Startup Intelligence - Israel

Sample Country Report | Israel
Summary Introduction Investment Scene Business Opportunities Trends Roadblocks Startups to look out for
STARTUP INTELLIGENCE REGIONAL REPORT | Israel
Summary
Summary
sraels hi-tech industry rivals that of Silicon Valley and is home to thousands of startups as well as major transnational companies. The countrys unique entrepreneurial approach stems from a number of social, economic and geographic factors. he venture capital industry is mature, with particular focus on life sciences, clean technology, IT, communications hardware and software. srael leads the world in government initiatives and incentives to promote investment in the hi-tech industry.
T I O
bstacles to the growth of the industry include: declining education standards at secondary level, increased competition from Asian offshoring, political tensions, and the trend towards a quick exit.
Right: Bill Gates in Israel-Microsoft and other major US tech companies have design centres in Israel
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Introduction
Introduction
fter the US, Israel has the second largest absolute number of startups worldwide, with estimates pointing to 3500 early-stage companies. It is home to major transnational design centres - such as Microsoft, Intel, IBM, HP, Motorola, Google, Siemens, and Cisco which often establish their presence through the buy-out of a startup, and use Israel as a bridgehead in the Middle East.
dustry, the wave of skilled ex-Soviet immigrants in the 1990s and government initiatives that push investment in innovation. In addition, Israels geopolitical situation means that the military invests heavily in the specialist training of individuals who go on to design groundbreaking biomedical, cleantech and industrial technologies.
I I
srael rose to become a hi-tech powerhouse in the last thirty years despite social, political, geographic and economic obstacles. Today Herzliya, Tel Aviv, Netanya and Haifa are the hi-tech urban hubs of this Startup Nation. Global media reporting about Israel focuses on conflict rather than tech innovation, but this is an environment that rivals Silicon Valley in terms of affordable, highly skilled labour. sraels hi-tech entrepreneurial success is attributed to a range of factors, including a seasoned venture capital and incubation in-
n terms of patents, Israel is more innovative per capita than any G7 country. In 2010 only, there were 7,249 patent applications , compared to 11 986 in the UK (where the population is eight times larger). The Economist rates Israel ninth on its Global Innovation Index, ahead of Denmark, France, Singapore and Australia . A number of breakthrough technologies have come from Israeli companies, including ICQ the first instant messaging application bought by AOL; Intels Core 2 Duo, Centrino and Pentium 4 microprocessors; M Systems flash drive; Voice Over IP; zip compression; the PillCam; and Better Places charging stations for battery-powered cars.
Culturally Entrepreneurial
Culturally Entrepreneurial
H I
ow did such a small and young country achieve so much amidst all the political turmoil? Social factors play a significant part in it. All entrepreneurs unanimously point out the role of the Military in fostering innovation. sraeli men and women have to attend the military for up to three years at the age of 18. They learn specific tech skills and find a fast lane to the national technological elite. Many innovations developed in the military were later on commercialised and turned into major companies, such as ClickSoftware or Checkpoint. ore than the R&D investment and hard skills learnt, entrepreneurs highlight the social and moral lessons they bring from their service. Hierarchy is not as important as in other armies and soldiers are encouraged to question and challenge their superiors. They learn the importance of team work and how to accomplish specific goals with little resources.
mmigration is another crucial factor in the en- attracts talented resources, providing subsidies trepreneurial fabric of the country. The wave of and support to those who want to relocate. immigrants from the Soviet Union in the nineties brought in skilled labour (particularly scientists) that fed Below: Military training gives some valuable skills in leadership and development local innovation. Israels population is multicultural, with more than 70 nationalities with sizable minority populations in the country. The countrys open immigration policy (for citizens with Jewish ancestry) still
Investment Scene
Investment Scene
he 2010 IMD Report ranks Israel first in terms of business expenditure and total expenditure on R&D. The country also has one of the highest ratios of R&D per GDP (4.4% in 2010). Last year 6.2 mil-
N I
ot surprisingly, private equity firms, or hybrid private equity/venture capital firms, have been taking an interest in Israel, with funds such as Silverlake and The Blackstone Group targeting later-stage financing. n 2010, Life Sciences startups saw the largest portion of total foreign and local VC investment in hi-tech. Cleantech is also being touted as Israels next big export market, and startups in this sector are seeing high venture capital interest. Internet, IT, Communications and Semiconductor sectors are Israels traditional growth areas with much R&D activity evident in mobile telephony and 4G networking infrastructure. stablished in the 1990s, Israels VC model was unique in terms of the governments involvement: specifically, the crea-
ISRAELS ANGELS LAW GIVES TAX BENEFITS TO INDIVIDUALS INVESTING IN R&D COMPANIES
lion were spent in R&D, with 80% coming now from the private sector.
utside of Silicon Valley, Israel has the highest concentration of venture capital activity worldwide. 2008 was the vintage year, when hi-tech companies raised over $2billion in venture capital. These figures took a dramatic tumble in 2009 as a result of the global credit crisis, but early figures show that it is again on the up.
Investment Scene
Investment Scene
tion of state-financed venture capital funds and technology incubators. While most of these incubators are now privatised, the government still supports up to 85% of the incubators fund. known as the Angels Law, which offers a substantial tax benefit to individuals investing in qualified, private Israeli R&D companies until 31 December 2015. Despite strict conditions, the major benefit is that the angel investor will not need to wait in order to offset the cost of a future capital gain.
H I
aim Shani, former CEO of hi-tech firm NICE Systems, is now the General Manager of the Finance Ministry. Shanis 2011-2012 budget proposals include a billion shekels ($288m) towards supporting the hitech industry over two years. n January 2011 the Knesset (parliament) passed an amendment to income tax legislation,
here are also corporate tax incentives for hi-tech companies to set up shop along the periphery of the country to develop the industry in areas such as Nazareth. (See Roadblocks).
Above: The Knesset in session
Business Opportunities
Business Opportunities
sraelis are early adopters of mobile technology, personal computers and tablets, even if they are slow to adopt other internet innovations (such as e-banking and e-commerce). Israeli companies outlooks are in every instance business-oriented and globally focused. Its 7.4 million population and the animosity of neighboring countries means that consumer-focused products will always struggle to find a broad market. lmost half of Israeli exports come from the hi-tech industry, totalling 15% of its GDP . Israels strengths have been middleware and patented software that is usually integrated in broader technolo-
gies. The chip and semiconductor industry is very strong. Intels Pentium 3, 4 and Centrino chips
were invented in Israel where the company has a $4 billion semiconductor plant . Defense and security are also traditionally strong in the local economy due to the military heritage. ithin the B2B market, trends tend to follow Israels traditional strongholds, like security. There is also a clear connection with the US startup scene, particularly New York, due to the size of the local Jewish community and to the investment ties (The US takes the largest slice of Foreign Direct Investment in Israel ). This is a cultural and economic relationship that Israeli entrepreneurs can take advantage of, using the US as a base point for their exports.
Above: Israelis are early adopters of mobile tech
Trends
Trends
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Companies going soCial

