Venture capital in Israel refers to the

financial capital Financial capital (also simply known as capital or equity in finance, accounting and economics) is any economic resource measured in terms of money used by entrepreneurs and businesses to buy what they need to make their products or to provide ...

provided to early-stage, high-potential, high risk,

growth Growth may refer to: Biology * Auxology, the study of all aspects of human physical growth * Bacterial growth * Cell growth * Growth hormone, a peptide hormone that stimulates growth * Human development (biology) * Plant growth * Secondary growth ...

startup companies A startup or start-up is a company or project undertaken by an entrepreneur to seek, develop, and validate a scalable business model. While entrepreneurship refers to all new businesses, including self-employment and businesses that never intend t ...

based in

Israel Israel (; he, יִשְׂרָאֵל, ; ar, إِسْرَائِيل, ), officially the State of Israel ( he, מְדִינַת יִשְׂרָאֵל, label=none, translit=Medīnat Yīsrāʾēl; ), is a country in Western Asia. It is situated ...

. The country's

venture capital Venture capital (often abbreviated as VC) is a form of private equity financing that is provided by venture capital firms or funds to startups, early-stage, and emerging companies that have been deemed to have high growth potential or which ha ...

industry was born in the mid-1980s and has rapidly developed since. Israel currently has more than 276 active venture capital funds, of which 71 are international VCs with Israeli offices. Israel's venture capital and

incubator An incubator is anything that performs or facilitates various forms of incubation, and may refer to: Biology and medicine * Incubator (culture), a device used to grow and maintain microbiological cultures or cell cultures * Incubator (egg), a de ...

industry plays an important role in the booming high-tech sector that has been given the nickname "

Silicon Wadi Silicon Wadi ( he, סִילִיקוֹן וְאֵדֵי, ) is a region in Israel that serves as one of the global centres for advanced technology. It spans the Israeli coastal plain, and is cited as among the reasons why the country has b ...

", considered second in importance only to its Californian counterpart, the

Silicon Valley Silicon Valley is a region in Northern California that serves as a global center for high technology and innovation. Located in the southern part of the San Francisco Bay Area, it corresponds roughly to the geographical areas San Mateo County ...

. According to IVC, Israeli Research Center, in 2021, Israeli tech exits ( M&As,

buyout In finance, a buyout is an investment transaction by which the ownership equity of a company, or a majority share of the stock of the company is acquired. The acquiror thereby "buys out" the present equity holders of the target company. A buyout ...

IPOs In demonology, Ipos is an Earl and powerful Prince of Hell (a Duke to some authors) who has thirty-six legions of demons under his command. He knows and can reveal all things, past, present and future (only the future to some authors, and past ...

) totaled $22.2 billion from 238 deals. Excluding deals over $5 billion, 2021 capital saw almost 50% from IPOs while the number of M&As did not fall short compared to previous years. According to a report from Start-Up Nation Central (SNC) the three largest earning sectors in Israel were Enterprise IT & Data Infrastructure (which raised just under $6b), Cybersecurity-dominated Security Technologies ($5.9b), and Fintech ($4.2b). According to IVC, In 2021, venture capital investment in Israel stood at $25.6 billion – a leap of almost 150% from 2020.

History

Israel's

industry was born in 1985, when the first Israeli venture capital fund, Shlomo Klahr Athena Venture Partners, was founded by Major-General

Dan Tolkowsky Aluf Dan Tolkowsky (or Tolkovsky, he, דן טולקובסקי; born January 17, 1921) is a retired Israeli Air Force officer who served as a major general in the Israeli Air Force (IAF) from 1953 to 1958. A noted investor, he helped start the f ...

