Venture capital in Israel

Last updated

Venture capital in Israel refers to the financial capital provided to early-stage, high-potential, high risk, growth startup companies based in Israel. The country's venture capital industry was born in the mid-1980s and has rapidly developed since. Israel currently has more than 276 active venture capital funds, [1] [2] of which 71 are international VCs with Israeli offices. [1] Israel's venture capital and incubator industry plays an important role in the booming high-tech sector that has been given the nickname "Silicon Wadi", considered second in importance only to its Californian counterpart, the Silicon Valley. [3]

Contents

According to IVC, Israeli Research Center, in 2021, Israeli tech exits (M&As, buyouts, IPOs) totaled $22.2 billion from 238 deals. Excluding deals over $5 billion, 2021 capital saw almost 50% from IPOs while the number of M&As did not fall short compared to previous years. According to a report from Start-Up Nation Central (SNC) the three largest earning sectors in Israel were Enterprise IT & Data Infrastructure (which raised just under $6b), Cybersecurity-dominated Security Technologies ($5.9b), and Fintech ($4.2b). [4]

According to IVC, In 2021, venture capital investment in Israel stood at $25.6 billion – a leap of almost 150% from 2020. [2]

History

Israel's venture capital industry was born in 1985, [5] when the first Israeli venture capital fund, [6] Athena Venture Partners, was founded by Major-General Dan Tolkowsky, the past Chief of Staff of the Israel Air Force; [7] Dr. Gideon Tolkowsky; [8] and Frederick R. Adler, [9] a pillar of the US venture capital industry who had conceived the notion of taking Israeli High-tech companies public on NASDAQ. Subsequently, in 1990, Gideon Tolkowsky and Yadin Kaufmann founded Israel's second VC firm, "Veritas Venture Capital Management", [10] whose main investors were Anglo American Corporation of South Africa and De Beers.

The success of the venture capital industry in Israel continued with Yozma (Hebrew for "initiative"), a government initiative in 1993 offering attractive tax incentives to foreign venture-capital investments in Israel and promising to double any investment with funds from the government. [11] As a result of their efforts, Israel's annual venture-capital outlays rose nearly 60-fold, from $58 million to $3.3 billion, between 1991 and 2000. The number of companies launched using Israeli venture funds rose from 100 to 800. Israel's information-technology revenues rose from $1.6 billion to $12.5 billion. By 1999, Israel ranked second only to the United States in invested private-equity capital as a share of GDP. It also led the world in the share of its growth attributable to high-tech ventures: 70 percent. [11] According to the OECD, Israel is also ranked first in the world in expenditure on Research and Development (R&D) as a percentage of GDP. [12]

Though Israel's venture capital industry played an important role in the high-tech sector, the financial crisis of 2007-2010 also affected the availability of venture capital locally. In 2009, there were 63 mergers and acquisitions in the Israeli market worth a total of $2.54 billion; 7% below 2008 levels ($2.74 billion), when 82 Israeli companies were merged or acquired, and 33% lower than 2007 proceeds ($3.79 billion) when 87 Israeli companies were merged or acquired. [13]

In 2019 Israeli companies are considered to be more popular than their American peers. For comparison, investments volume in Israeli startups grew by 140% during 2014-2018 and investments in technological startups from the U.S. grew by 64%. [14] [15] Moreover, Israeli startups are becoming so attractive that US companies tend to acquire them more than anyone else: they account for half of all transactions in 2018. [15] Thus, Israel eventually became a “net seller”. [16] In particular, artificial intelligence (AI) raises most investments (17%) among all high technologies in Israel. The recent acquisition of Israeli company Mellanox for $6.9 billion by Nvidia Corporation is indicative. It was a definite contender for the largest M&A deal in 2019. [17]

Characterization

Israel's venture capital industry has about 276 active venture capital funds, of which 71 international VCs with Israeli offices. Additionally, there are some 220 international funds, including Polaris Venture Partners, Accel Partners, Greylock Partners, that do not have branches in Israel, but actively invest in Israel through an in-house specialist.

