Tel Aviv and its Startup Scene: Potential in its finest form

31 August 2018
8 min read

Tel Aviv is the second largest city in Israel with around 430,000 inhabitants, and it is, without question, the place to be when talking about Startups in Israel. I’ve been lucky enough to get the opportunity to go there and get a sneak a peek of the Israeli startup ecosystem. First of all, I quickly fell in love with the city itself. The good weather, the close beach, and the open-minded and tolerant mentality convinced me that Tel Aviv is definitely one of the best cities I have travelled to so far. Amongst the obvious advantages of the City, the innovative and tech-driven mindset of her citizens definitely caught my attention. Whilst in Germany and most of Europe, besides cars, the only other popular way to get from A to B is the classic bicycle, while in Tel Aviv, the second most used vehicles are the electric scooter and the eBike.

I quickly fell in love with the city itself. The good weather, the close beach, and the open-minded and tolerant mentality convinced me that Tel Aviv is definitely one of the best cities I have travelled to so far.

There is only one mentionable downside that caught me off guard – It doesn’t matter if it’s about rent, food, drinks or taxi rides, life in Tel Aviv is a lot more expensive than most of Europe. So be prepared, and save up some money before going to the great city of Tel Aviv.

General Startup ecosystem in Tel Aviv

Tel Aviv is well known all over the world for its startup ecosystem. The number of startups in Tel Aviv is around 6000 as of 2018. This massive number has been achieved with only 8 million citizens in the country. This tiny country, which is about the size of New Jersey in the US or Hessen in Germany, is home to more startups per capita than any other country in the world.

To understand how huge that amount is, here are some comparable benchmarks:

  • Roughly 2500 Startups call Berlin home
  • 2500 other Startups setup in the neighboring capital of Paris
  • Up North and across the channel you’ll find about 3000 Startups in the British Capital

So, combining all Startups from Berlin and London, the number would just get close to the number of young companies in Tel Aviv. And these are cities consistently recognized on the GLOBAL startup stage. I needed to put this into better perspective, even for myself, so I found this useful map online that maps some of the current startups in the region, it’s definitely worth checking out:

Startups in Tel Aviv have a great infrastructure to get projects done

Startups in Tel Aviv have a great infrastructure to get projects done

In interviews with the founders of AbiliSense and BlueOps I figured out that the Israeli startup scene has been through significant changes lately. Five to ten years ago, it was very likely that startups would get pre-seed investments, even if the company was not founded yet. Surely the risk was high, but Israeli investors didn’t care much about that fact, as long as the idea was innovative enough to have impact on the country and its economy, they were all for it. Nowadays, investors are a lot more risk-wary and tactical, they look for strong KPIs like revenues and cash flow to make better informed decisions. Also, the time when to invest has changed. The present focus is more on growth investments than on early stage investments. Lastly, if you have a social company in Israel it is extremely unlikely to receive funding. Nevertheless, the startup ecosystem is booming, especially when looking at later-stage companies, but young companies also receive big money from foreign investors.

Taking a deeper dive into Tel Aviv’s Investment Scene

In 2018 alone, there have been 58 exits conducted with a combined worth of 6.2 Billion USD in Israel. Most buyers come from the US. There are currently approx. 350 investment funds existing in Israel and around 320 R&D centers. This extremely high number of startups, incubators, and investors helped Israel rank number 4 out of 202 countries, based on the strength of its startups. There are several reasons for the development of Israel to be one of the leading startup nations on earth.

Governmental support for startups

Entrepreneurship is highly supported by the government. 4.1% of Israel´s GDP goes right into R&D which is twice the global average (Israel is just second behind South Korea with a percentage of 4.2%). In comparison the US spends 2.7%, the EU 1.9% and Japan 3.5% of their GDP on Research and Development.

Military service – IDF (Israel Defense Forces)

In Israel, it is mandatory to serve in the armed forces after school. Men need to serve for at least 3 years, women for at least 2 years. This does not necessarily mean that every Israeli is able to shoot several kinds of weapons, serving in the Israeli defense forces can also mean that you work in the high-tech area. The military has a strong cyber security sector (called “unit 8200”). To become a part of this sector means to be part of the most elite part of the entire Israeli Military. Only the smartest Israeli are granted access to this unit, and they also develop the soldiers in math and computer science there and allow them to be up-to-date with the most current security software. That’s why the IDF is seen as a social equalizer. The following quote from a local CEO helps us understand how strong the relation between the business world and the military service is:

“We do not ask applicants for their university degree, we rather asked them in which unit of the IDF they served.”

Atmosphere and Motivation – Tikkum Olam

By just walking around in the streets of Tel Aviv, but also in the interviews and talks with Israel founders, I was able to experience an atmosphere of openness, tolerance, and collaboration. Entrepreneurs want to give back to the country and its ecosystem. In this context, it is not considered a fail if your company goes bankrupt. It is instead considered an experience, you learn from it and do better the next time. This can be called “culture of failing.” Hence this ecosystem and Israel in general is a small country and the domestic market is very small for these startups, but they think global from the very start. This facilitates the step of going global and taking one’s business international. Rarely, a product or a service is created by focusing only on the domestic Israeli market. Additionally, one of the central tenets of Judaism is “Tikkum Olam” (תיקון עולם, transl. repairing the world) – the Jewish responsibility to heal, fix, and make the world a better place. This endeavor might be another great explanation for the intrinsic motivations of the Israeli People. Taking all of this into account, it is safe to say that the Israeli air was somehow filled with this “innovative spirit” everywhere I went during my time there.

Let’s not forget about Startup Accelerators in Israel

“HAC” is the abbreviation for Herzeliya Accelerator Center. The company is – similar to the SpinLab – an accelerator for startups. It is named after the part of Tel Aviv it is located in, Herzeliya. The company was founded in 2013 and has become a set player in accelerating startups in Tel Aviv. In 2017, HAC has been nominated for the Most Innovative Program by the federation of Local Authorities. Startups from the IoT, Smart Mobility, Smart Communities, and Smart Cities are all welcome to apply and become a part of the accelerator. Companies that get accepted to the accelerator program (4-6 months) after the selection process are awarded with top notch mentors, consultancy from an advisory board of experts in different areas of business, strategic cooperations with well-known companies and more. After concluding the HAC accelerator program, the startups accelerated their business and achieved in 4 to 6 months the same results they would have achieved after 1,5 or 2 years without the HAC. At this point, they become Alumni of the HAC. This also is beneficial, because you can still participate from the network and get in touch with other new startups to create synergies.

Additionally, the HAC is an official international partner of the SpinLab, and we work together to facilitate exchange programs between startups based in Germany and Israel, who would like to try expanding to each other’s respective markets.

So what’s my final impression of startups in Tel Aviv?

My visit at the HAC for some days completely reinforced my view on Accelerators. It does not depend in which country or city they are located, accelerators are a great help in pushing your company to the next level. Of course, cultural differences appear when talking about Israeli and German/European ways of working with startups. But after all, most founders simply want to go BIG and would love to see his/her company aim for the stars as they all work hard to create that next unicorn.

A special thanks to Iris Arbel-Ganz, CEO of the HAC for allowing me to spend some days in their accelerator center, to Tal Engelstein and his Co-founder from BlueOps and to Erez Lugashi from AbiliSense for the insights into the startups ecosystem.