Israel As An Innovation Hub – Scope and Magnitude

Israel is one of the fastest growing technology areas, developing break-through technologies and solutions, it is among the leading high-tech areas globally. The investment eco-system is strong, and the technology work environment is dynamic and bustling with activity. Many young companies, supported by investors, have already developed into mid-size and large-size technology companies with a significant presence in global markets.

Global players are coming to Israel in search of innovation. Many companies opened R&D centers, incubators and innovation labs in Israel, sometimes following an acquisition of an Israeli company. Many companies and investors come to look for technologies and innovative solutions, for sophisticated and legacy industries. In many cases, Israel is the first R&D center outside the home country for these giants and the number of R&D centers has jumped by over 40% from 2010 to 2019, currently estimated at 73.

The list is long and includes Apple, Amazon, Bosch, Facebook, General Motors, Google, Habana Labs, Intel, Microsoft, Nvidia, Samsung, Visa and many others. Originally, R&D centers were mainly opened by American companies, which were warmly welcomed. However, over the years, Israeli has been gladly welcoming more and more European and Asian companies, including a growing presence of Japanese companies.

The presence of so many giants in Israel and local high-tech companies, combined with the friendly (yet closely connected) business community and with the local prolific networking mindset environment, has turned Israel into an innovation hub and a meeting point where global companies can easily meet and interconnect.

There are international conferences revolving around innovation and technology issues that are attracting thousands of participants from Israel, Europe, USA and Asia, consisting of startup companies, investors and companies looking for innovative technologies.

Since the 1980’s, the Israeli high-tech industry has been growing continuously. The “Startup Nation Finder”, following up the Israeli start up world, has a cool feature showing a counter that is updated continuously. Comparing February 2020 numbers to January 2019 numbers, shows an impressive increase:

  • 6,483 companies (increase of 5% from January 2019)
  • 491 investors (an increase of 14.4%)
  • 266 hubs (an increase of 19.8%)
  • 374 multinationals (an increase of 16.5%).
  • Academic research institutes 1,410 (a very slight increase).

By sectors, the main leading areas are AI (artificial intelligence), Machine Learning (in multiple formats and industries), Cyber-security, Automotive/Transportation, Robotics, Advanced Manufacturing, Big Data, Analytics, Blockchain, Digital Health, Smart Agritech and “New Food”, and to a lesser degree, Renewable Energy.

Artificial Intelligence was the fastest growing area. According to the 2015 – 2018 Startup Genome Survey, in 2018 there were approximately 1,150 AI companies, an increase of over 224% compared to 2014.

Another “hot” area is smart transportation, combining computerized vision, Big Data, Analytics, Sensors, Communication and of course, Cyber. These areas showcase the excellent ability of the Israeli high-tech industry to develop and implement technologies where companies like Mobileye, Innoviz, Waze and others can grow.

The growth of all companies is supported by capital (sometimes in the forms of loans and/or NRE). This is especially important as sales, if at all, will start very late and be insufficient to sustain growth. The investment eco-system in Israel is strong, consisting of angel investors and angel clubs, venture capital funds (specialized and general), investment companies and investment arms of corporations. There are also Government programs and funding. Most investments are by Israeli-managed investment entities (that typically have foreign investors), the second largest group are American, and to a much lower extent – British, German, Chinese and Japanese.

Over the years, investors have learnt to be more selective, and they prefer to invest in a smaller amount of companies (compared to the past) and to support the growth of these companies over a longer period of time. Israel is no exception to this trend. As a result, the “filtering” and “screening” of young startups is done at a relatively early stage at a highly competitive financing environment. The use of invested money has become more efficient, the number of “investor backed” companies at advanced development and growth phases has increased. In 2018, about 66% of the Israeli companies have already launched their first product, resulting in more start-ups valued over $1B and almost 100 “exits” totaling multi billion dollars in recent years.

Total investments are estimated over $6B in 2018. The dominant area of investments in 2018 was AI companies, that have accounted for approximately 37% of the overall investments in startups raising over $2.25B in 2018 (compared to $1.33B in 2017 and $0.5B in 2014).

The Israeli high-tech industry employs approximately 10% of employees overall in Israel, and is a significant growth engine of Israeli economy.

During 2019, 37% of all companies were relatively young companies (with 1-10 employees each), in the internet/software/enterprise solutions sector, and employed approximately 125,000 people. High-end technology manufacturing companies made up about 14% of the companies with an almost similar number of employees.

The number of high-tech employees is rising annually. In 2019 their number increased by 8% compared to 2018.  Macro numbers published by the Israeli Innovation Authority, The Foreign Investments and Industrial Cooperation Division of the Ministry of Economy and by research entities such as Startup Nation Central and others, show that approximately 330,000 employees were working in thousands of startup, technology and R&D centers of local and foreign companies.

The increase in the number of employees is not enough to satisfy the demand for more qualified employees which grows all the time. It is estimated that there were over 18,000 open tech positions in the industry as of July 2019 – an increase of 8% compared to July 2018. The number of available candidates in certain areas and sectors cannot meet the demand. The result is a strong “employee” market, especially for experienced young workers. Employees in AI, Cyber, Big Data, Software and related areas feel confident that they can find a well-paying position at any time, and job security is not a concern. Young experienced employees are consciously and purposefully increasing their value by improving their skills (for example by moving from one company to another) as part of their career path.  We will address this in more detail in our next post.

 

Sources:

In writing this post, we used information obtained from publications of the Innovation Authority and the Foreign Investment Department of the Ministry of Economy, Startup Nation Central and the Startup Genome. We are thankful for their research and efforts.

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