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Tel Aviv slips to 7th place in annual list of best global tech ecosystems

City down by one spot since last year, in new Startup Genome survey ranking where tech startups have best shot for success; Silicon Valley no. 1 since 2012

Ricky Ben-David is The Times of Israel’s Startups and Business editor and reporter.

Israelis wear protective face masks near the Azrieli towers in Tel Aviv, on October 25, 2020. (Miriam Alster/Flash90)
Israelis wear protective face masks near the Azrieli towers in Tel Aviv, on October 25, 2020. (Miriam Alster/Flash90)

Tel Aviv slipped to seventh place in an annual survey ranking the world’s most attractive ecosystems for startups and innovation by research firm Startup Genome, down from sixth last year when it shared the spot with Jerusalem and Los Angeles. The study mapped the global startup industry in 140 leading ecosystems worldwide, and was released last week.

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. Beijing and Boston ranked fourth and fifth, respectively, followed by Los Angeles in the sixth spot. Shanghai, Tokyo, and Seattle rounded out the top 10. Jerusalem did not make the list in this year’s survey.

The Startup Genome Ecosystem report, published annually since 2012, is a comprehensive study of the global startup scene. It came this year as venture funding for companies skyrocketed to $288 billion in the first half of 2021, and new unicorns — private companies with valuations of $1 billion or more — were minted every month, according to the survey.

In Israel, investments in the local tech sector surged to a record high of $11.9 billion in venture capital in the first half of 2021, according to a report published in July by IVC Research Center and the law firm Meitar.

The sum surpassed the $10.3 billion raised in the full year of 2020.

The Israeli tech ecosystem also produced over a dozen new unicorns so far in 2021, and the average time for Israeli tech firms to reach a valuation of $1 billion or more has halved in the past decade, according to a June report by Catalyst Investments.

Global ecosystem ranking

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.

To build the survey, the research firm studied three million companies, nearly 300 ecosystems, and gathered data from more than 10,000 startup executives across the globe, it said.

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. (Wikimedia Commons/CC BY-SA 3.0/Coolcaesar)

Silicon Valley scored 10 in all of these success factors, while Tel Aviv scored 10 in market reach, eight in performance, connectedness, and talent, nine in funding, and a relatively low four in knowledge.

Tel Aviv’s strengths

The section devoted to Tel Aviv points out that the city’s main strengths include AI, big data, and cloud technologies, with over 700 companies in these fields. Cybersecurity is also a strong suit of Tel Aviv’s ecosystem, with companies in this sector raising $2.9 billion in total funding in 2020 alone.

In the first half of 2021, Israeli cybersecurity companies raised $3.4 billion in 50 deals and seven of them became unicorns, the Israel National Cyber Directorate reported in July. The figure accounted for 41% of the total funds raised by cybersecurity firms worldwide, and was three times the amount raised in the same period a year earlier, the data showed.

Overall, the Tel Aviv tech ecosystem was valued at $62 billion, compared to a global average of $10.5 billion, according to Startup Genome.

Illustrative image: Azrieli Towers, Tel Aviv. (Moshe Shai/Flash90)

“Tel Aviv has shown tremendous growth and maturity with many startups evolving into scaleups, unicorns and public companies,” wrote Yifat Oron, senior managing director and head of the new Tel Aviv office of United States investment giant Blackstone, in the Tel Aviv section.

“As a leading global investment business, we are excited for the opportunities presented in one of the most dynamic and innovative markets in the world,” added Oron, the former CEO of LeumiTech, the tech banking arm of Bank Leumi.

Oron told The Times of Israel in an interview in April that the Israeli tech ecosystem was “ripe enough” to be a recipient of the “big checks” by Blackstone.

“You have companies that are Israeli originated, with Israeli management and founders who become global leaders and they are worth billions and hopefully tens of billions,” Oron said at the time. “All of a sudden Israel is ripe enough to be a relevant partner for an entity like Blackstone.”

Tel Aviv is also home to over 100 multinationals that have established development and innovation centers in the city for human resources considerations. These include giants like Google, Microsoft, Facebook, Amazon, and Apple, as well as Mastercard, Ford, and SAP.

Residents of south Tel Aviv listen to a lecture at the municipality’s new entrepreneurship center in the southern Neve Shaanan neighborhood. (Shana Krakowski/Tel Aviv Municipality)

The city of Tel Aviv also operates municipal entrepreneurship and innovation centers that provide accelerator programs, support, and mentoring from the earliest stages, as well as opportunities to implement their developments in the City Hall or municipal companies.

Examples include the Ratzif Innovation Center in the southern neighborhood of Neve Sha’anan, and CityZone in Kiryat Atidim, which specializes in technologies that address urban and smart city challenges.

“Tel Aviv has proven once again to be a fertile ground for innovative thinking, creative minds, and entrepreneurial spirit,” mayor Ron Huldai said in a statement accompanying the Startup Genome report.

Shoshanna Solomon contributed to this report.

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