It’s been an incredible year for Israeli tech. According to a report by Tel Aviv-based research firm IVC Research Center and international law firm ZAG, in the third quarter of 2019 Israeli companies raised $2.24 billion across 142 deals, more than in any quarter since 2013. Moreover, by the end of the third quarter Israeli startups have already raised a cumulative $4.68 billion in venture funding, almost the same amount raised throughout all of 2018.
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Some notable examples include Cybersecurity company Cybereason raising $200 million from SoftBank; Content creation app startup Lightricks, $135 million in series C; and Israeli-led insurance startup Hippo, raising $100 million from high-profile venture capital funds such as Comcast Ventures and Bond Capital. There’s no doubt, Israeli tech is booming.
Yet, it’s not just funding that accelerated this past year for Israeli startups. Things have also been busy on the mergers and acquisitions side—another sign of maturity in the Israeli tech ecosystem.
Only a few years ago, Israeli founders were criticized for selling their companies too early and settling for small exits. Fast forward to 2019, and the landscape has completely changed. More and more startups are focusing on optimizing growth, targeting large exits and IPOs. In 2019, Israeli tech mergers and acquisitions are up to $9.9 Billion. This is a 102% increase year-over-year, according to a report published by accounting firm PwC Israel.
If the acquisition of Waze by Google for $1.1 billion set the stage on the consumer side back in 2013, we now see a much higher price tag for enterprise startups getting acquired over the past few years. Mobileye was sold to Intel for over $15 billion, while Israeli chipmaker Mellanox Technologies was acquired earlier this year by Nvidia Corporation for $6.9 billion. Large US corporations are willing to pay big for game changing Israeli technologies.
As we head into 2020, some questions arise around Israeli tech. Will funding levels continue to reach new heights? Are new Israeli unicorns on the horizon? What technologies will be hot, and where will the next big Israeli innovation come from – Israel, Silicon Valley, or maybe New York?
As we turn our attention to the new year, here are 5 bold predictions for Israeli tech in 2020.
Growth Rounds And IPOs Will Continue To Dominate
Capital has been flowing to successful Israeli startups. With the entrance of more foreign investors with deeper pockets and a willingness to hold on to a company for longer, Israeli founders are able to throw for the fences. Add to that, an active growth Israeli VCs scene including the likes of Qumra Capital, Israel Growth Partners and Viola Growth, and startups with healthy revenues will have plenty of options to fuel their growth.
In addition, the revival of Israeli startups looking to go public, which started in 2019 will only increase In 2020. Given the success of Fiverr, seeing its market cap rise to over $700 million after a successful IPO, and plenty of other Israeli startups surpassing the $100 million annual recurring revenue threshold, the stage is set for more IPOs in 2020. Analytics and business intelligence platform Sisense, data recovery Zerto, payment solution Payoneer, are only a few companies eyeing an IPO, and the list of companies heading in this direction is quickly growing.
Pre-Seed Is The New Seed
The flow of capital to Israel has impacted the VC landscape. There is intense competition on the best deals, and after decades of leverage being on the side of the investors, now top Israeli founders are sought after by funds that are looking to invest in the best teams, even if it means taking a lower equity stake in companies than in the past.
A recent survey by GroundUp Ventures titled the State of Seed, reveals interesting data on the evolution of seed investing in Israel over the past year. Most notably, two thirds of the VCs surveyed increased their check size in 2019 by an average of 50%. In addition, almost half of the surveyed funds believe there is too much seed capital in Israel.
The fierce competition for talent, has pushed many Israeli VCs get in earlier. While in the past most Israeli funds focused on leading A rounds, over the past couple of years, the majority of VCs are focused on leading seed rounds, especially in companies where they worked with the founders in the past. I highly suspect this trend will continue and move to the pre-seed stage. This means a harder reality for first time founders looking to raise their first round of funding, as they are at a disadvantage compared to serial entrepreneurs.
AI, Machine Learning Winners Will Deliver Real Value, Not Just Hype
Artificial intelligence (AI) has become an integral part of our daily lives over the past few years. Israeli founders, many of whom came out of the Israeli military with training in developing artificial intelligence applications and machine learning solutions, have applied their know-how across a variety of sectors. There’s been a proliferation of startups using AI to tackle problems in cyber security, autonomous vehicles, insuretech, fintech, legal tech, and virtually every industry where technology can be leveraged.
However, up to this point, very few startups have been successful in translating AI innovation into consistent revenue and growth. In 2020 I expect this to change. Companies will be focused on improving the user interface and overall customer experience to encourage faster adoption. Rather than a rush to wow potential investors with these cool, flashy new technologies, we’ll see an emphasis on finding the right real product-market fit that will truly make the consumer’s life easier.
Digital Health Is In—At Last
Repairing the healthcare industry was a big focus of many innovative startups and top-tier VCs in the US over the past few years. Digital health investing continued to blossom in 2019. Over the past two years, these startups raised well over $10 billion in funding across nearly 1,000 deals, according to data from Pitchbook and Crunchbase.
Many startups focused on developing tech solutions in areas such as mental health, care navigation, digital therapeutics, and new models of integrating telehealth, remote care. And yet, outside of a few exceptions, funding for health tech has been relatively low for Israeli startups as most Israeli VCs lack enough knowledge in this area and prefer to stay within their comfort zone.
The end of 2019 is bringing with it winds of change for Israeli digital health startups. Some key players in this space include TalkSpace, offering therapy and counseling on demand, Orcam, providing life changing AI technology for the blind, and Healthy.io, turning smartphone cameras into clinical grade medical devices. The success of these companies is paving the way for other health startups looking to use deep technologies to overcome challenges across our healthcare system.
NYC-Based Israeli Startups Will Produce A New Generation Of Israeli Founders
It is no secret that New York has become the destination for Israeli startups over the past few years. The combination of capital with over 200 active NY-based VCs investing at seed and Series A, a friendly time zone compared to Silicon Valley, a supportive Israeli tech community, a welcoming culture and the glory of NYC, has made it extremely attractive for Israeli startups to make NYC their homebase in the US.
According to Israeli Mapped in NY, an interactive map of Israeli startups operating in NYC developed by Guy Franklin, there are currently 350 Israeli startups with a base in New York. Most are data-driven companies, operating in fields such as enterprise software, fintech, cyber security, retail and health.
The ecosystem of Israeli startups has matured over the past few years, enabling top talent from established startups to venture out and launch their own companies. Tzvia Baded, co-founder of TrialJectory which connects cancer patients with clinical trials using AI, previously worked at TalkSpace until she felt the itch to launch her own startup. Recently, her company raised $2.7 million in seed funding led by NYC-based VC Contour Ventures. Given the amount of mature Israeli startups with a home in NYC and the local talent it nurtures, I expect this trend to take off in 2020.
Israel has moved over the past few years from Startup Nation to Scale-Up Nation. Now comes a new chapter to Israeli tech, one that includes new challenges but definitely lots of unique opportunities. If the current pace of innovation and funding continues, another great year for Israeli tech is highly likely.