The role of global corporations is key to the success of the Israeli ecosystem, according to a report released on Wednesday by innovation advisory firm Mind the Bridge. The report, called “Corporate Innovation in Israel“, was released as part of the Digital Scaleup Summit Israel 2020 and Climate Policy Forum organized by the European Commission – DG for Research and Innovation and the EU Delegation in Israel.
Mind The Bridge is a global organization providing innovation advisory services to corporates and startups. The Digital Scaleup Summit Israel 2020 is a curated, invitation-only format where international corporates and scaleups can do business, spot tech trends, and benchmark innovation approaches. It includes one-on-one matching sessions and an exclusive Open Innovation Boot Camp.
“An ‘army’ of over 40,000 people from 155 multinationals is hunting innovation in Israel,” said Alberto Onetti, chairman of Mind The Bridge, “The reasons for such a massive presence are easy to explain if we look at the numbers the Israeli innovation ecosystem has been able to produce: over 1,600 scaleups able to cumulatively raise $39 billion+. That equals to 18.4 scaleups every 100,000 inhabitants.”
There are no other places in the world with such a high scaleup density, excluding Silicon Valley, Onetti said. “Similarly, the Scaleup Investing Ratio (capital raised compared to GDP) is the second-highest in the world,” he added.
Global companies have been operating in Israel for decades, mostly through an R&D approach, a statement from Mind The Bridge said. During the last few years, these companies strongly shifted towards a leaner approach and the use of open mechanisms. More companies are increasingly experimenting with different partnership models, making innovation more cost-efficient, in a similar way to what has been happening in Silicon Valley since 2010.
The gap with Silicon Valley remains big, Onetti said, but not the number of corporates on the ground, which stands at 155 in Israel compared to 222 in Silicon Valley. In terms of corporate venture investments, less than one-third of the number of average deals per year (167 in Israel vs 566 in Silicon Valley) and one-ninth of the capital invested ($2.2 billion a year in Israel vs $23.9 billion a year in Silicon Valley.)
The report tracked 198 outposts from 155 companies. Twenty-seven companies have multiple presence, while 128 companies had a single outpost. One out of two corporates are from North America, clearly showing the strong connection between Israel and the US. The exact number was 80 out of 155 corporates, with 79 of those corporates were from the US.
Electronics and IT/Software industries are ” the core of corporate outposts in Israel,” the report said, with 28 and 27 companies respectively. Other industries on the list include finance and banking (17 companies), automotive and manufacturing (both with 14), telecommunications (10 companies), and biotech, life sciences, and pharma (9 companies.) The report also tracked growing investments by corporates in cleantech, which made up 4 percent of all deals in 20119 vs. 1 percent in 205.
In addition to the 107 R&D centers, the report tracked 45 corporate innovation labs, 39 CVCs (corporate venture capital firms), and 7 corporate innovation antennas.
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Israel is known for its large number of skilled professionals across a broad range of sectors, said Onetti, noting that international companies have been channeling this pool of talents to fuel their research and development efforts for decades.
“It is not a surprise, then, that more than half of the outposts we found are R&D centers,” he said.
Half of the structured operations have teams larger than 50 people and 58 of the centers have more than 200 people. Around 62 of the outposts (1/3) is organized in small and lean teams of less than 10 people, with seven in the form of a corporate innovation antenna, 39 CVCs, and 15 small innovation labs. Around half of the corporate innovation labs have decided to have a team between 10 to 50 people and only five labs have grown to larger teams.
R&D center have almost doubled every 10 years, since 2000, the report said, confirming Israel has been recognized for decades as a strategic ecosystem to establish research & development activities. Innovation labs, managing a broader range of activities related to corporate innovation has only doubled in number over the last five years. Corporate innovation antennas have also begun to grow, with six out of seven outposts established over the last five years. CVCs are also widening their presence with numbers growing three times over the last 10 years, from 13 to 39 outposts.
The largest cluster for corporate innovation in Israel is Tel Aviv, with more than 1/3 of the innovation outposts located there. Seventy-four outposts are located there, making up 37 percent of the total.
Innovation-related activiteis are spread across Israel, but concentrate in cities like Herzliya (13 percent), Ra’anana (13 percent), Petach Tikva (11 percent), and Haifa (8 percent.) While it’s possible to find a mix of outpost types in Tel Aviv and Herzliya, most of the other hubs show a predominance of R&D activities structured around larger teams and operations.
According to the report, the top 10 innovation outposts in Israel are (in no particular order) Haifa, Netanya, Yavne, Tel Aviv, Herzliya, Ra’anana, Rehovot, Jerusalem, Hod Hasharon, and Petah Tikva.