The Tel Aviv tech hub is the central plank within Israel's claims to being the "Start-Up Nation" - spawning high-value companies including Wix, Flytrex, Gett and Mindspace
From Moovit and Fiverr to Invertex and SodaStream, Tel Aviv has more start-ups per capita than any other city in the world. Silicon Wadi’s reputation as a global tech hub stems right back to when the Israeli city was founded 110 years ago, as Dan Robinson learns
It was back in 1909 that the founder of Tel Aviv proclaimed it would become the “New York of the Middle East”.
Akiva Arieh Weiss wasn’t far off – but maybe San Francisco would have been a better comparison, given the eye-catching similarities between Silicon Valley in California and the Israeli city’s own position at the heart of Israel’s so-called Silicon Wadi.
It’s now home to 1,700 start-ups among a population of 440,000 – more per capita than any other city on Earth in a country ranked second for innovation by the World Economic Forum and handed the moniker of the Start-Up Nation.
Having spawned big industry names such as web development platform Wix, on-demand drone delivery service Flytrex, Uber ride-sharing rival Gett and co-working space provider rival Mindspace, Tel Aviv is now being dubbed the Start-Up City.
And recognition isn’t just coming from within, as the city has welcomed the world’s tech giants like Google, Facebook, Apple and Amazon in opening major offices as they bid to get a slice of its talent base.
All this is a far cry from when Weiss brought together 66 immigrant Jewish families from Eastern Europe to create Tel Aviv as the first suburb immediately north of the ancient port city Jaffa – which was mainly Arabic – when it was still under the British mandate in Palestine.
“We always say this is the moment where the Start-Up City was founded, even though no one knew it was going to even be a city,” says Sharon Landes-Fischer, director of strategy and operations at the Tel Aviv Global & Tourism municipal marketing organisation.
“It was only intended as a small neighbourhood but, in retrospect, this is where it all began – and now the world has taken notice.”
How Jewish culture and immigration helped Tel Aviv build its tech hub reputation
In the fledgling early days of Tel Aviv-Yafo – to give the city its full name, with Yafo another spelling for Jaffa – dwellers had to work out what its USP would be in trading.
It didn’t have many rich natural resources such as oil, with gas only recently being discovered in the Mediterranean Sea.
For a while, the city sold Jaffa oranges – a variety of the fruit with few seeds and a tough skin that made it suitable for exports – but horizons needed to be broadened.
It would take a fair amount of chutzpah, so to speak.
Sharon says: “We’re very small so what’s our main resource? It’s the innovative mind. When you don’t have a physical resource to sell, you have to turn to yourself and find from within.
“The Jewish mother would always encourage her children to be well-educated so our research institutions are of a high level, and our culture is about not being afraid of failure.
“We dare to try new things and dare to innovate.”
In more recent times, Israel has been boosted by immigration from the former Soviet Union, bringing engineering skills that have helped strengthen its economy.
Role of Israeli national service in creating Tel Aviv tech hub
A period of military service is mandatory for over-18s in Israel, with men typically serving for three years and women two years.
The Israel Defence Forces has been attributed to the country’s economic success, which is said to have grown faster than the average for developed countries since 1995 – according to the best-selling 2009 book Start-Up Nation: The Story of Israel’s Economic Miracle.
Its authors Dan Senor and Saul Singer say national service teaches young people how to solve problems, work with different people and build networks – skills that are also crucial in building a business.
Sharon believes the army’s elite tech unit develops some of the most cutting-edge tools in the world, while there are important life lessons in other units.
“We learn about team-working and what responsibility is as commanders,” she says.
“It’s one hell of a process all of us go through during mandatory military service.”
A nation of exporters
With a population of only nine million people, Israeli businesses have a small market in which to sell goods and services.
It means entrepreneurs based in the country have long been used to developing products for exporting to other markets.
“No one would bother making something just for Israel so all the work is done in English,” says Sharon.
“In Germany, companies would develop products first in German – or Dutch in the Netherlands – and then convert to English.