sraeli startups have been traditionally strong on Enterprise Software and have been moving towards Software-as-a-Service (SaaS) and Infrastructure-as-a-Service (IaaS). ollowing a global trend, local entrepreneurs have focused on making enterprises more integrated with web 2.0 networks, providing innovative solutions for companies, online retailers and other corporates who need to integrate these features. Leading company Magento is a good example along with Conduit. Up and coming startups like Zibaba and Yotpo are following the trend. he online retail market is estimated to grow at a 10% rate in the European and American market, reaching 134 billion and $279 billion respectively by 2015. Within this, social commerce (in platforms like Facebook) is estimated to grow to $30 billion. Social commerce startup The GiftsProject was recently acquired by eBay, which will integrate the companys product in its service for collective gift purchasing.
Cloud management
sraeli entrepreneurs have recently specialised in Cloud management. Cloud expert Ofir Nachmani says that local ventures have built on their enterprise software strengths by moving companies to the cloud. Companies like Green SQL, Host Dynamics or Xeround are good examples of recently successful Israeli startups in this area. ollowing the success of recently-acquired local companies like Checkpoint, startups like Dome9 or Seculert have been very active at developing security solutions for the cloud.
clude IBMs purchase of Israeli startup Storwize.
Business analytiCs
ining the web and digesting the huge loads of available data has been a priority across the most sophisticated startup hubs in the world. Israels highly skilled workforce wont miss this opportunity. Local entrepreneurs have an advantage in this field since they are used to deal with complex data sets and algorithms due to their military background. ClickSoftware for example, which floated on the Nasdaq in June 2000 was built around a set of logistics algorithms designed by co-founder Ami Shpiro when he worked as a government scientist. The algorithms were subsequently licensed for private use under very generous terms from the military. intigo is an example of a company using analytics to engage and retain customers. Other companies in this field include Gsoft and Zramim. Small World Analytics is another Israeli company dealing with the challenges of analysing unstructured data in real-time.
LOCAL TECH ENTREPRENEURS SOMETIMES HAVE EXPERIENCE DEALING WITH LARGE DATASETS IN A LOGISTICS ENVIRONMENT
cAfee, a company owned by the Intel group (which has a strong presence in Israel) has recently acquired Sentrigo, an Israeli security software company. Other acquisitions in the Cloud Management field in-
Roadblocks
Roadblocks
off shoring
hile Israeli hi-tech products and services are not necessarily price sensitive, salaries are reaching similar levels to those paid to US engineers. International design centres are outsourcing work to technicians and engineers in East Asia, especially to India and China where labour remains relatively cheap compared with the US and Israel.
deClining eduCation standards
tandards of secondary education are decreasing, especially within the growing Arab-Israeli and ultra-Orthodox communities, who are predicted to comprise over half of the population by 2025.
he private sector, NGO sector and to a certain extent the Israeli government are attempting to create vocational programmes to combat this. Integrating these into the high-tech communities could ensure Israel protects its most important exports.
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srael is now attempting to make use of its alternative to India and Chinas cheap talent: well-educated and highly skilled engineers from the Palestinian Territories and from Arab-Israeli communities within Israel itself. There have been a number of government incentives to invest in the Galilee region traditionally home to most of Israels Arab community. Nazareth is the focal point of the region, with the highest concentration of Arab-Israeli university graduates.
he budget plan of Haim Shani, General Manager of the Finance Ministry, includes investment in hi-tech-specific education, through a programme that will place near-retirement age engineers in training and lecturing roles. So far approximately 800 engineers have expressed an interest in teaching.
politiCal tension
he Israeli military and the Palestinian leadership are in constant battle over rights to land, and there is significant tension between Israel and its neigh-
Roadblocks
Roadblocks
bours to the North - Syria and Lebanon. A change in political leadership in Egypt, as well as the Turkish flotilla debacle of 2010 has compromised Israels diplomatic relations with these two nations.
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aturally these tensions will inhibit some potential investors in Israeli hitech, but Israels track record of performing beyond expectations, even during periods of armed conflict, is well documented. ome Israeli and Palestinian executives believe that bringing prosperity to the Occupied Palestinian Territories through the development of hi-tech is critical for further economic growth and for calming political tensions and bringing peace. Others believe that peace will have to come before any kind of economic union between Israel and the Territories.
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the QuiCk exit

