The Israeli high-tech industry has certainly earned the name Startup Nation as Tel Aviv has become one of the hottest and most innovative tech hubs in the world. You may hear some refer to Tel Aviv’s tech hub as the “Silicon Valley of the Middle East” due to its rapidly growing number of active startups, unicorns, and venture funding. Although YouAppi is headquartered in San Francisco, the original Silicon Valley, we have the added advantage of our Product and Engineering teams, and our CEO, Moshe Vaknin, sitting in Israel, just outside the bustling Tel Aviv tech hub. Here, we will uncover the factors that led to Tel Aviv’s rise toward one of the largest tech hubs in the world, the benefits for companies in being part of the Israeli startup ecosystem, and the current trend from start-up nation to scale-up nation.
A Closer Look at the Numbers for Tel Aviv’s Tech Hub
A powerhouse of innovation, the Israeli startup ecosystem is home to more than 6,000 active startups, 530 multinational R&D centers, and is ranked first in the world for number of engineers per capita and number of unicorns per capita (Forbes).
In 2020, at the height of uncertainty, digital transformation was accelerated at Tel Aviv’s Tech Hub. Israeli startups in their core strengths, such as Cloud, SaaS, and Cyber Security were able to fill the gap left by the pandemic. During 2020, Israeli startups raised a record $10 billion. Since then, Israeli startups raised more than $17.5 billion in the first 10 months of 2021, with $2.2 billion in September 2021 alone.
An end of year summary released by Start-Up Nation Central in December shows a record total of $25.4 billion raised by Israeli tech in 2021. This staggering figure represents a 136% growth in equity investments since 2020’s total of $10.8 billion raised. Furthermore, Israel gained more than 33 unicorns (privately held companies valued at over $1 billion) in 2021, with its total now at 74. Lastly, Israel broke records in IPOs and Acquisitions in 2021 as 57 companies went public, raising an accumulated $4 billion. This figure nearly triples the number of IPOs in 2020, which stood at 22 with an accumulated $1.7 billion raised. Meanwhile, the accumulated value of acquisitions nearly doubled from $4 billion to $7.6 billion, further propeling Tel Aviv’s Tech Hub (Start-Up Nation Central).
Israel’s Unique Society
Israel has consistently managed to stay on top of technology in a variety of sectors, and has created a global-first approach that has inspired many international players to hop in and reap the benefits. The unique Israeli culture has produced some of the most innovative, problem-solving startups to date. Nowadays, many of these startups are not only focused on their exit-strategies, but their growth-strategies as Israeli startups rapidly scale to meet the gaps in challenging times.
The highly innovative Israeli tech ecosystem is backed by strong governmental support, a tight-knit network of entrepreneurs, and a highly Innovative culture, coupled with strong R&D capabilities. Israel was ranked second in the world in R&D expenditure per capita, investing about 4.1% of its GDP in R&D. Furthermore, Israel has the highest percentage of engineers and scientists per capita in the world, along with one of the highest ratios of university degrees and academic publications per capita.
The other cities making up the top 10 tech hubs in the world include Silicon Valley, New York City, London, Beijing, Boston, Los Angeles, Shanghai, Tokyo, and Seattle. One of the largest differentiators between these cities and Tel Aviv’s Tech Hub is Israel’s mandatory military service. In this service, young Israeli individuals receive advanced technical training, leading to a more ambitious and skilled workforce.
The Israeli government is also highly supportive of tech innovation, with incubators offering government funding of up to 85% of early stage project costs for two years. This funding provides companies with the resources to take necessary risks at early stages. The Israeli government also provides incentive programs that offer employment grants for R&D centers and large enterprises, and the Investment Law allows foreign companies to benefit from a reduced company tax rate and investment grants (Deloitte).
A Move Toward Scale-Up Nation
The Israeli innovation community has grown and evolved over the years. Backed by government support, an entrepreneurial society, and a global market approach, the Tel Aviv tech hub is evolving as start-ups have begun to scale up.
During the 2020 pandemic, digital transformation was accelerated and Israeli startups positioned themselves at the core of sectors such as advertising, health, finance, and e-commerce. Digital transformation in these industries is now a reality as the Israeli ecosystem has reached a tipping point, being dense and rich enough to support bigger businesses.
The burst of mergers and acquisitions also seen in 2021 is a sign of big players adapting to new circumstances. Israeli companies that were once budding startups are now scaling, adapting new technologies, and using their existing infrastructure to become bigger and stronger. The shift toward scale in the Tel Aviv tech hub is a pivot that the Israeli startup ecosystem is embracing. With the existing DNA that has led to the success Israeli startups have seen over the years, the same startups can embrace growth and scale long term.
The Tel Aviv tech hub has become one of the most innovative tech ecosystems in the world. What began as a boom of tech startups sprouting in the 1990s has evolved as adaptation of new technology and a rush of capital into existing Israeli startups has created a focus on scalability. The surplus of growth capital has grown a total of 74 unicorns, as companies backed by seasoned entrepreneurs see unprecedented levels of growth. The mobile app space continues to see unprecedented growth, as well, with 140 billion app store downloads in 2021, shattering previous records. Emerging markets are hot and mobile engagement is at an all time high. Having a tech stronghold in Tel Aviv will further boost growth and enable long-term scalability across all sectors, particularly mobile.
- A Closer Look at the Numbers: In 2021, a record total of $25.4 billion was raised by the Israeli tech industry. This staggering figure represents a 136% growth in equity investments since 2020’s total of $10.8 billion raised.
- Israel’s Unique Society: The many factors leading to a burst of tech innovation in Tel Aviv, and Israel as a whole, stems from Israel’s unique society. The Israeli tech ecosystem is backed by strong governmental support, a tight-knit network of entrepreneurs, and a highly Innovative culture, coupled with strong R&D capabilities.
- A Move Toward Scale-Up Nation: Israeli companies that were once budding startups are now scaling. By adapting new technologies, and using their existing infrastructure and DNA, startups are shifting toward scalability to become bigger and stronger, a pivot that the Israeli startup ecosystem is embracing.