Tel Aviv Thrives As Magnet For Tech Investors, Multinationals

Tel Aviv is home to 20 unicorn companies – with 14 of them having reached a valuation of over $1 billion in 2020 alone. Moreover, the city’s local high-tech scene didn’t just keep afloat during the global COVID-19 health pandemic, it broke records in capital raised, exits and number of startups, according to the Tel Aviv Innovation Ecosystem Report 2020 released today by the Tel Aviv-Yafo Municipality and IVC Research Center. 

This is the newest report to show that the Israeli tech scene, and specifically Tel Aviv, is thriving. 

SEE ALSO: 10 Israeli-Founded Companies Reach Unicorn Status In 1st Quarter Of 2021

“It’s really outstanding how Tel Aviv is so central” in the country’s tech sector, Michal Michaeli, Director of International Economic Development at Tel Aviv Global & Tourism, tells NoCamels. “Tel Aviv has 20 percent of the tech workforce in Israel and is creating 50 percent of the activity in fundraising and exits. In a word, it’s mind-blowing.”

Indeed, according to the report’s data about the city’s innovation ecosystem as of January 15, 2021, a record $6.839 billion was invested in 416 Tel Aviv companies last year, which translates to 48 percent of the total investments in Israel. That record reflects an increase of 34 percent from 2019.

The city’s tech is booming in different sectors with leading tech clusters in 2020 being AI (Artificial Intelligence), Fintech, Big Data and SaaS. Tel Aviv is home to 43 percent of all Israeli AI companies followed by 42 percent of all Fintech companies. 

And investors believe in the urban tech scene. 

In the period 2016-2020, the report shows a 44 percent growth in the number of Tel Aviv-based investors, notably in VC funds and investment groups. The city also enjoyed an 89 percent increase in the number of VC funds and a 70 percent increase in the number of venture capital management companies.

And it’s not just Israeli VCs and investors betting on the local tech sector. Foreign investors held 68 percent of total investments in city-based companies during 2020, according to the report. 

“The Tel Aviv-Yafo innovation ecosystem enjoyed a remarkable year, breaking many records. Throughout the report, it is clear that outstanding human capital is one of the main reasons for the success of the ecosystem. Tel Aviv’s talent is a magnet for multinational corporations and foreign investors who join the growing local scene of innovators,” said Ron Huldai, Mayor of Tel Aviv-Yafo. 

Foreign investors in the city’s tech companies last year hail from 35 countries including the US, the UK, China, and Germany.

“Investors and companies understand that they cannot *not be present here,” Michaeli tells NoCamels. “There is an abundance of innovation here. More and more markets understand that they have to have a footprint here and investors want to be a part of that.”

“The Tel Aviv tech eco-system has grown tremendously over the years, with local trends intensified in line with the general findings across Israel. With 50 percent of Tel Aviv startups currently at growth stages of development, the city becomes very attractive for foreigners, as shown by the growing number of multinationals and investors involved in Tel Aviv’s tech life,” Guy Holtzman, Founder and CEO, IVC Research Center said in a statement. 

According to the data, 53 Tel Aviv companies exited to the tune of $4.43 billion in 2020, compared to the $883 million from 36 exits in 2016. The AI and cybersecurity cluster led in terms of investments and exits’ volume.

But it’s not all about selling anymore. 

The report studied the city’s tech companies by stage of growth and found that out of 2,865 tech companies in the city, 50 percent are start-ups, 40 percent are in mid-stages or pre-scale, 6 percent are scale-ups and mature companies, and 4 percent are foreign R&D centers of multinational corporations (MNCs). 

Add to that, 60 percent of the investments in Tel Aviv companies went to scale-up firms, and 30 percent of the investments to the pre-scale companies. Early-stage companies attracted just 10 percent of the volume of capital.

While the scale-up companies account for only 6 percent of tech companies, the report shows that they employ 54 percent of the workforce in the local city ecosystem. The unicorn companies, private firms with a valuation of at least $1 billion, are adding a layer of maturity to the ecosystem. 

Tel Aviv unicorns’ joint valuation reached $33 billion, according to the report. 

“You count the unicorns and then two days later you have to count them again, they’ve already IPO’ed,” says Michaeli. 

In 2020, three Tel Aviv companies also completed IPOs in NYSE, Nasdaq, and Euronext.

According to the report, the city houses 29 percent (2,750 companies) of all the tech companies in the country, and 115 multinational R&D centers. The past five years saw a jump in the number of tech companies active in Tel Aviv (up by 25 percent) compared to a 16 percent increase in all of Israel.

“The tech industry demonstrated its value to our city and country throughout this challenging year, while its cutting-edge ideas and developments remain at the forefront of global innovation. Tel Aviv-Yafo will remain an international center of attraction for human capital and financial capital,” said Huldai.

Michaeli says the “brand of Tel Aviv” sells and companies in nearby cities identify with the city. “Companies are very proud to be part of the Tel Aviv ecosystem,” she says. 

Asked to sum up the report in one or two words, Michaeli says that while the data are “exciting,” the report is really about “resiliency and growth.”

Viva Sarah Press is a journalist and speaker. She writes and talks about the creativity and innovation taking place in Israel and beyond. www.vivaspress.com

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