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Chen Feller & Miriam Young

Another successful year in the Israeli tech scene

A lot has happened here in the year of 5776, the Jewish alternative for the end of 2015 and beginning of 2016. The startup scene remains on the rise and a lot of new companies opened, with billions raised to help the startups.

Now that the Jewish holidays are over, it's to time return to normal, head back to work and our daily routine, but it doesn't mean we can't still celebrate. So, to celebrate the new year, 5777, we decided to put together all the best moments that happened in Israel this year, and answer these questions:

How much money did startups raise?

What were the biggest acquisitions?

What actions did the government take to support the Israeli startups?

Is there a startup ecosystem outside the Tel-Aviv area?

What new programs have been opened to increase the number of tech employees?

How is Israel leading in the world of transportation technology?

Some numbers to realize how big this year was...

Every year, the same news - a new record was broken - the Israeli startups raised billions of dollars, more than the previous year, but it’s never bad news. The Startup Nation is always on the rise and it’s a role model for all.

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So, what numbers are we looking into from September 2015 to September 2016?

  • Q4 of 2015: 202 deals were signed, startups raised $1.2 Billion.
  • Q1 of 2016: 174 deals were signed, startups raised $1.16 Billion.
  • Q2 of 2016: 187 deals were signed, startups raised $1.7 Billion.
  • Q3 of 2016: 141 deals were signed, startups raised $982 Million.
  • The total amount of money raised from the start of 2016 through the end of September was $3.8 Billion.
  • 1200 new startup companies were opened in 2016 up until August.
  • Cyber technology is in the lead – H1 ended with 30 deals, and cyber startups raised $403 Million.

And here are the 10 biggest exits of this year:

  • Playtika, the online gaming company, was sold to Chinese gaming company “Giant Interactive” for the incredibly huge amount of $4.4 Billion, in July. Although Playtika is based in Herzliya, Israel, they were actually part of the American company “Caesar Interactive Entertainment (CIE)”, since CIE acquired them in 2011. That’s a major leap and was one of the biggest deals in Israel.
  • EZChip was sold to another Israeli company, Mellanox, for $811 Million. Both of them are based in Yokneam. EZchip is a semiconductor manufacturing company providing ethernet processors for networking equipment, while Mellanox provides end-to-end connectivity solutions for servers and storage. They have the capacity build great things together.
  • Xura, formerly Comverse, world leader in digital communication services, was sold to Siris Capital, private equity from New York for $643 Million. Comverse was the flagship of the Israeli tech scene back in the beginning of the eighties, and has ever since been going through a lot of changes.
  • MIS Implants, who’s developing and producing innovative solutions to simply dental implantology, was acquired this June by “Dentsply Sirona”. This company’s global headquarters is in New York, and it serves as the world’s largest manufacturer of professional dental products and technologies.
  • CloudLock, the cloud security company founded in 2007, was acquired for $297 Million by Cisco at the end of June, so said John Chambers, CEO of Cisco, when he visited Israel. Earlier this year, Cisco also acquired Leaba Semiconductor for about $320 Million in cash. Leaba is a fabless semiconductor startup, founded in 2014.
  • SintecMedia from Jerusalem was already a big company, employing over 800 people in 11 offices worldwide, before the private equity firm Francisco Partners acquired them for about $400 Million. SintecMedia is designing and implementing management software systems for broadcasters and leading the industry with their flagship product, OnAir.
  • Replay Technologies, based in Tel Aviv, was acquired by Intel for $175 Million at the beginning of this month. Their main product, Free Dimensional Video allows viewers to see and experience real-life scenes through immersive camera views from multiple angles mostly used in sports broadcasting.
  • Ravello Systems, a leader in nested virtualization, was sold to Oracle for no less than $500 Million. The company from Raanana was founded in 2011 and basically lets organizations encapsulate their multi-VM (like VMWare) applications and run them natively on other cloud platforms.
  • Ex-Libris was acquired a year ago, in October, by ProQuest for an incredible amount of $500 Million. Ex-Libris was originally founded by The Hebrew University back in 1982 and was sold a few times before finally being sold to Francisco Partners for $62 Million. They provide cloud‑based solutions for higher education, while ProQuest empowers researchers to transform research around the world. Sounds like a fine match.
  • Qualitest, the world’s second largest Quality Assurance providing company, was just recently (September 13th) acquired by Merlin Equity Partners, for 300 Million NIS. Qualitest is a large company, founded in 1990, and has been providing software testing solutions, while employing over 2,000 people in different offices worldwide.
  • In the first half of 2016 - Companies in Israel were acquired for total amount of $2.41 Billion.

