Internet of Things in Tel Aviv, Top 20 Startups
A glance at the private equity investment landscape in the Startup Nation’s greatest technology hub.
With its unique history and rich cultural heritage, Israel is also among the forward-looking countries placing a heavy emphasis on innovation and technology. Many indicators – from research and development spending to intellectual property – support this statement. Last year, the nine-million-people-large state entered the top 10 list of the Global Innovation Index, an annual ranking published by INSEAD and the World Intellectual Property Organization (WIPO). Israel's figures are impressive by any standards.
It is no surprise at all that these conditions have given birth to one of the most rapidly growing startup ecosystems globally. For one thing, there are six Israeli firms in EqualOcean’s current ‘Next Global Tech 50: Semiconductors’ list of the most outstanding chipmaking rookies; these have been selected by the use of 12 independent criteria, such as total PE/VC funding amount, market valuation and founders’ background information – as well as several technological and macroeconomic indicators.
In this article, we talk about some layers beyond microelectronics. The growth-stage enterprises that are making attempts within the blurry border zone between physical and digital are in our scope this time. The Internet of Things (IoT), a construct that many consider conceptually fusty nowadays, is still yet to show its full potential – this is one of those areas where theory has far surpassed practice (we don’t mean to call it ‘futurology’).
As the gap between the IoT that exists in PowerPoint slides and the one that exists in the real world becomes even more evident, a bunch of commercial opportunities are appearing for those who are able to employ unconventional approaches to thorny problems using this technology. A plethora of startups are trying their best in the ever-emerging domain in Israel.
Here comes the first insight. Taking into account funding rounds that have been announced over the past several years, we can see that the investment activity has been going full blast between January and March each year. (Is the fruitless fourth quarter of 2019 the calm before the storm?)
Besides, the annual amount of money banked by Israeli IoT challengers peaked in the third quarter of 2017, when pilotless drone solution developer Airobotics bagged USD 32.5 million from Californian fund BlueRun Ventures among other investors; the same year, machine learning pioneer Iguazio took home USD 33 million.
We have seen a few more big rounds in this sphere, not to mention some adjacent fields like software, which is traditionally strong in a country famous for its programmers. Silicon Wadi, an analog of the well-known American region, is germinating multiple disruptors here and there, making the world’s finest institutional and corporate investors pay attention.
So, why Tel Aviv?
Indeed, being the capital is not enough. Though most of the high-income small-sized economies are often associated with one (two, at the max) colossal cities, this story is more complicated in Israel. For instance, the population is almost evenly distributed across the country’s six districts – and Tel Aviv is only second on the list. The OECD’s 2018 edition of ‘Regions and Cities at a Glance’ shows that the city is leading by four of the 10 ‘well-being’ aspects, while the Central district (or HaMerkaz) is excelling in the other four.
In order to answer the question above, we employed a proxy that is pretty close to the topic of this article. Namely, the number of startups that leverage IoT. Aside from that, there are two other variables that fortify the argument in favor of Tel Aviv: the total dollar volume of venture capital raised and the number of private equity investment events.
Taking over half of all the three ‘pies,’ the capital of Israel has some substantial numbers to prove its local dominance. Out of 67 recently active private IoT companies, 37 are located in Tel Aviv’s agglomerated zone. Since 2014, they have completed 73 rounds of financing, nabbing over USD 270 million to carry out their long-cherished ideas.
These 37 firms are, for sure, different in many respects. Both the technologies they leverage and the ways they make (or intend to make) money are unalike. As the former is typically dictated by the applications – which is a new normal, look at the Integrated Circuit (IC) industry, for example – we divided the Tel Aviv startups into 11 groups based on the real economy sectors that they are operating in.
As a matter of fact, connectivity of any type must be secure as modern-day misdeeds like data theft and invasion of privacy are, paradoxical as it may sound, becoming easier as technology advances. Since 2014, Tel Aviv-based network security companies have gained over a third of the total dollar volume of IoT PE/VC funding in the city.
Two-year-old IT firm Axonius, for one, had a productive 2019: after raising USD 13 million from Bessemer in February, it proceeded with a USD 20 million Series B in August. Another young and promising player – end-to-end security solution provider VDOO – absorbed USD 32 million in GGV Capital-led Series B last year.
At the forefront of a quest to optimize manufacturing environments and operations by deploying smart sensors and accelerating information transmission, the Industrial Internet of Things (IIoT) is also widely represented in the affluent middle eastern country.
Tel Aviv’s up-and-coming IoT hardware producers, retail tech companies and smart home evangelists also obtained relatively big amounts of money between 2014 and 2019. The largest disclosed round in these three clusters was closed by deep learning microprocessor developer Hailo. Backed by Chinese fund Glory Ventures (耀途资本) and the automotive industry-focused Maniv Mobility, the chipmaker has raised a total of USD 24.5 million in venture capital to date.
The other sectors are significant too. Let’s take, for example, the retail industry or the smart home domain. One would think a country with almost no domestic market doesn’t need its own Alibabas and Xiaomis. However, the scale is not the only factor: many excellent practices in the consumer sector can be easily adapted to other markets. As a result, companies like ‘customer experience crafter’ Anagog appear and attract investors’ attention.
Here below, we have compiled a list of 20 early-stage Tel Aviv upstarts with significant growth potential and exceptional business models, using a handful of investment and technology-related variables. The final list of ‘laureates’ spans ten distinct areas, including incumbent industries like healthcare and logistics, as well as evolving concepts like smart cities and IIoT.