, the past Chief of Staff of the Israel Air Force; Dr. Gideon Tolkowsky; and Frederick R. Adler, a pillar of the US venture capital industry who had conceived the notion of taking Israeli High-tech companies public on NASDAQ. Subsequently, in 1990, Gideon Tolkowsky and Yadin Kaufmann founded Israel's second VC firm, "Veritas Venture Capital Management", whose main investors were Anglo American Corporation of South Africa and De Beers. The success of the venture capital industry in Israel continued with Yozma (Hebrew for "initiative"), a government initiative in 1993 offering attractive tax incentives to foreign venture-capital investments in Israel and promising to double any investment with funds from the government. As a result of their efforts, Israel's annual venture-capital outlays rose nearly 60-fold, from $58 million to $3.3 billion, between 1991 and 2000. The number of companies launched using Israeli venture funds rose from 100 to 800. Israel's information-technology revenues rose from $1.6 billion to $12.5 billion. By 1999, Israel ranked second only to the United States in invested private-equity capital as a share of GDP. It also led the world in the share of its growth attributable to high-tech ventures: 70 percent. According to the

OECD The Organisation for Economic Co-operation and Development (OECD; french: Organisation de coopération et de développement économiques, ''OCDE'') is an intergovernmental organisation with 38 member countries, founded in 1961 to stimulate e ...

, Israel is also ranked first in the world in expenditure on

Research and Development Research and development (R&D or R+D), known in Europe as research and technological development (RTD), is the set of innovative activities undertaken by corporations or governments in developing new services or products, and improving existi ...

(R&D) as a percentage of GDP. Though Israel's venture capital industry played an important role in the high-tech sector, the

financial crisis of 2007-2010 Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of finan ...

also affected the availability of venture capital locally. In 2009, there were 63

mergers and acquisitions Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, other business organizations, or their operating units are transferred to or consolidated with another company or business organization. As an aspect ...

in the Israeli market worth a total of $2.54 billion; 7% below 2008 levels ($2.74 billion), when 82 Israeli companies were merged or acquired, and 33% lower than 2007 proceeds ($3.79 billion) when 87 Israeli companies were merged or acquired. In 2019 Israeli companies are considered to be more popular than their American peers. For comparison, investments volume in Israeli startups grew by 140% during 2014-2018 and investments in technological startups from the U.S. grew by 64%. Moreover, Israeli startups are becoming so attractive that US companies tend to acquire them more than anyone else: they account for half of all transactions in 2018. Thus, Israel eventually became a “net seller”. In particular,

artificial intelligence Artificial intelligence (AI) is intelligence—perceiving, synthesizing, and inferring information—demonstrated by machines, as opposed to intelligence displayed by animals and humans. Example tasks in which this is done include speech re ...

(AI) raises most investments (17%) among all high technologies in Israel. The recent acquisition of Israeli company

Mellanox Mellanox Technologies Ltd. ( he, מלאנוקס טכנולוגיות בע"מ) was an Israeli-American multinational supplier of computer networking products based on InfiniBand and Ethernet technology. Mellanox offered adapters, switches, softwa ...

for $6.9 billion by

Nvidia Corporation Nvidia CorporationOfficially written as NVIDIA and stylized in its logo as VIDIA with the lowercase "n" the same height as the uppercase "VIDIA"; formerly stylized as VIDIA with a large italicized lowercase "n" on products from the mid 1990s to ...

is indicative. It was a definite contender for the largest M&A deal in 2019.

Characterization

Israel's venture capital industry has about 276 active venture capital funds, of which 71 international VCs with Israeli offices. Additionally, there are some 220 international funds, including

Polaris Venture Partners Polaris Partners is a venture capital firm active in the field of healthcare and biotechnology companies. The company has offices in Boston, Massachusetts, New York, NY and San Francisco, California. History Polaris Partners was founded in 19 ...

Accel Partners Accel, formerly known as Accel Partners, is an American venture capital firm. Accel works with startups in seed, early and growth-stage investments. The company has offices in Palo Alto, California and San Francisco, California, with additional ...

Greylock Partners Greylock Partners is one of the oldest venture capital firms, founded in 1965, with committed capital of over $3.5 billion under management. The firm focuses on early-stage companies in the consumer, enterprise software and infrastructure as wel ...

, that do not have branches in Israel, but actively invest in Israel through an in-house specialist. In 2009, the

Life Sciences This list of life sciences comprises the branches of science that involve the scientific study of life – such as microorganisms, plants, and animals including human beings. This science is one of the two major branches of natural science, the ...

Sector led the market with $272 million or 24% of total capital raised, followed by the

Software Software is a set of computer programs and associated documentation and data. This is in contrast to hardware, from which the system is built and which actually performs the work. At the lowest programming level, executable code consists ...