Various governmental acts to help the Startup industry:

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  • The formation of the Israeli Startup Lobby - In October 2015, the Israeli Startup lobby held its first meeting at the Knesset. As part of the activity in GKI Group, the team created the first lobby in the Israeli parliament, the Knesset. The aim was to facilitate communication and collaboration between the local government and the entrepreneurial community. The lobby is headed by MKs Yoel Hasson and Yoav Kish and is focused on bridging the gap between Israeli entrepreneurs and official governmental bodies. Now, the entrepreneurs have a voice in the Israeli Knesset.
  • The establishment of the Israel Innovation Authority - The authority was also known as the Office of Chief Scientist, but was separated from the Ministry of Economy and Industry to become an independent body led by the Chief Scientist, Avi Hasson.
  • The Israel Innovation Authority is aiming towards the strengthening of the R&D in Israel, increasing the economic benefits that this industry is producing, promoting exports, creating new jobs and keeping Israel as the Startup Nation. The establishment of a national authority for innovation in Israel is the latest development in the government’s efforts to support the innovation ecosystem in Israel.
  • Amendment to the Angel Investors Law - “Angel’s Law” is a nickname given to section 20 in the Arrangements Law for 2011, that was meant to promote high-tech industries in Israel, by creating a tax incentive to private investors (angels) in startup companies.
  • In January 2016 the ministerial legislation committee approved the amendment to the “Angel Law”. According to the amendment, investors in innovative companies approved as "target companies" by the Chief Scientist's Office will receive substantial tax breaks, and will be allowed to deduct amounts invested in start-ups from their taxable income.
  • Amendment to Encouragement of Capital Investments - As part of the approval of Israel's budget for the years 2017-2018, the Israeli Tax Authority ("ITA") published an initial draft of its proposal of the amendment to the Encouragement of capital Investments law.
  • The amendment has 2 main principles to encourage foreign investors put their money in Israeli startups:
    • 1. Change of the tax incentives structure for the approved companies.
    • 2. Adding the Intellectual Property to the company’s areas of activity to get more incentives. The government believes that Intellectual Property registration in large scales in Israel will contribute to the growth of the hitech industry through growth of money from taxes.
  • Israeli Tax Authority lowers tax on startup exits - This year, ITA decided to put the taxation of exits in order after years of uncertainty, and announced that when company founders sell their shares in their company (make an exit), but continue working in the company, they will be taxed at only 25-30% on the sale of their shares, instead of 48%-50% as before. Meaning, the money earned will be considered as capital gains and not an income from labor.
  • Jerusalem is granted with unique bonuses for advanced industries - On Jerusalem Day, June 2016, the Prime Minister announced that Jerusalem will get an extra 160 million NIS to encourage activity of the advanced industries in the city, such as hitech companies, cinema, television and animation.
  • As part of the program, bonuses and support will be given to promote activities such as: collaborating between the industry and the academies, increasing the number of active tech companies in the city; encouraging the entrepreneurship in the city and Developing the cinema, TV and animation industry.

Expanding the Ecosystem

A lot of new hubs and co-working spaces opened outside of the metropolitan area of Tel Aviv. We’re not talking only about the successful ecosystems built in Jerusalem, Haifa, and Be’er Sheva, but those that opened in far less populated areas, where entrepreneurs previously had nowhere to go to:

  • Eilat Hub - The most southern hub in Israel, in the most southern city, was opened in the beginning of 2016 and what’s amazing about it, is that it’s free for all. More than 80 entrepreneurs already joined, working on over 30 startups. Time to raise the entrepreneurial spirit of this city!
  • MindCET - CET (Center of Educational Technology) opened a new incubator focused on developing new and breakthrough education technologies (EdTech). This center was opened in the southern city of Yeruham at the end of 2015, and it’s funded by the Jack, Joseph, and Morton Mandel Foundation, which donated 20 million NIS to make it happen.
  • SouthUp - The new incubator is bound to be opened soon and it’s location is further north than those mentioned above, but still down south, or more likely the in area of Gaza Envelope. What this area was missing was a place where entrepreneurs could develop their startups faster. They are approaching the many startups in the area dealing with Agritech, Cleantech, National Security, and more. They are also intended to cooperate with Sapir College in Sderot, to help the students study, run their businesses, and enable them to remain living down south.
  • Opal - After going through 3 new places towards the south of the country, it’s time to go up north to Misgav, near Karmiel. This new co-working space was officially established at the end of 2015, by Claudia Benyaakov, who's also the co-founder of StartUpNorth in the Galilee. Opal is meant to connect entrepreneurs throughout Northern Israel, letting them work together, and arranging meetups and weekly workshops.
  • OpenValley - A new work space opened in Ramat Yishai earlier this year. What’s interesting about this place (other than it’s northern location) is that it’s functioning as a “venture builder” model, which is an ecosystem for ventures and startups, combined with entrepreneurs and professionals like website builders, graphic designers, and even lawyers and financial advisors. This way, all of the people involved in OpenValley can work together and come up with new ideas.