In 2009, the Life Sciences Sector led the market with $272 million or 24% of total capital raised, followed by the Software Sector with $258 million or 23%, the Communications sector with $219 million or 20%, and the Internet sector with 13% of capital raised in 2009. [13]

The unicorns era

The term "unicorn" was coined by venture capitalist Aileen Lee in 2013 to define a privately held startup with a value of $1 billion or more. It was originally used to portray the rarity of such companies. As of 2021, over 70 unicorns exist in Israel or were founded by Israelis – making Israel the number one country in the world in its number of unicorns per capita.

The first Israeli company to be named a unicorn was ironSource, reaching a value of $1.5 billion in 2014. [18] Since then the rate of new Israeli unicorns has risen exponentially. From 2014 to 2018 the total number of new unicorns was 19 combined, 2019 had 12 new unicorns and 2020 a total of 14, whereas in 2021 there were an astonishing number of 28 companies including Wiz, K-health, Verbit, Deel and Honey Book, a 200% increase compared to the previous year.

As a result, more foreign venture capital funds are currently invested in Israeli or Israeli-led unicorns including Andreessen Horowitz, Spark Capital, Vertex Ventures, Insight Partners and corporate venture capital funds including Intel Capital, Microsoft Ventures (M12) and others.

Technological business incubators

In the early 1990s, the Israeli government created a technological business incubator program (Hebrew: חממה טכנולוגית) to leverage the strengths of approximately 750,000 scientists, engineers, and physicians who had just arrived from the former USSR. Israel's Office of the Chief Scientist (OCS), a division of the Ministry of Economy, started six incubators designed to foster seed and early-stage technology development through entrepreneurship. Today there are 24 such incubators located throughout Israel, and 65 percent of the projects are science-related research and development.

In 2007, incubator companies raised $435 million in private funds, up 74 percent from 2006. Currently,[ when? ] the OCS allocates approximately $1 billion per year to incubators and other programs that encourage technology development [19]

See also

Related Research Articles

<span class="mw-page-title-main">Economy of Israel</span>

The economy of Israel is a highly developed free-market economy. The prosperity of Israel's advanced economy allows the country to have a sophisticated welfare state, a powerful modern military said to possess a nuclear-weapons capability with a full nuclear triad, modern infrastructure rivaling many Western countries, and a high-technology sector competitively on par with Silicon Valley. It has the second-largest number of startup companies in the world after the United States, and the third-largest number of NASDAQ-listed companies after the U.S. and China. American companies, such as Intel, Microsoft, and Apple, built their first overseas research and development facilities in Israel. More than 400 high-tech multi-national corporations, such as IBM, Google, Hewlett-Packard, Cisco Systems, Facebook and Motorola have opened R&D centers throughout the country.

A startup or start-up is a company or project undertaken by an entrepreneur to seek, develop, and validate a scalable business model. While entrepreneurship includes all new businesses, including self-employment and businesses that do not intend to go public, startups are new businesses that intend to grow large beyond the solo founder. At the beginning, startups face high uncertainty and have high rates of failure, but a minority of them do go on to become successful and influential.

<span class="mw-page-title-main">Venture capital</span> Form of private-equity financing

Venture capital (VC) is a form of private equity financing that is provided by firms or funds to startup, early-stage, and emerging companies that have been deemed to have high growth potential or which have demonstrated high growth. Venture capital firms or funds invest in these early-stage companies in exchange for equity, or an ownership stake. Venture capitalists take on the risk of financing risky start-ups in the hopes that some of the companies they support will become successful. Because startups face high uncertainty, VC investments have high rates of failure. The start-ups are usually based on an innovative technology or business model and they are usually from high technology industries, such as information technology (IT), clean technology or biotechnology.

Sequoia Capital is an American venture capital firm headquartered in Menlo Park, California which specializes in seed stage, early stage, and growth stage investments in private companies across technology sectors. As of 2022, the firm had approximately US$85 billion in assets under management.

<span class="mw-page-title-main">Silicon Wadi</span> Hub of advanced technology in Israel

Silicon Wadi is a region in Israel that serves as one of the global centres for advanced technology. It spans the Israeli coastal plain, and is cited as among the reasons why the country has become known as the world's "start-up nation". The highest concentrations of high-tech industry in the region can be found around Tel Aviv, including small clusters around the cities of Raʽanana, Petah Tikva, Herzliya, Netanya, Rehovot, and Ness Ziona. Additional clusters of high-tech industry can be found in Haifa and Caesarea. More recent high-tech establishments have been raised in cities such as Jerusalem and Beersheba, in towns such as Yokneam Illit, and in Airport City.

