Exploring Israel’s Popularity as a Start-up Hub


December 9, 2013

Although Israel is situated in a volatile part of the world, in recent years it has emerged as one of world’s great start-up hubs.


Research conducted by Professor Glenn Yago, a Fellow at the world-renowned Milken Institute, indicates that 82% of all venture capital and private equity investment in Israel goes into start-up businesses, compared with a more balanced 50/50 percentage split in the United States between start-up and later stage investments.


Israel is behind only the United States in terms of the number of start-ups inside the country, which is staggering considering how small the country is, while as a nation it also has the largest number of non-U.S. companies on the NASDAQ public exchange.


A major turning point in Israel – which has never previously been seen as a start-up hub or particularly investable country given the political issues both within the nation and in the surrounding region – was the country being upgraded to developed country status in 2010.


Although developing countries are often seen as investment opportunities in terms of infrastructure, start-ups in these locations are often seen as a risk and don’t tend to be particularly prolific.
Israel benefits from its close proximity to Europe, where Finland, Germany, and the Irish Republic have all emerged as lucrative investment opportunities for start-ups.


Although an Asian nation, it would be much more difficult for Israeli companies to exploit the high value markets on this continent, which primarily exist in the Far East.


Although Israel was affected by the global economic crisis, it is largely a self-sufficient country that doesn’t need to rely on imports for many essentials, particularly food.


Although the country still spends more on imports than it makes from exports, it is important to look at what is exported from the country, with military and communications technology, pharmaceuticals, and medical equipment being among the sectors Israel counts itself as a global leader.
A large number of technology based business hubs are also emerging in Israel. The coastal area of the country is known as Silicon Wadi – a play on Silicon Valley – and is generally regarded as the second most important tech hub in the world after its Californian counterpart.


In terms of raising money and private equity investment, the big attraction to Israel is the way in which the country conducts research and development. Investors flock to the country knowing that there is a likely return at the end of a capital injection owing to the sale or licencing of the products mentioned earlier.


One problem that Israel faces is that, as a small nation and considering its location, it struggles to keep these start-ups within the country for very long. Typically, high potential Israeli start-up companies will be subject to merger & acquisition interest from the United States or Europe, who will then relocate operations to their own location.


Due to this trend, Israel’s economy is stuck in a difficult situation, as it could grow even stronger if start-ups remained in the country and there was large-scale later stage investment.


Israel’s reputation as a successful start-up hub will attract further start-ups and high value investment to the country, but for it to emerge as a truly strong business and private equity centre there needs to be a rebalance of where investment goes.


Israel does not necessarily need to achieve a 50/50 approximate split as the United States do, but should definitely be aiming to attract more late stage capital to keep all areas of the economy and all industries, particularly those where they are already successful, strong.

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