Tel Aviv moved up two spots to fifth place in an annual survey ranking the world’s most attractive ecosystems for startups and innovation by US research firm Startup Genome, rising from seventh last time.
The study mapped the global startup industry across more than 140 ecosystems worldwide, collating data on 3.5 million startups. According to Startup Genome’s model, the higher the ranking of the ecosystem, the better the shot of an early-stage startup at building global success.
California’s Silicon Valley maintained its first-place position in this year’s report, followed by New York City and London, which were tied once again in second place. Boston and Beijing both dropped out of the top five to sixth and seventh, respectively, and paved the way for Los Angeles to be lifted to the fourth spot and Tel Aviv to fifth. Singapore entered the top 10 for the first time, moving up 10 spots to secure the 8th place in the ranking. Shanghai and Seattle rounded the top 10.
In the Startup Genome Ecosystem 2023 report, published annually since 2012, it was noted that Israel’s ranking improved even though the tech industry worldwide was facing a challenging year. The study was conducted before the Israeli government’s advancement of proposed changes to the judicial system at the start of 2023, which tech leaders have warned would undermine the country’s system of checks and balances and hurt its status as hub for innovation and investment.
“The presence of the city among the top five in the ranking is conclusive proof that the freedom of creativity and thought, along with the values of diversity and liberalism, form the foundation for a thriving and successful tech industry,” commented Tel Aviv Mayor Ron Huldai. “Tel Aviv will continue upholding these values, offering tools, assistance, and support to the startup and high-tech companies operating in the city.”
“It will remain a central hub and a welcoming home for tech companies in Israel,” Huldai added.
2022 was a tough year for Israel’s tech industry, with investment in Israeli tech startups plunging by almost half to $15.5 billion from the previous year. The number of “exits” — mergers and acquisitions or initial public offerings of shares — dropped 58% during the same comparative period as the uncertain specter of higher interest rates and valuations pushed entrepreneurs and investors into a wait-and-see mode. The value of these Israeli tech exits, including M&As and IPOs, in 2022 slumped a staggering 80% from 2021 and totaled $16.9 billion, according to the 2022 Israel High Tech Exit report by consultants PwC Israel.
Overall, the Tel Aviv tech ecosystem was valued at $235 billion, compared to a global average of $34.6 billion, according to Startup Genome, buoyed by a “sharp” increase in exits over $1 billion, led by the $8.5 billion IPO by Israeli fintech firm Pagaya. Tel Aviv also saw the number of unicorns – private companies with valuations of $1 billion or more – increase from the second half of 2020 to the end of 2022 with 33 new entrants taking the total to 57. The report cited Blockchain company Fireblocks as the highest-valued unicorn at $8.5 billion.
Other deals in 2022 included Intel’s $650 million acquisition of AI optimization software company Granulate and Sling Insuretech’s $665 million venture round, which put the company’s pre-money valuation at $2.9 billion. The city’s average time for a startup to exit was 7.4 years, quicker than the global average of 9 years.
Tel Aviv scored second as a cleantech ecosystem worldwide, after Silicon Valley and before Stockholm, London, and Los Angeles.
“For years Israel has been a global leader in the development of efficient solutions adapted to its resources in agriculture, waste management, clean energy, and water treatment, among others,” according to the report
VC funding globally began its downward trend in the first quarter of 2022, dropping 13% from the fourth quarter of 2021 and declining by 35% in 2022 year-on-year, according to the report. The 2022 downturn led to a global decline of 40% in the number of unicorns to 359 from 595 in 2021.
For the annual ranking, the research firm measured six success factors: performance, which takes into account the number and growth of exits and how many startups succeed; access to and quality of funding; market reach, or the ability to tap global markets; how easy it is to recruit top talent; how connected startups are to others in the ecosystem; and knowledge, a measure of publication impact and patents.
Silicon Valley scored 10 in all of these success factors, apart from knowledge, while Tel Aviv scored 10 in market reach, nine in performance, funding and connectedness, eight in talent and experience, and a relatively low five in knowledge, while its biggest weakness was local market reach with a score of 1.
In terms of industry sectors, Tel Aviv was highlighted for talent density in the areas of life sciences, cybersecurity, and AI, and big data & analytics. The city’s established startup scene and tax incentives were cited as factors for a startup to move to Tel Aviv.