Tel Aviv top tech site outside US, report says

Although falling from its number two perch for ‘technical reasons,’ Israel’s tech center is still among the best, according to the Compass study’s authors

Israeli entrepreneurs work on a new start-up project in Tel Aviv (Photo credit: Miriam Alster/Flash90)
Israeli entrepreneurs work on a new start-up project in Tel Aviv (Photo credit: Miriam Alster/Flash90)

Tel Aviv ranked as the fifth best locale for start-ups in a new report from Compass (formerly Startup Genome), a veteran organization that studies “tech ecosystems” around the world and rates them based on the resources they offer start-ups to enable them to succeed.

Along with Tel Aviv, Jerusalem also ranked high in the Compass report. Although it focused on the top 20 areas, comparing metrics such as funding, market reach, the level of talent available, how much start-up experience entrepreneurs have, and more, Jerusalem came in for an “honorable mention” – seventh on the list for European runners-up.

Beating out Israel were Silicon Valley, New York, Los Angeles, and Boston. That makes Tel Aviv the best setting outside the US, beating out London, Berlin, and Paris, as well as many “hot” ecosystems in the US, such as Seattle and Austin, the report showed.

The Compass report was based on more than 200 interviews with entrepreneurs and local experts from 25 countries. Data was culled from 11,000 surveys completed by entrepreneurs, investors and other stakeholders over the past five months.

The last report issued by Compass in 2012 actually ranked Tel Aviv as second in the world, behind Silicon Valley – but the change in ranking did not necessarily mean a change in status, said the authors of the report; the change is due to “improvements in our methodology” and the de-emphasis of start-up density (the number of start-ups per capita, where Israel ranks close to the top) in the rankings. Still, the report said, “Tel Aviv is still an exceptionally strong startup ecosystem providing entrepreneurs with a well-balanced set of quality resources, which have been refined throughout the last few decades.”

Why is Tel Aviv so successful?

Tel Aviv’s number five status doesn’t tell the whole story, though – with local firms attracting far more foreign investors than companies almost anywhere else.

“Tel Aviv’s consistent innovation over the last few decades has given it a strong international reputation amongst start-up investors,” with the local ecosystem ranking fifth in overall investments (seed to exit). However, when it comes to attracting foreign investment, Tel Aviv start-ups are second only to Silicon Valley. “It comes as no surprise that 47% of all investment rounds include foreign investors, 38% more than European average,” said the report.

Another area where Tel Aviv start-ups excel is in global market reach – with the estimated 3,100 to 4,200 active tech start-ups in the city ranked as number one worldwide in terms of reaching customers worldwide. “Many experts expect Tel Aviv to continue to increase its global impact —especially in upcoming verticals such as the Internet of Things, Big Data, and Bitcoin,” all hot development areas for Israeli start-ups, the report said.

Tel Aviv also ranked third for top tech talent. Tops, of course, was Silicon Valley, which was the overall winner in all categories, except for market reach (local and international), with California losing out to New York City on that metric. Ranked second in terms of having the best talent was Moscow, which otherwise “has many areas with room for improvement.” But Israel could be number two, or even number one,. “Due to renowned universities such as Tel Aviv University and the Israeli Defense Forces, local tech talent is abundant,” according to the report. “A more diverse workforce would likely increase the performance of Tel Aviv’s start-ups.”

That would include women (the report said that only 20% of start-up entrepreneurs are female), but it’s far from just an Israeli problem, said Compass. “The lack of gender equality is common across all start-up ecosystems.” Israel is a bit above the 18% worldwide average for the percentage of females who are CEOs of start-ups in the 20 ecosystems studied. Chicago was ranked the best place for women to open their own companies – 30 percent of the firms have female founders.

One area that Israel outdoes almost any other non-US location is in salaries for engineers. Other than in London, where the average engineer’s salary is $63,000, a Tel Aviv engineer can expect a salary package worth $61,000 – better than in Berlin ($60,000), Paris ($53,000), or Amsterdam ($53,800). American start-ups should be taking advantage of that, in Compass’s opinion. “Set up a second office focused on engineering in an ecosystem with a lot of inexpensive and plentiful tech talent, such as Austin, Tel Aviv or Sydney,” the report recommends.

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