Study: Only 4 percent of Israeli start-ups succeed

The study, which examined over 10,000 Israeli start-ups founded between 1999 and 2014, found that 46% had closed and were no longer active.

January 28, 2015 18:54
1 minute read.

Computer keyboard [illustrative].. (photo credit: ING IMAGE/ASAP)

Only 4 percent of Israeli start-ups ultimately succeed, according to a study conducted by IVC Research Center and REVERSEXIT.

The study examined more than 10,000 Israeli start-ups founded between 1999 and 2014.

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It found that 46% had closed and were no longer active.

About 14% of those had been acquired, but only half of them (303) were acquired at a profit and thus considered successful.

Among the 5,400 companies that remain active, just 2.5% are considered “successful” by the study’s authors, who put the bar rather high in defining success: annual revenues of $100 million, or employing over 100 people. The number rose to 6% if the threshold was lowered to $50m. and companies that run on sales.

“According to most entrepreneurs, success is the realization of a business idea, a dream or technological innovation and its concrete implementation into a real business,” IVC Research Center CEO Koby Simana said. “Among younger entrepreneurs, we also found the wish to ‘hit it big time,’ that is, to build a start-up and sell it for a significant profit, although this view did not represent the majority.”

Investors, on the other hand, were looking for profit, while the state was looking for jobs, exports and tax revenues.

Among the companies that were successfully sold, it took an average of 5.3 years to get bought out. Venture-capital funding added another six months to that, compared to companies that received no financing at all. Failed companies, on the other hand, shut down on average within 3.2 years of their establishment.

“Most start-up companies manage to go through the development stage and the selection of technology,” said Yehuda Regev, founder and CEO of REVERSEXIT, which offer start-ups a platform to help them succeed. “Some push through to the product development stage. Most, however, fail when it comes to market reach.”

They tend to fall in the phase between development and generating positive cash flow, he said, getting stuck in a “valley of death” where they burn cash without getting to consumers.

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