any Israeli entrepreneurs have been accused of looking for the quick exit when it comes to their businesses, and the VC framework puts pressure on startups to make an IPO or sell to a larger company usually within six years. Therefore technology development has traditionally been quick and dirty - an attempt to get a product to market as fast as possible. ut this has increasingly come to the attention of the industry and some VCs have begun to import management expertise from the US and Europe to grow startups into medium sized companies
and to discourage buy-outs. A need for increased focus on international sales has also been identified. In the 2011-2012 budget proposals, the Finance Ministry proposed tax incentives for Israeli companies to merge with one another and discourage buy-outs from internationally-owned firms.
Above: Security is always in the background of any discussion about investment in Israel
10
Companies to look out for
Startups to look out for

BILL GUARD
B T T
ill Guard is a banking application that screens users transactions spotting unusual or potentially fraudulent activity.
he startup was founded by Yaron Samid and Raphael Ouzan in April 2010 and has offices in New York and Herzliya and 12 staff. It received $3 million in funding from a group of investors including Bessemer Venture Partners and Founder Collective. his free to use people-powered antivirus for bills, as the company calls it, uses data mining technology to digest users complaints of suspicious charges. It then flags these transactions in order to draw users attention for billing mistakes, hidden charges or scams. It claims to have saved users more than $250,000.
ill Guard won the first prize at the Finovate 2011, an event for Financial startups in the US. It recieved OReilly Medias award of 2011 Big-Data Startup of the Year and TC Disrupts 2011 Top Startup Runner-Up.
he startup faces competition from other expenses manager programmes like Mint.com, although this does not focus specifically on unwanted transactions.
Above: The application interface
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GREEN SQL
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reen SQL is a security solution for SQL databases. The company has SMEs and larger enterprises as their main target clients.
heir services come in one of four packages, depending on the sizes and needs of the company. The express edition is free but companies have to pay between $60 and $180 (large enterprises get higher quotes).
mir Sadeh (CEO) and David Maman (CTO) lead the team, based in Tel Aviv. The company was founded in 2009 and has since then received two rounds of funding, totaling $7.4 million. Magma Venture Partners led the first round (in 2009) and were then joined by Rhodium, Cross Atlantic Capital Partners and 2B Angels.
irect competitors include Dome9, while many other companies operate in the same cloud management space, such as Xeround.
Above: Green SQL banner
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DOME9
ome9 is a security SaaS for enterprises and hosting providers. It targets clients with dedicated servers
or cloud-based servers, providing them with automated firewall management software.
D T D
he startup was founded in Tel Aviv by Zohar Alon and Roy Feintuch, who had previous experience in the internet market (Alon was an employee of Checkpoint, one of the biggest software companies in Israel). he company launched its product in May 2011, which is free for individual users. Small businesses pay between $15 and $30 per month and larger enterprises and hosting providers need to ask for a tailored quote. ome9 received funding from California-based VC firm Opus Capital earlier this year. Cloud security is becoming one of the most productive sectors in Israel, with other companies like Green SQL and NewVem operating in the same space.
Above: Dome9 graphic
13

