Israel: Start-up nation comes of ageJan. 11, 2016
With a small domestic market of just 8m people, entrepreneurs in Israel have a tendency to sell early. A common question posed at conferences was when Israel — nicknamed Start-Up Nation in an eponymous 2009 book — might become “scale-up nation”. Israelis asked when their country, which has no household-name multinationals other than generic drugs group Teva, would get its own corporate national champions like Finland’s Nokia or Germany’s Siemens.
But as its technology sector matures, the Jewish state is seeing more companies expand to employ hundreds of people locally, achieving valuations of $1bn or more and gaining the status of “unicorns”.
The crop of new and bigger companies worth $1bn or more is a source of growth for an economy that contends with demographic challenges and acute political risks. While some “old-economy” companies and industries are stagnating or struggling, the country’s growing technology sector is a magnet for inward investment and a continuing source of jobs — including for its underemployed Palestinian and ultra-Orthodox minorities. The industry accounts for 18 per cent of gross domestic product and more than one-third of the country’s total exports, according to official statistics.
One of the reasons Israeli technology groups are expanding is that they are over-represented in sectors that are growing on the back of global demand: mobile applications, web engineering and most notably cyber security — an area where Israel’s national security needs are helping to feed a world-class industry.
Check Point, founded by veterans of Israeli military intelligence, pioneered firewalls and Israel’s broader push into cyber security. It has long set an example for new companies, and remains one of Israel’s largest with a market capitalisation of $14bn.
It now has competition. Mobileye has built up a dominant presence in the market for camera-based automotive systems, powered by image processing algorithms that allow cars to brake or drive autonomously. It has resisted advances from would-be buyers; its founders Amnon Shashua, a computer science professor, and Ziv Amiram secured an early $100m investment from Goldman Sachs and set their sights on building a standalone company. It listed its shares in 2014 in the biggest Nasdaq IPO for an Israeli concern, and is now worth about $8bn.
Nasdaq-listed Wix.com, with a valuation just under $1bn, is growing its office in Tel Aviv as it expands its do-it-yourself web development business.
Other “good candidates” for unicorn status, according to PwC’s partner in Israel Rubi Suliman, include Gett (formerly GetTaxi), an Uber-like cab-hailing and delivery company; IronSource, an online software and mobile distribution company; Outbrain, a “content discovery platform” provider; and Taboola, which helps content providers find links that will drive traffic to their sites. None have yet floated.
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