house cultural and social centers.
Founder Institute mentions 250+ accelerators, incubators and investors in Tel Aviv in several categories from the idea to scaling. In today’s article we will highlight the ones we consider the most important for the ecosystem.
Microsoft Reactor — Tel Aviv Accelerator is one of the active players in the Tel Aviv startup market that supports teams in different fields from FinTech to autonomous driving. In November 2020, a 6-month online program in partnership with other companies also featured startups focused on health issues that became the biggest challenge because of the COVID-19 pandemic.
An international accelerator Techstars is based and actively operates in Tel Aviv (we already talked about it). In March 2020, the accelerator recruited 10 new companies to their program. And in October Techstars launched a hybrid virtual-physics program for 9 Israeli and one Danish team.
And finally, Founders Institute whose report we’ve mentioned above is the international Pre-seed accelerator, founded in 2009 that helps startups find and test entrepreneurial ideas at the earliest stage, and then scale them to the global market. The accelerator’s alumni have raised a total of $ 950 million in investment, with a combined valuation of $ 30 billion. The accelerator has already helped launch more than 4,500 companies in more than 200 cities and six continents. Among the representative cities, as you already understood, is Tel Aviv.
Several conclusions and recommendations can be drawn from what’s been said about.
Firstly, having a small number of its own users, Israel allows you to quickly validate the ideas of entrepreneurs before scaling them on the global market. At the same time, the ecosystem of Tel Aviv and Jerusalem is well integrated, both in the Middle East region, including, for example, the UAE, and in the European or American market that Israel has long-standing and close ties with. This applies to both investors and acceleration or incubation programs that continue to develop during the COVID-19 pandemic.
Secondly, both in Tel Aviv and Jerusalem, and in Israel as a whole, there is a fairly large community of repatriates from the countries of the former USSR, including in the entrepreneurial environment, which makes it quite easy to find the necessary contacts and connections that make life much easier for startups.
And, finally, Tel Aviv is the capital of a “startup nation” that has been developing in Israel for many years, accumulating both the positive experience of entrepreneurs who managed to scale their business and the negative experience of mistakes that allows the next generations of tech businessmen to avoid them. Jerusalem, being the spiritual center of several of the world’s oldest religions, is taking confident steps into the technological future, including through the Margalit Startup City program.
We will keep monitoring how the positions of these two cities and their entrepreneurial ecosystems change over the next year.