<span class="mw-page-title-main">Index Ventures</span> European worldwide venture capital firm

Index Ventures is a European venture capital firm with dual headquarters in San Francisco and London, investing in technology-enabled companies with a focus on e-commerce, fintech, mobility, gaming, infrastructure/AI, and security. Since its founding in 1996, the firm has invested in a number of companies and raised approximately $5.6 billion. Index Venture partners appear frequently on Forbes’ Midas List of the top tech investors in Europe and Israel.

<span class="mw-page-title-main">Elron Electronic Industries</span>

Elron Electronic Industries is an Israeli technology holding company based in Tel Aviv; since 1962 the company has been involved in setting up, funding and developing over 30 companies and is considered one of the foundation stones of the high-tech industry in Israel. The company's sectors of interest include clean technology, software, semiconductors, medical technology, telecommunications, defence and aerospace. Today, the combined annual revenues of the companies established by Elron are approximately $5 billion.

<span class="mw-page-title-main">Jerusalem Venture Partners</span> International venture capital firm

Jerusalem Venture Partners (JVP) is an international venture capital firm founded in 1993. The fund specializes in investments in startup companies, focusing on digital media, enterprise software, semiconductors, data storage and cyber security, having raised close to $1.4 billion USD across nine funds. JVP is headquartered in Margalit Startup City Jerusalem with offices in Be'er Sheva, New York City and Paris.

<span class="mw-page-title-main">Mellanox Technologies</span> Israeli-American multinational supplier of computer networking products

Mellanox Technologies Ltd. was an Israeli-American multinational supplier of computer networking products based on InfiniBand and Ethernet technology. Mellanox offered adapters, switches, software, cables and silicon for markets including high-performance computing, data centers, cloud computing, computer data storage and financial services.

<span class="mw-page-title-main">Formation 8</span>

Formation 8 was an American venture capital firm founded in 2011 by Joe Lonsdale, Jim Kim, and Brian Koo. The company was headquartered in San Francisco, California.

OurCrowd is an online global venture investing platform that empowers institutions and individual accredited investors to invest and engage in emerging technology companies at an early stage while still privately held. Based in Jerusalem, the company launched in February 2013, and has since opened overseas branches in the United States, the United Kingdom, Canada, Australia, Spain, Singapore, Brazil, and the UAE.

Mark Tluszcz is an American businessman and venture capitalist who is co-founder and CEO of Mangrove Capital Partners, a venture capital firm he set up in 2000. He also serves as Chairman of Wix.com (NASDAQ:WIX), a popular website building platform. His achievements include turning a $2m investment in Skype into $200m and a $8m investment in Wix.com into $700m.

Financial technology is an industry composed of companies that use technology to offer financial services. These companies operate in insurance, asset management and payment, and numerous other industries. FinTech has emerged as a relatively new industry in India in the past few years. The Indian market has witnessed massive investments in various sectors adopting FinTech, which has been driven partly by the robust and effective government reforms that are pushing the country towards a digital economy. It has also been aided by the growing internet and smartphone penetration, leading to the adoption of digital technologies and the rise of FinTech in the country

<span class="mw-page-title-main">Pitango</span> Israeli venture capital fund

Pitango VC, established in 1993, is Israel's largest venture capital fund with over $2.8 billion under management. Pitango VC invests through three dedicated funds, Pitango First, Pitango HealthTech, and Pitango Growth. Pitango invests in startups around the world, in domains such as Vertical SaaS, Digital Health, Deep Tech, FinTech & InsureTech, Devops, Generative AI, Web3, and FoodTech.

<span class="mw-page-title-main">43 North</span> Venture Capital firm

43 North is an accelerator program, founded by Empire State Development and the State of New York, that hosts an annual startup competition, investing $5 million per year to attract and cultivate high-growth companies in Buffalo, NY. 43North portfolio companies also receive free incubator space in Buffalo for one year, guidance from mentors in related fields, and access to other business incentive programs such as START-UP NY. To date, 43North has invested $35 million in 59 companies, created over 1,000 jobs in the Western New York region and nearly 3,000 globally, and has a portfolio valuation of over $4 billion. 43North's portfolio has gained traction in recent years, including notable growth by ACV Auctions, which achieved "unicorn" status in 2019 and went public, listing on the Nasdaq in March 2021; Squire, which closed a series C in 2020 at a $250 million valuation; and Circuit Clinical, whose latest raise was supported by LabCorp. 43North operates with the support of Governor Kathy Hochul, Empire State Development, the Ralph C. Wilson, Jr. Foundation, and several other sponsors.