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Solving the shortage of employees

The Israeli tech scene was always flourishing and supplying jobs to tens of thousands of people, but there was only problem: most of them were men - Israeli Jewish men. We didn’t see many women in startups, and especially not in high positions, not many Orthodox men and women, and no great amount of Arab entrepreneurs. In the last few years and especially this year, many organizations and companies joined together to promote this issue and involve more different sectors and employees in the scene. Here’s a few them that were opened this year:

  • Hybrid - This incubator program was launched by Nazareth Business Incubator Center (NBIC) earlier this year, to help early-stage ventures led by Arab founders. The selected entrepreneurs go on a 5 month program where they will go through lectures, mentor-ship, panels, and sessions with other entrepreneurs - all to help their new venture. Leading the initiative, are Fadi Swidan, the director of the NBIC, and former entrepreneur and 8200 alumnus, Eitan Sella.
  • TRI/O Tech - A new program that was put together by Tsofen and the MIT Enterprise Forum of Israel, along with backing from other resources, aimed at supporting young Israeli Arabs, making their way into the startup ecosystem. This new entrepreneurship school is located in Kefar Kassem and it’s meant to help Arab entrepreneurs from the Trio area turn their ideas into a business. Fifteen students participated in the first course that was five months long, ending in June.
  • Kamatech - We know, this organization isn’t new; Co-Founded in 2014 by Moshe Friedman, who partnered with Cisco to help Haredim (Jewish ultra-orthodox) enter the world of Hi-Tech. There are two reasons that they are worth mentioning this year: the first one, they raised $300,000 from 12 Angels who were committed to investing in the organization. The second, they collaborated with Google Campus and Elevation Academy, to teach Haredi women about developing apps for Androids. Although over 1,000 women registered, only 16 got accepted, finished the course successfully and started looking for a job in this techy world, and that’s a huge success.
  • WMN - Meran Orev, the founder and CEO of Agora, opened this co-working space in Tel Aviv in the middle of 2015, to bridge the gender gap in startup ecosystem. WMN gives its female participants a place where they can work together, attend lectures and learn from mentors. The reason we decided to mention WMN this year goes to the fact that the hub already created successful startups, led by women. For example: Trench, that raised $500K, and Sidekix that raised $1 Million.
  • Project Mehamemet - While it’s Hebrew name stands for “gorgeous”, it’s also an acronym for “gorgeous women in engineering, math, science and technology”, and that’s exactly what it is. This project was founded by women who study and work in the fields of computer science and engineering, from the academy or the industry, to encourage younger women to open up to this world. Women who volunteer to this project hold workshops for 9th graders where the girls learn how to program for Android, and raise their interests in the fields of hi-tech and entrepreneurship. This project is an important step for raising awareness and encouraging more women to start their own ventures and solve the lack of engineers in the industry.

Transportation Technology

Technology to get you around can be some of the most useful, whether you’re in your own city or visiting a new place. Apps have tremendously simplified the way we can do this, with everything from getting you a ride to selling your car, at the click of a button on your phone. This was a very successful year for Israeli transportation apps, with some major exits and developments.

  • Gett - While various on-demand ride booking companies have become successful in different cities worldwide, Gett (formerly known as Get Taxi) has taken over the scene throughout Israel, and offers services in 60 cities around the world. This May, Gett raised $300 million from Volkswagen, the German carmaker, bringing the total amount invested to $520 million!
  • Via - Via is another on-demand transit company. Basically you book a ride on your phone and get picked up at a nearby corner. It’s a very Israeli style of transportation that can be compared to our “Monit Sheirut” service - with a larger car taking many passengers. Now, after they raised $100 million in May, they could easily change the future of public transportation.
  • Vroom - Vroom made its mark on the scene just days ago, raising $50 million, and is said to be making buying a used car as easy as shopping online for shoes. Taking the stress out of buying and selling used cars is something very necessary and useful in that industry, ultimately delivering you a new car to your door.
  • Mobileye - MIT Technology review ranked Mobileye #6 on the list of the world’s 50 “smartest” companies. Mobileye keeps passengers safe and lowers risk of accidents through different technologies, to help process visual information in driver assistance systems. Worth a total of $9.5 billion, Mobileye works with top car brands for its collision warning developments and is also on it’s way towards a future of fully autonomous cars.
  • Otto - Speaking of autonomous driving, Otto applies this technology to already existing long-haul freight trucks. This could allow drivers to rest on long journeys, while trucks navigate themselves. The excitement of this futuristic technology and concept was noticed by Uber, who acquired them in August, in a deal worth up to $680 million. A few days ago, a self-driving truck by Otto, carrying beers, completed a route of 120 miles. No beers were harmed during the process.

Well, what do you think? Looks like we had an amazing year.