Is Jerusalem really a budding tech hub?

When start-up investment figures are broken down by city, Israel's tech ecosphere is even more centralized in Tel Aviv than many like to think.

Snow view of the old city in Jerusalem, February 18, 2021 (photo credit: MARC ISRAEL SELLEM)
Snow view of the old city in Jerusalem, February 18, 2021
(photo credit: MARC ISRAEL SELLEM)
 While Jerusalem has been making large efforts in recent years to present itself as an up-and-coming hub for start-ups, the number of venture capital investments in the city shows a different story, says Judah Taub, managing partner of Hetz Ventures.
Taub, who lives in Jerusalem but maintains an office in Tel Aviv, says that his fund has developed a sophisticated database on Israel's start-up ecosystem that enables Hetz to analyze start-up and funding data in unique ways and spot trends that others aren't noticing.
"For example, it is interesting to analyze the impact of different coronavirus relief packages given by the government for technology companies," Taub says. "When the government decides to put hundreds of millions of shekels into specific sectors, that changes a number of the dynamics for the companies in that field, and should be part of the information we take into consideration when analyzing investments. But most firms aren't organizing the data as aggressively as we are."
The numbers also show that when start-up investment figures are broken down by city, Israel's tech ecosphere is even more centralized in Tel Aviv than many like to think.
"Everyone knows that Tel Aviv is the heart of the start-up nation, but the data shows that more than 50% of all funding goes to companies in Tel Aviv, while no other city gets even close to 10%," Taub says. "Jerusalem-based companies represent just 3% of investments now, with a slight emphasis on biotech."
According to Hetz's data, Jerusalem in 2020 saw about eight seed-stage investments, six round-A deals, and three round-B funding rounds, representing 3-5% of Israel's total at each stage. Those numbers put Jerusalem about neck-and-neck with Herzliya for the second and third spots.
While Jerusalem has been making strong efforts to brand itself as an up-and-coming tech powerhouse, fewer start-ups are actually being founded in Jerusalem, Taub said, adding that there were a number of organizations working to change this, like the Jerusalem Development Authority, venture capital funds OurCrowd and JVP, and grassroots bodies like Made in JLM and Siftech.
Roy Munin, CEO and co-founder of Made in JLM, disagreed with Taub's assessment.
(L-R) Judah Taub, managing partner of Hetz Ventures, and Roy Munin, CEO and co-founder of Made in JLM. (Photo credit: Courtesy)(L-R) Judah Taub, managing partner of Hetz Ventures, and Roy Munin, CEO and co-founder of Made in JLM. (Photo credit: Courtesy)
"First of all, you're comparing Jerusalem to one of the top tech cities in the world. But if you look at the past decade or so, there has been serious growth in Jerusalem, with more start-ups, more investors, accelerators, and university programs. start-up investment doesn't tell the whole story.
"If you look at multinationals, you'll see that we're an Intel city. Mobileye was acquired by Intel in the largest deal in Israeli history, and Cnvrg was recently acquired by Intel as well. Nvidia recently opened offices here. And there is a new wave coming of large multinationals opening offices here.
"My sense is that we have more seed-stage companies here than Hetz's data shows. It is true that there is a tendency of companies to leave Jerusalem when they grow to the level of 30-50 employees, largely because there is a dearth of office space in Jerusalem. There are a number of large office buildings being constructed at the entrance to the city, but it is hard to know when those will be ready. The new train connecting Jerusalem to the rest of the country quickly also presents a new opportunity for more companies to open here.
"Ten years ago, companies would not even bother with Jerusalem. But now, there is a community, there are more people working here, and there are investors. A strategy that we suggest companies here embrace is to focus on hiring and training for junior positions, with the hopes of promoting them in the future, because we have a lot of excellent students graduating from all fields of science who would like to remain here. People often leave the city once they find work elsewhere, so if you are hiring for mid-level positions, they will be harder to fill."
Taub acknowledged Jerusalem's strengths as well. "Listen, I love Jerusalem, and I want to help it grow and develop. It is data like this that can help provide insights for the city's planning for the future."