YOTPO
otpo is a public opinion aggregator. It trawls search engines, blogs and social networks and finds relevant opinions for various websites, product and services. It uses a proprietary classification system to identify the best quality opinions to create a type of search engine application. Reviews are weighted according to the users social graph, enabling one to find reviews from trusted or familiar sources.
hey face competition from other review websites, such as Qype or Yelp or even Amazon and Ebay.
Below: Yotpos explanation of polling
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heir target customers are mainly bloggers and e-commerce sites, who can embed Yotpos tool on their website. End customers use Yotpo to find more relevant info about specific products or services. he Tel-Aviv based startup was founded by Tomer Tagrin, who was an exIntel employee, and Omri Cohen in January 2011. Within three months of inception, Yotpo raised $800,000 in seed funding from angel investors and a fund for new media startups - 2B Angels and PLUS Ventures.
14

ZIBABA
his web application creates social commerce solutions. Its name plays on the Hebrew word Sababa, which means cool or awesome. Zibaba provides an application for Facebooks shopfronts with an af-
filiate marketing solution based on the social networks affiliate programme. Retailers access Facebooks analytics to assist their marketing function and manage their online shop.
hoppers are able to like, share and recommend stores to their social network. In the same vein as Groupon and other group discount marketing solutions, Zibaba boasts a Group Offer feature, encouraging shoppers to use viral marketing to spread the word. he e-marketing startup was formed in Tel-Aviv in 2008 by entrepreneurs Ronen Shlomo and Arie Fishler, experts in behavioural advertising and marketing. They have now offices in the UK and US and are Facebooks preferred developer consultants. Clients include Marks and Spencer, HMV and Dell UK. ibaba has recently signed a partnership with Shopify to bring more online retailers to Facebook. It faces competition from US based company 8th Bridge and from Gigya, which also has offices in Israel.
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Above: Zibabas Facebook Interface
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Startup Intelligence - Israel

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Sample Country Report | Israel

STARTUP INTELLIGENCE REGIONAL REPORT | Israel

STARTUP INTELLIGENCE REGIONAL REPORT | Israel

STARTUP INTELLIGENCE REGIONAL REPORT | Israel

STARTUP INTELLIGENCE REGIONAL REPORT | Israel

STARTUP INTELLIGENCE REGIONAL REPORT | Israel

Above: The Knesset in session

STARTUP INTELLIGENCE REGIONAL REPORT | Israel

Above: Israelis are early adopters of mobile tech

STARTUP INTELLIGENCE REGIONAL REPORT | Israel

Companies going soCial

clude IBMs purchase of Israeli startup Storwize.

STARTUP INTELLIGENCE REGIONAL REPORT | Israel

deClining eduCation standards

STARTUP INTELLIGENCE REGIONAL REPORT | Israel

the QuiCk exit

STARTUP INTELLIGENCE REGIONAL REPORT | Israel

Companies to look out for

Startups to look out for

Above: The application interface

STARTUP INTELLIGENCE REGIONAL REPORT | Israel

Companies to look out for

Startups to look out for

Above: Green SQL banner

STARTUP INTELLIGENCE REGIONAL REPORT | Israel

Companies to look out for

Startups to look out for

or cloud-based servers, providing them with automated firewall management software.

Above: Dome9 graphic

STARTUP INTELLIGENCE REGIONAL REPORT | Israel

Companies to look out for

Startups to look out for

STARTUP INTELLIGENCE REGIONAL REPORT | Israel

Companies to look out for

Startups to look out for

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