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Israel’s tech industry is booming, growing pains and all

Israel's tech growth is breathtaking, even for a country that already was considered a major tech player, writes Tzury Bar Yochay.

Time-lapse photo of tall buildings in Tel Aviv

Tel Aviv, Israel's principal tech hub, is starting to look more like Silicon Valley than Silicon Valley itself.

Photo: Igal Ness/Unsplash

Tzury Bar Yochay is co-founder and chief technology officer of Tel Aviv-based cybersecurity company Reblaze and the co-creator of Curifense.

Let's play the icebreaker game "two truths and a lie." Try to guess which of the following statements about Israel's tech industry are true:

1. One-third of the world's cybersecurity unicorns are in Israel.

2. Israel has more than 6,500 active tech firms, or about one company per 1,400 people.

3. The amount of venture capital money invested in Israeli companies has risen 50% in the last three years.

If you guessed that the lie was number 3, you're right. That's because the $5.4 billion in VC funding in Q1 more than doubled the amount in the same period a year ago. Since the start of this year, Israel's tech sector has raised $10.5 billion — matching the total for all of 2020.

Greetings from Israel, the land of milk, honey and, as these facts show, a tech boom, with a magnitude that's become breathtaking, even for a country that already was considered a major tech player.

In 2016, former Google CEO Eric Schmidt went so far as to say, "The United States is the number one place in the world for entrepreneurs, but after the U.S., Israel is the best." The list of innovations attributed to Israeli labs includes the first Motorola cell phone, the first commercially viable firewall, the USB flash drive and the Waze GPS system.

But as its tech sector expands even faster, Israel is starting to feel less like a scrappy offshore upstart and more like Silicon Valley in one of its go-go eras. For the first time, the tech sector isn't just thriving but its outsized riches are reverberating throughout society, from soaring home prices to waiting lists for luxury cars.

In fact, the Tel Aviv metropolitan area, Israel's principal tech hub, may look more like Silicon Valley these days than even Silicon Valley itself. While the Valley's movers and shakers remain largely at home because of the pandemic and companies like Oracle and Hewlett Packard Enterprise relocate their headquarters to Texas, Israel — enabled by COVID-19 vaccines administered to more than 50% percent of the population — has accelerated its reopening. Cafes are filled with techies banging away on their laptops and making deals.

It's all heady stuff for a country that has only about 9 million people, is roughly the size of New Jersey, and has only been a country for 73 years (Yom Ha'atzma'ut, Israel's Independence Day, was in April).

And there are more indications that Silicon Wadi has shifted into overdrive.

Talent wars have broken out. One of the signs that a tech boom is in full flower is literally a sign. On my 20-minute drive to the office, I'm seeing, for the first time, Silicon Valley-style billboards paid for by startups desperately looking to hire. The demand for talent is outpacing supply. According to one estimate, Israeli companies had 18,500 open tech positions as of July 2019, an 8% increase from a year earlier.

Teslas have sold out. Sales of a favorite status symbol, the Tesla electric car, began in Israel in early February. Prices for the basic Model 3, including taxes and popular accessories, were $75,000. The cars quickly sold out, and now there's a waiting list. That's unheard of in Israel.

The industry is swimming in shekels. In each of the last five years, Israeli startups have raised record amounts of funding, according to the IVC Research Center. Last year's nearly $10 billion was 27% higher than 2019's total and nearly triple 2015's. The number of deals keeps rising as well, and VCs are becoming more prominent in seed rounds, supplying larger amounts. In addition, 19 companies went public last year.

The cybersecurity sector is especially hot. Israeli cybersecurity companies posted 70% growth in funding in 2020, collecting a record $2.9 billion in 100 transactions, according to the Israel National Cyber Directorate. Investments in Israeli cybersecurity firms accounted for 31% of all global investments in the sector last year, second only to the U.S.

More Israeli entrepreneurs are staying in Israel. It used to be typical for Israelis to start a company in Israel but move to Silicon Valley or another large U.S. tech hub to grow the business. That still happens, but less often. More and more, companies are expanding to the U.S. to have a presence in the world's largest economy, but are keeping their headquarters and some other key functions in Israel.

As the startup ecosystem in Israel has flourished, it's become less necessary to leave. Nor is it necessary for tech pros to go elsewhere to make big money. A few years ago, Amazon aggressively recruited workers for its new R&D center in Tel Aviv, offering salaries 20% to 40% higher than what they typically made at startups, as well as signing bonuses and other perks. Startup executives were angry, but soon, salary wars became the norm in Israel's tech sector.

High-rise office buildings are going up everywhere. One of the most common sights in Israel now is the construction crane. Tech money is transforming the skyline in Tel Aviv, Beersheba and even other cities like Jerusalem and Haifa. In December, for example, plans were approved for a development in Tel Aviv that will include a 120-floor high-rise — it will become Israel's tallest building — and two other skyscrapers with 77 and 88 floors.

Home prices are skyrocketing. The tech boom is fueling a housing boom that is driving up prices, with lavish penthouses in one Tel Aviv condo tower fetching $4,000 per square foot. Tel Aviv now tops all but one European city (Paris) in housing prices.

Income inequality is worsening. The gap between rich and poor is widening.

Geek culture has taken hold. Walk into a coffee shop or bar and there's a good chance you'll hear a couple of developers hashing out an app feature they're working on or a startup founder chatting with an investor. Watch the news and you'll see more coverage of technology topics than ever. As in Silicon Valley, it feels as though tech is in the very air we breathe.

We're working longer hours. Israel has always had a hard-working culture. Combine that with a desire to seize opportunities in a booming market and the time difference (Tel Aviv is 10 hours ahead of Pacific time) and you're talking a lot of late nights. I know some people in Europe who put in about 40 hours a week — that's three days for me. It's not unusual for me to have calls at 11 p.m. local time. And I'm not the only one.

What does the future hold? Well, Israel's new prime minister, Naftali Bennett, is the former CEO of two tech companies. He knows how to help keep the sector sizzling. In fact, Bennett has said that one of his first priorities will be to address the shortage of tech workers.

The Tel Aviv Stock Exchange has also seen a burst of IPOs in recent months as more companies go public in-country rather than on foreign exchanges. The Times of Israel put it this way: "As Israel's tech ecosystem grows, the country has evolved from a Startup Nation — with a plethora of fast-moving small tech firms that get sold quickly — to a 'Scale-Up Nation' in which entrepreneurs hold on to their companies and seek to grow them into large and profitable ones."

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