Sector with $258 million or 23%, the

Communications Communication (from la, communicare, meaning "to share" or "to be in relation with") is usually defined as the transmission of information. The term may also refer to the message communicated through such transmissions or the field of inquir ...

sector with $219 million or 20%, and the

Internet The Internet (or internet) is the global system of interconnected computer networks that uses the Internet protocol suite (TCP/IP) to communicate between networks and devices. It is a '' network of networks'' that consists of private, pub ...

sector with 13% of capital raised in 2009.

The unicorns era

The term "unicorn" was coined by venture capitalist Aileen Lee in 2013 to define a privately held startup with a value of $1 billion or more. It was originally used to portray the rarity of such companies. As of 2021, over 70 unicorns exist in Israel or were founded by Israelis – making Israel the number one country in the world in its number of unicorns per capita. The first Israeli company to be named a unicorn was

ironSource ironSource Ltd. is an Israeli software company that focuses on developing technologies for app monetization and distribution, with its core products focused on the app economy. Among others, ironSource was chosen as one of the '20 hottest star ...

, reaching a value of $1.5 billion in 2014. Since then the rate of new Israeli unicorns has risen exponentially. From 2014 to 2018 the total number of new unicorns was 19 combined, 2019 had 12 new unicorns and 2020 a total of 14, whereas in 2021 there were an astonishing number of 28 companies including Wiz, K-health, Verbit, Deel and Honey Book, a 200% increase compared to the previous year. As a result, more foreign venture capital funds are currently invested in Israeli or Israeli-led unicorns including

Andreessen Horowitz Andreessen Horowitz (also called a16z, legal name AH Capital Management, LLC) is a private American venture capital firm, founded in 2009 by Marc Andreessen and Ben Horowitz. The company is headquartered in Menlo Park, California. Andreessen ...

Spark Capital Spark Capital is a venture capital firm in the United States, responsible for early-stage funding startups of consumer, commerce, FinTech, software, frontier, and media sectors. It has branches in San Francisco, Boston, and New York City. Hi ...

, Vertex Ventures,

Insight Partners Insight Partners (previously Insight Venture Partners) is an American venture capital and private equity firm based in New York City. The firm invests in growth-stage technology, software and Internet businesses. History Insight Partners was fo ...

and corporate venture capital funds including

Intel Capital Intel Capital is a division of Intel Corporation, set up to manage corporate venture capital, global investment, mergers and acquisitions. Intel Capital makes equity investments in a range of technology startups and companies offering hardware, so ...

Microsoft Ventures M12, formerly Microsoft Ventures, is a corporate venture capital subsidiary of Microsoft. Founded in March 2016, its mission is to be an active, strategic partner during a startup's growth, typically investing between Series A and D. The fund is ...

(M12) and others.

Technological business incubators

In the early 1990s, the Israeli government created a technological

business incubator Business incubator is an organization that helps startup companies and individual entrepreneurs to develop their businesses by providing a fullscale range of services starting with management training and office space and ending with venture ca ...

program (Hebrew: חממה טכנולוגית) to leverage the strengths of approximately 750,000 scientists, engineers, and physicians who had just arrived from the former

USSR The Soviet Union,. officially the Union of Soviet Socialist Republics. (USSR),. was a transcontinental country that spanned much of Eurasia from 1922 to 1991. A flagship communist state, it was nominally a federal union of fifteen nationa ...

. Israel's Office of the Chief Scientist (OCS), a division of the

Ministry of Economy A ministry of economy, ministry of commerce, ministry of economic affairs or department of commerce is a part of the government in most countries that is responsible for matters related to the economy or economic policy. List Examples of such mini ...

, started six incubators designed to foster seed and early-stage technology development through

entrepreneurship Entrepreneurship is the creation or extraction of economic value. With this definition, entrepreneurship is viewed as change, generally entailing risk beyond what is normally encountered in starting a business, which may include other values th ...

. Today there are 24 such incubators located throughout Israel, and 65 percent of the projects are science-related research and development. In 2007, incubator companies raised $435 million in private funds, up 74 percent from 2006. Currently, the OCS allocates approximately $1 billion per year to incubators and other programs that encourage technology developmentIsrael's High-Tech Boom
The Jewish Policy Center, Summer 2008

References

External links