Israel tech thrived in 2016, looks forward to 2017 thrills

Israel tech thrived in 2016, looks forward to 2017 thrills

IoT, the cloud, cybersecurity, fintech and self-driving cars are set to dominate the high-tech scene next year too

Fireworks. (photo credit: CC-BY-SA Merritt Boyd, Flickr)
Fireworks. (photo credit: CC-BY-SA Merritt Boyd, Flickr)

As the year 2016 comes to an end, with an expected record venture capital investment in Israeli technology and booming M&A deals, members of the tech community ventured their 2017 forecasts.

In the first nine months of the year Israeli high-tech companies raised a total of $4 billion in 510 deals, 27 percent above the $3.15 billion raised in 491 deals in the first nine months of 2015, and only 7% below 2015’s record of $4.3 billion, data provided by IVC Research shows. Fifty-seven percent of these deals included at least one foreign VC investor.

And while the IPO market stalled this year as fewer companies sought to raise money on the financial markets, merger and acquisition deals abounded, with investors buying Israeli companies and Israeli companies buying local and foreign companies.

The election of Donald Trump has injected a degree of uncertainty into the market’s prospects, and there are some concerns that his policies may give “less tailwind to globalization,” making investments by US funds and corporations in foreign markets less attractive, according to PwC’s Liat Enzel Aviel. It is clear, however, that Israel’s tech industry will continue to be on the global map — both for local R&D activity and company acquisitions, to help multinationals stay ahead of the competitive game.

A delegation of Chinese CEOs and businesspeople visiting Israel. November 22, 2016. (Courtesy)
A delegation of Chinese CEOs and businesspeople visiting Israel. November 22, 2016. (Courtesy)

Chinese investors, who flocked to Israel in 2016 to snap up technologies and learn about the startup ecosystem, will continue to play a key role, with the pace of Chinese investment rising next year as well, said Haggai Ravid, CEO of Cukierman Investment House. And even if there are some new restrictions on money transfers and on the purchase price Chinese companies can pay, “it is unclear at this stage whether these regulations will slow the flow of investments.”

Ran Senderovitz, Intel's Vice President,General Manager- Intel Israel Development Centers (Courtesy Intel)
Ran Senderovitz, Vice President, General Manager- Intel Israel Development Centers (Courtesy Intel)

In the past four years alone Chinese investors have invested over $15 billion in Israeli companies, data provided by the Catalyst Fund Research 2016 shows.

The cloud, increased connectivity, “smart” items, cybersecurity and self-driving cars will continue to dominate Israel’s high tech scene in 2017, said Ran Senderovitz, vice president, general manager at Intel Israel Development Centers.

“We are moving fast to a world where everything connects — and a big amount of data is moving to the cloud,” he said in an email. “This trend of an uber-connected world — with all of its challenges and opportunities, is going to continue to positively disrupt the way we experience the world.”

An Intel drone (Courtesy Intel)
An Intel drone (Courtesy Intel)

In this world where everything computes and connects, Israel can leverage three key talent pools, he said, to stay ahead of the game: its computing power, for example in Intel’s Israeli teams; its communication engineers, grown out of the universities and the army; and its proven prowess in cybersecurity.

Cybersecurity and security, fintech, the Internet of Things (IoT) and automotive technologies will be among the trends that will lead Israeli industry going forward, Yoram Yaacovi, the general manager of Microsoft Israel R&D Center, recently told the IATI’s annual multinational R&D Centers conference in Tel Aviv. All of Microsoft’s cyber work is done in Israel, he said, with some 20% of global investments in the security sector flowing into the country.

“Microsoft wants to invest in areas in which Israel is strong,” he said. As vehicles go high-tech, Israel, which has expertise in security, communications, machine learning and IoT, can be in the driver seat, enjoying “unparalleled dominance” in a field it played no part in until recently, Yaacovi said.

There are around 150 startups and research groups active today in Israel in the automotive ecosystem, he said, up 100% from 2013.

As vehicles go high-tech, so Israel can be in the driver seat. Image of a self-driving car (Courtesy Intel)
As vehicles go high-tech, Israel can be in the driver seat. Image of a self-driving car (Courtesy Intel)

“Every industry is going through the digital transformation. It changes our economies, society and environment,” said Orna Kleinmann, managing director of SAP Labs Israel, in an email message. Three-dimensional printing will continue to disrupt manufacturing and product development; bots, smart personal assistants and augmented and virtual reality are changing the user experience; and cybersecurity threats are growing, leading to smarter solutions led by big data and machine learning advances, she said.

Orna Kleinmann, managing director of SAP Labs Israel (Courtesy)
Orna Kleinmann, managing director of SAP Labs Israel (Courtesy)

“Israel is well positioned for these trends, taking the lead in security, machine learning and natural language processing,” she said, alongside its leadership in big data technologies and IoT.

But greater digitalization also means greater challenges, leading to the need for more safety and collaborations.

“How do we protect our digital lives, how do we mobilize the huge amount of data to the cloud?” asked Intel’s Senderovitz. “The markets are driving for economy of scale — and it is harder to be a single point of technology in this space — companies need to collaborate more than ever.”

Start innovators young

One of the greatest hurdles that faces Israel’s high tech scene is its shortage of skilled manpower, Senderovitz and SAP’s Kleinmann said.

“We definitely see a challenge here. There is growing competition for top talent, and candidates have more demands — and more options,” said Kleinmann.

“It is very clear that we are now lacking more qualified engineers — and with the flow of innovation and exploration taking place, this is going to impair the ability of Israel to grow its impact,” Senderovitz said. The government must improve science and math education, and help the universities increase their capacity.

Yuval Matalon – eBay Israel General Manager (Courtesy)
Yuval Matalon – eBay Israel General Manager (Courtesy)

“If we don’t do a good job investing in the Z generation now and drive them to select technology majors and become our future innovators, researchers and engineers, we will find that the lack of talent will grow and hinder us from advancing as fast as we need to,” said Yuval Matalon, eBay Israel general manager. “There needs to be more investment in good teachers for the young grades who are able to encourage and drive kids that have a technical orientation to choose science and math as they grow, and motivate them to become entrepreneurs and innovators at a young age.”

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