Israel's tech sector is in a state of hyper growth, with start-ups raising a record $5.37 billion in the first quarter of 2021.
That’s more than half the record $10b. raised in the whole of 2020, and puts the country’s ecosystem on pace to break $20b. this year, said Jon Medved, founder and CEO of equity crowdfunding platform OurCrowd.
“Last year, we thought things couldn’t get any better,” Medved said in an online briefing. “Now, we are counting a total of 63 Israeli unicorns [private companies valued at more than $1b.] founded here in Israel or founded abroad by Israelis, and already 12 new unicorns this year.”
Medved listed a number of factors contributing to the rapid growth. “The ecosystem here has become a well-oiled machine with entrepreneurs at the heart, and the flywheel around it including the venture capital funds and multinational investors, angel investors, the tech units of the IDF, the incubators and accelerators – it’s quite an amazing story.”
Israeli companies are now growing larger before making exits, turning the Start-Up Nation into a scale-up nation, Medved said.
In addition, Israeli companies have been taking leadership positions in sectors not traditionally associated with the country’s technical expertise. Medved quoted a recent report published by Facebook Israel noting that 38% of Israeli start-ups are now focused on B2C or B2B2C (Business-to-Business-to-Consumer) markets.
Increased foreign investment is also playing a major role in the sector’s growth. Tech investments from Europe have jumped 63% in 2020, and investment from Japan is now 11%, compared to 2% five years ago. Investment from China, however, has declined during recent years.
“But the big opportunity of course, is with the Gulf, and what’s going on between Israel the UAE and other new partners, which is leading to huge amounts of VC [venture capital] investment in the two countries,” Medved explained.
The breadth of Emirati interest in Israeli tech has been surprising, Medved noted, and partnering with the Gulf countries “is allowing Israel to penetrate markets we’ve never dreamed of in Southeast Asia and around the broader Islamic world.”
In addition, Israel’s strong handling of the COVID-19 crisis has boosted Israel’s position globally, Medved said. “Everywhere I speak, the first thing they want to ask is how we did it. This has turned out to be a huge positive factor in terms of our tech penetration of the world, and an amazing branding exercise in which the Start-Up Nation became the vaccine nation.”
Israel’s semiconductor sector, in particular, is recently on fire, as some of the world’s largest tech companies, such as Apple, Amazon, Google and Microsoft, have recently ramped up efforts to develop new technologies for their cloud centers in Israel in what has been dubbed Israel’s “chip wars.”
OurCrowd, as Israel’s most active investor, has been a large beneficiary of Israel’s hot streak. The investment platform now has $1.8b. in committed capital, and expects to reach 100,000 investors in the coming months. The firm has investments in 250 companies and has scored 40 exits, including recent IPO (initial public offering) stars Lemonade and Beyond Meat.
OurCrowd offers several tracks to its investors, including the option to invest in its general portfolio, to invest in individual companies, or to create a customized portfolio.
OurCrowd can accept funds only from accredited investors with either $1 million net worth or annual income of $200,000. About 10% of US households currently meet these requirements, Medved said.
Coming back to Israel’s relationship with the Gulf states, Medved said he thought it was interesting that the UAE, like Israel, is among the top five countries in the world for vaccinations. “I think people are going to have to start getting used to thinking about the Middle East, meaning Israel and its partners in the Gulf, as the place where good things are happening.”