Sun, sand, sea and … unicorns? Why Tel Aviv is the world’s new startup capital
The Israeli city has the highest number of startups per capita in the world. What can it teach other cities about how to build a healthy business ecosystem?
With 170 miles of Mediterranean coastline and an estimated 300 days of sunshine a year, Israel’s tourism industry is booming, with record numbers visiting in 2017. But in Tel Aviv, it’s the startups that have got the business world talking.
According to the 2018 Global Startup Ecosystem Report, Tel Aviv has the highest number of startups per capita in the world, and the highest investment of GDP in research and development (R&D). It’s also one of the top-performing cities for global connections and global market reach, and has been highlighted by Compass and Fortune magazine as one of the best places in the world to start a business.
Big ticket acquisitions by some of the world’s largest companies have given homegrown entrepreneurs the confidence to dream big. Google acquired Waze, a traffic and navigation app, for $1.3bn in 2013, beating off competition from Apple and Facebook. That sale was followed by deals to buy the autonomous-driving startup Mobileye by Intel, for $15.3bn; meanwhile Israeli taxi app Gett is valued at $1.4bn. Tel Aviv is also home to hundreds of venture capital funds, acceleration programmes and co-working spaces, spread across the city’s 20 square miles.
“The startup scene was very good even back then,” says Waze co-founder and serial entrepreneur Uri Levine about launching the company in 2008. “But the ecosystem has matured a lot over the past decade, with experienced angel investors, higher aspirations, and an ecosystem that embraces change.”
Experts say the Israeli government has been pivotal in kickstarting the industry, not least with tax cuts in the mid-1980s; the creation of the Yozma programme, a $100m (£75m) investment company that created a homegrown venture capital sector, in 1993; and a high-tech incubators programme. Yozma’s founder, Yigal Erlich, had previously been Israel’s chief scientist. In 2016, that office was rebranded as Israel’s Innovation Authority (IIA), and supported 1,115 projects of 650 companies, awarding average grants of £290,000 (1.4m ILS).
The government has also been responsible for reducing corporation tax for tech companies, from 25% to 6-12% (depending on the nature of the business), and removing bureaucratic obstacles to encourage hi-tech mergers – and it has stated its commitment to increase the number of skilled personnel employed in the sector from 270,000 to 500,000 in the next 10 years. Part of that drive will entail looking internationally for talent, targeting underrepresented local populations – such as Israeli Arabs, ultra-Orthodox Jews and women – and initiatives such as the innovation visa pilot for foreign entrepreneurs.
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