The Vibrant Investor & Startup Landscape in Israel
During a recent trip to Israel, I met with investors and entrepreneurs to get an insider's view of the country's booming tech scene. While touring with my wife, I sat down with some key players in Tel Aviv and Jerusalem to understand the latest startup ecosystem trends. Despite the brevity of visit, I gained insights into Israel's renowned high-tech innovation, startup funding and business operating environment.
This post summarizes my takeaways from investors, founders, and startups driving growth and maturity in Israel's VC and PE landscape. It builds on my previous post about Israel's cybersecurity and AI communities, which can be found here.
Israel has become a global hub of innovation, with over 4,000 active startups and more than 280 active venture capital funds, of which 71 are international VCs with Israeli offices. In 2020, for example, there was $14B in VC funding, 19 IPOs and more than $15B in exits.
Israel has a vibrant and multi-faceted VC ecosystem supporting startups at various stages of growth. This mirrors the complexity found in other leading tech hubs like Silicon Valley and Boston. The Israeli VC landscape includes innovative zero-stage firms like AnD Ventures, classic established VC firms like Pitango Venture Capital, early-stage specialists like Cyberstarts, OurCrowd, Sapphire, StageOne Ventures and many others, and global VCs like Bessemer, Battery Ventures, Lightspeed and Sequoia Capital have very active offices mainly located in Tel Aviv and Herzliya (depending on traffic, a 20-minute drive from downtown Tel Aviv). This diversity of investors provides funding options to match companies at different maturity levels. Early-stage startups can tap into angel, seed and Series A funding from local firms focused on that stage. Growth-stage companies can access larger Series B+ rounds from later-stage Israeli VCs or global firms with an Israel presence.
Israeli founders often have elite tech and military backgrounds that prime them for roles in startups. On the military side, the Israel Defense Forces (IDF) and especially Unit 8200 (responsible for SIGINT, code decryption, counterintelligence, cyberwarfare and surveillance) serve as a very effective feeder of talent to the tech industry, particularly cybersec startups.
Many startups and established companies leverage Israel's deep talent in areas like AI, cybersecurity, computer vision, consumer apps, and telecommunications.
Israel's past startup success stories like CheckPoint, CyberArk, Cybereason, Imperva, NICE, Palo Alto Networks, Waze and ZoomInfo have achieved large and industry-impacting exits and IPOs. Many investors, founders and executives from these companies form the basis for Israel's angel investor community.
Israel's recent startup success stories include AI21 Labs, Classiq, Locusview, Mobileye, Monday, Semperis, SuperPlay, Travelier, Wiz and Weka among others. Wiz, for example, the cybersecurity software vendor, said in August 2022 that it reached $100 million in ARR after selling its product for just a year and a half. Nine months later, the revenue figure reached $200 million.
Amazon, CISCO, Google, IBM, Intel, Microsoft among others is among the global companies which have a large presence in Israel and have a significant direct and indirect influence on the startup ecosystem.
While the Israeli tech ecosystem has matured greatly, many firms still have more to prove. The savviest investors carefully select deals based on real business potential.
The state of the Israeli startup ecosystem reflects the cautious sentiment in the broader economy. Just like in the US, after a period of abundant capital and inflated valuations, investors and founders alike are adjusting to a new normal. Early-stage VCs in Israel have raised their investment bar, requiring more proven traction and revenue before backing startups. The investment industry overall is shifting focus to early-stage companies that can provide quicker returns. The days of easily raising millions based on slide decks alone are over. The tide has turned, and companies without strong fundamentals are sinking not floating.
The path forward for Israeli startups is clear: rigor, reality, and resilience. Startups need to be laser-focused on their core business, have a clear path to profitability, and be able to weather the storms of the economic cycle. Despite the challenges, the Israeli startup ecosystem is poised for continued success. Israel may never be entirely asynchronous with US’ macro-economy, technology funding and startup formation trends, but it has a very strong foundation, talented workforce, and innovative spirit. Israel is sure to produce many more successful startups in the years to come.