Yadin B. Kaufmann is an Israeli-American technology investor, social entrepreneur and writer.

YL Ventures is an American-Israeli venture capital firm that specializes in seed stage cybersecurity investments.

<span class="mw-page-title-main">Venture capital in Poland</span> Overview of venture capital in Poland

Venture capital in Poland is a segment of the private equity market that finances early-stage high-risk companies based in Poland, with the potential for fast growth. As of March 2019, there is a total of 130 active VC firms in Poland, including local offices of international VC firms, and VC firms with mainly Polish management teams. Between 2009–2019, these entities have invested locally in over 750 companies, which gives an average of around 9 companies per portfolio. The Polish venture market accounts for 3% of the entire European ecosystem of VC investments, mainly in the digital space.

TAU Ventures is a venture capital firm investing in early state startups in Israel. It was founded in 2018 by Tel Aviv University and Nimrod Cohen, and is headquartered in Tel Aviv, Israel.

Icehouse Ventures is a New Zealand-based venture capital firm. The firm is headquartered in Auckland and mainly focuses on the technology industry and has backed 200 companies. The firm also operates a variety of angel groups networks such as Ice Angels and Arc Angels. Icehouse Ventures was formally founded in 2019 as a separate company but had operated as part of the Icehouse group since 2001. In 2019, the founding CEO of the Icehouse stepped down as CEO and joined the board of directors of Icehouse Ventures.

References

  1. 1 2 Cardumen Capital (2020-08-26). "Israel Funding Ecosystem". Medium. Retrieved 2022-01-11.
  2. 1 2 "IVC-MEITAR ISRAELI TECH REVIEW 2021". IVC Data and Insights.
  3. ↑ "Land of milk and start-ups", The Economist , 2008-03-19, retrieved 2008-03-22.
  4. ↑ "2021 was the Best Ever Year for Israeli Tech: $25 Billion Raised and a Record Number of Unicorns and Mega Rounds". Start-Up Nation Central. Retrieved 2022-01-11.
  5. ↑ "Athena". Bloomberg Businessweek. Bloomberg. Archived from the original on April 10, 2013. Retrieved 11 March 2013.
  6. ↑ "The Past, Present, and Future of Israeli Innovation". Shlomo Klahr
  7. ↑ "Dan Tolkowsky". Israel Air Force History. IDF. Retrieved 11 March 2013.
  8. ↑ Gideon Tolkowsky
  9. ↑ Frederick R. Adler
  10. ↑ Tolkowsky, Gideon. "Veritas". Veritas VC. Retrieved 11 March 2013.
  11. 1 2 Gilder, George, "Silicon Israel — How market capitalism saved the Jewish state", City Journal -Summer 2009, 19 (3), retrieved 2009-11-11
  12. ↑ OECD Factbook 2010: Economic, Environmental and Social Statistics Archived 2011-05-11 at the Wayback Machine
  13. 1 2 "Venture Capital in Israel". Archived from the original on 2006-02-18. Retrieved 2010-11-18.
  14. ↑ "Start-Up Nation Central's Annual Ecosystem 2019 Report". Start-Up Nation Central.
  15. 1 2 "Through the Thorns to the Stars: Israeli Startups Ecosystem 2019". 8allocate. 2019-07-08. Retrieved 2019-10-05.
  16. ↑ "Startup M&A worldwide: a $1.2 trillion market led by US and Europe". startupeuropepartnership.eu. 2018-09-12. Retrieved 2019-10-05.
  17. ↑ Jonathan Garber. "Nvidia is buying Mellanox Technologies in a $6.9 billion deal (NVDA) | Markets Insider". markets.businessinsider.com. Retrieved 2019-10-05.
  18. ↑ "Israel's Top Unicorns". Secret Tel Aviv. April 11, 2021.
  19. ↑ .Israel's High-Tech Boom, The Jewish Policy Center, Summer 2008
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.