Tel Aviv nabbed second place as a tech hub for startups with the highest enterprise value behind London and ahead of Paris, turning the city into one of the fastest-growing ecosystems in the world, a new report compiled by Dealroom showed on Wednesday.
Tel Aviv tech startups boasted a combined enterprise value of $393 billion in 2022, second only to London among Europe, Middle East and African cities, fifth in Asia and Oceania, and seventh in the Americas. Since 2018, Tel Aviv’s startup ecosystem has grown 3.5 times in value, faster than the Bay Area, New York, Beijing, London, and Paris during the same period of time.
The report includes 2022 data from both startups founded in the greater Tel Aviv area that maintained their main center of business (HQ) there and those that relocated their HQ outside of Tel Aviv. As such, its findings predate the widespread social upheaval over the government’s judicial overhaul in recent weeks prompting a number of Israeli startups and tech firms to transfer their funds and investments abroad amid fears of economic and political fallout.
Tel Aviv-headquartered startups raised $6.9 billion in venture capital investment in 2022, falling short of the $8.8 billion attracted in 2021, but almost double the amount raised in 2020. The city ranks third in terms of total VC investment in the EMEA region in 2022, after London and Paris and ahead of Berlin, the report showed.
Funds raised by Israeli tech startups almost halved in 2022, dropping to $15.5 billion, according to data by Start-Up Nation Central (SNC), a nonprofit organization that tracks Israel’s tech industry. The downward slope in investments is not unique to Israel, and is in line with what has been happening in Silicon Valley, where investments in tech companies declined by 40%.
Cybersecurity is also a strong suit of Tel Aviv’s ecosystem, with cybersecurity startups raising $1.7 billion, constituting almost 20% of total venture capital investments in 2022, and placing the city in third place in the world for cybersecurity investments, behind only the Bay Area and New York, and ahead of London and Beijing.
Among the startups were Talon Cybersecurity raising $100 million in a Series A funding round in August for its security solutions for hybrid teams, and cloud and network security company Perimeter which raised $100 million in a Series C financing round in June.
As the downturn in financial markets drove declines in most types of investment rounds during 2022, VC funding into early-stage to mid-stage Tel Aviv startups remained fairly stable attracting $3.2 billion, according to the Dealroom report.
“Tel Aviv is able to attract a much higher proportion of early-stage funding from international investors than the EMEA average and notably higher than London, Paris and Berlin,” according to the findings of the report. “Overall, this performance has helped make Tel Aviv one of the most resilient tech hubs in EMEA – more resilient than London and Stockholm and sitting just behind Paris.”
Overall, Tel Aviv ranked eighth worldwide for early-stage funding and sixth in the world for breakout stage rounds. Last year, the city’s startups raised more than twice the average from US-based investors (27% versus the average of 11%). US investors were more active in Tel Aviv than in the rest of their EMEA tech hubs.
“Tel Aviv has been transformed from an important city to a top-priority city for many major venture firms,” stated Adam Valkin, managing director at US VC firm General Catalyst. “We search for the most compelling founders around the globe, and an increasing share of them hail from Tel Aviv.”
“The secret sauce is the highly energetic and collaborative ecosystem of repeat founders, angel investors, venture firms, and marquee tech companies,” Valkin added.
General Catalyst has investments in Israeli firms including fintech outfit Rapyd; Aidoc, a maker of AI-based software; gaming startup Superplay; and cybersecurity startup Apiiro.
Tel Aviv unicorns
Tel Aviv is also home to the fifth-highest number of unicorns worldwide, boasting 95 unicorns as of 2022 of which 75 became unicorns since 2018, according to the report. Unicorns are startups that reached a $1 billion valuation.
Findings of the report showed that many Tel Aviv-headquartered and -founded unicorns, such as Iron Source and Gett, have been breeding new entrepreneurial talent, as staff alumni leave to found more startups in Tel Aviv and abroad. For every unicorn Tel Aviv produces, more than four additional startups are founded by people from billion-dollar companies, also known as second-generation founded startups, the data showed. Moreover, 76% of these new startups chose to stay and build their businesses in Tel Aviv.
“The countryʼs unique combination of entrepreneurial DNA, record number of repeat founders, and world-class technical talent to draw on, makes Israel resilient,” said Davor Hebel, managing partner at Eight Roads Ventures. “Israel has moved from being a ‘startup nation’ to being a ‘scale-up nation’ and whereas Tel Aviv’s leading startups would have once been expected to exit via a sale to strategic buyers, now their goal is to build large multi-billion dollar publicly traded companies.”
“This makes Israel a great place to invest,” said Hebel.
Eight Roads has investments in a number of Tel Aviv companies, such as Appsflyer and Hibob.