Jerusalem is catching up to Tel Aviv in every way, an miniature rivalry propelling continued Israeli startup growth
Startup Genome released Tuesday its 2017 report on the world’s top startup economies, including some interesting additions and changes. Tel Aviv ranked high (6th) but dropped a spot relative to the previous report two years ago, while Jerusalem got an honorable runners-up mention, placing it in the top 28 startup ecosystems worldwide.
“In Israel, Tel Aviv has been a top-performing startup ecosystem for several years, and in our 2017 rankings, Jerusalem was a close runner-up, scoring strong in Talent and Market Reach,” the report’s authors wrote, which included Genome CEO and Co-Founder Bjoern Lasse Herrmann, CFO J-F Gauthier, Project Manager Danny Holtschke, Dr. Ron Berman, and Founder Emeritus Max Marmer.
But that TL;DR undersells how strong the holy city really is in the rankings. It comes in 3rd for percentage of customers who are based internationally, behind 1st place Tel Aviv and 2nd place New Zealand. Silicon Valley ranked 4th. That both cities rank so high is indicative of a critical and successful world-first strategy by startups from the Jewish State.
“In Stockholm, Berlin, and Helsinki startups have an incentive to go global — beyond Europe — if they want to grow faster. The best examples of this are Tel Aviv and Jerusalem. Because of its small economy and thanks to their global community, Israeli startups have successfully executed go-global strategies for years.”
Jerusalem: city of gold, hub of silicon
Jerusalem was listed among seven other runners-up that included Atlanta, Delhi, Denver-Boulder, Helsinki, Moscow, Mumbai, and Salt Lake-Provo. It made a strong case to break the top 20 though, coming in 5th worldwide in terms of exit value per share (over 5 percent) and ranked extremely high on global connectedness.
It was one of the eight technology clusters in the European region that got special mention next to Lisbon, Estonia, Barcelona, and the burgeoning startup scene in Frankfurt. But it is safe to say Jerusalem outpaces all those tech economies. Genome estimates 500-700 startups are in the Israeli capital and mentions Mobileye’s $890 million IPO as a boon for the city (the report was clearly completed just before Intel’s $15.3 billion acquisition of Mobileye announced yesterday).
“With a population of almost one million—one-third of which is Muslim—Jerusalem’s startup ecosystem thrives on diversity and the actions of a helpful city government. The city boasts a number of recent startup successes in cutting-edge realms like computer vision (image processing, virtual reality), machine learning, and artificial intelligence.”
Glide and OrCam get special mention. There were plenty of examples to cite for its strength, but the report did critique the city of gold as well.
“Jerusalem is a top contender that narrowly fell outside of this year’s top 20 ecosystem index overall. The city’s weakest factor is performance, where interestingly its exit value is very strong but the total value of the pre-exit startups is weak, indicating strong outlier performance with weaker fundamentals,” the report reads.
Tel Aviv still reigns
The Tel Aviv metropolitan area is still the center of Israel’s tech world. The report mentions over 250 Israeli companies have IPO’ed on the NASDAQ exchange in the last 40 years, only outnumbered by the US and China. Early-stage funding averages around $509,000 per startup, more than double the global average. The metro’s ecosystem value is worth a colossal $22 billion. Even the average $63,000 software engineer salary beats the global average ($49,000).
“Tiny Tel Aviv has all the characteristics of a global tech giant: technology, education, government support, a global mindset, and a staggering 300 multinational R&D centers operating in Israel.”
The report notes military is the primary factor in Tel Aviv’s strength and the main conduit for many developers and cyber security entrepreneurs currently driving Israel’s overall startup economy. It’s worth noting, this report aside, that Silicon Valley also has its roots in military development.
Tel Aviv’s immigrant founder percentage is shockingly low at 16 percent (below the 19 percent worldwide average), this despite the fact Israel has high and steady immigration of Jews with college degrees from around the Western world. Its female entrepreneurial numbers are also low, down at 8 percent.
On the other hand, 34 percent of Jerusalem’s founders are not native-born and 16 percent of the more religious city’s startup entrepreneurs are women, double that of secular Tel Aviv.
Jerusalem is growing, but then again so is the whole country
What is important to note here is how much of an advantage seed stage startups have in coastal Tel Aviv versus mountain-high Jerusalem. The average amount of early stage funding in Jerusalem is only $254,000, about average, meaning Tel Aviv beats the city out by about 100 percent. Jerusalem’s ecosystem value is only (“only”) $6 billion, a quarter that of Tel Aviv.
Jerusalem has produced exits. As Ben Wiener notes, Jerusalem is responsible for Israel’s two largest (NDS and Mobileye, three if you include Mobileye twice for IPO and sale to Intel). The proximity of the city to Tel Aviv makes it inexcusable more investors from the Big Orange don’t make the 45-minute trip to the nation’s capital to look for investments.
In all likelihood, considering Jerusalem was ranked high two years ago in this index, the city will probably broach the top 20 the next time this report comes around.
The report does not mention technology clusters in other parts of the country: Haifa, Beer Sheva, and Arab tech hub Nazareth. It’s not clear if data from those cities is somewhat included in the Tel Aviv section of the report or if their numbers were judged independently. It can be difficult to assess in which ecosystem some startups should be placed: Modi’in-based IT Central Station is located at the precise midpoint between Israel’s two main cities.
Tel Aviv likely dropped in the rankings from 5th to 6th for a couple main reasons: 1) Chinese cities were included in this report unlike the 2015 analysis and 2) data on Jerusalem was likely separated more thoroughly. The research does not consider a possible shortage in home-grown talent being discussed in the Israeli ecosystem, which might otherwise have weighed down on both cities in the assessment. Should Israel take steps to correct that problem, there should be no issue in getting Jerusalem’s share of the global startup economy to grow in the next couple of years, plus seeing other Israeli metros start battling for their own rightful place atop the startup world.