“But here, everything is done in English to scale up and export because the domestic market is so insignificant.
“Our companies are born with an international identity – they aren’t for a small place with small thinking and usage.
“They’re built from the get-go to be big and international.”
Tel Aviv the “non-stop city”
Not only is it the Start-Up City, but Tel Aviv also markets itself as a “non-stop city” – just like the City that Never Sleeps which Weiss set his sights on emulating more than a century ago.
The Tel Aviv Global & Tourism group is keen to point out how Jaffa – now part of southern Tel Aviv – has the oldest port in the world.
The White City that forms the central part of Tel Aviv was recognised as a UNESCO world cultural heritage site in 2003 due to its “outstanding example of town planning and architecture in the early 20th century” – with 4,000 Bauhaus buildings, the largest concentration of the architectural style in the world.
Alongside its tourism sites, a number of government departments, foreign ministries, public organisations and large corporations are headquartered there – despite Jerusalem being the capital.
The city is growing in popularity as a place to live and work.
This is particularly the case among younger people, with a third of its population aged between 18 and 35.
Tel Aviv was once even dubbed the “Mediterranean capital of cool” by the New York Times, identifying the city as a cultural hub for nightlife, cuisine and liberalism.
Sharon says: “Because there is such a young population, we have people who are at the top of their energy and creativity.
“There’s one bar for every 235 residents and 14km of white, sandy beaches.
“It’s fun and collaborative – when you look around, people are walking to and from the beach wearing flip-flops.
“We have the largest gay pride festival in the whole of the Middle East – we are a very tolerant city where you can be who want to be, despite being in the middle of the most difficult part of the world in terms of human rights.
“There’s a very informal ambience. The weather is very good, you can walk down the street and approach people to discuss things, or go to an open place and meet someone for your next project.
“The Tel Aviv municipality is aware of all this, encourages it and works to nourish the ecosystem.”
A vibrant cultural heart has laid the groundwork for innovation, while a policy from Mayor Ron Huldai to provide free access to Wi-Fi for all residents and visitors means entrepreneurs don’t even need an office to work.
Spanning 3.7 million square metres and covering everything from beaches and boulevards to start-up hubs and coffee shops, it is part of the Tel Aviv Smart City framework – which also includes a testing ground for smart tech features such as in lighting and parking.
“Tel Aviv is the cultural centre of Israel but it’s also the business centre of Israel,” adds Sharon.
Companies in Tel Aviv tech hub
Growing out of this ecosystem has been a steady stream of interesting tech start-ups.
They include public transport tracking app Moovit, artificial vision tech firm OrCam and Fiverr, an online marketplace for freelance services traded for as low as $5 per job.
Many are making big waves internationally, with Here Mobility – a global platform to connect mobility-as-a-service providers – dubbed the “Google of the mobility world”, while 3D imaging tool developer Invertex was bought by Nike in April last year and health-conscious drinks dispenser company SodaStream was taken over by Pepsico for $3.2bn (£2.5bn) in August.
Other growing names in the Tel Aviv tech hub include WalkMe, Riskified, Arbe Robotics and Nexar.
They are helped by tax breaks but also the availability of 50 start-up accelerators and incubators for financial assistance and mentorship – some of which are free to use – while investors pour in billions each year.
The homegrown talent within Silicon Wadi has also been noticed in the Silicon Valley, with all the big tech giants like Amazon, Microsoft, Apple, Google and Facebook setting up satellite offices in Tel Aviv.
In total, there are 84 international research and development centres in the city.
“They set up here because they’re looking for talent,” says Sharon. “Every international company that respects itself would open an R&D centre in Tel Aviv.”
Major companies in Israel: The start-up nation extends beyond Tel Aviv
It’s not all about Tel Aviv, of course, with other parts of Israel contributing heavily to the “start-up nation” reputation it has built in recent years.
As recently as 2012, Israel – only founded as a country in 1948 – had more companies listed on the American Nasdaq stock exchange than any other country outside the US and China.
In 2017, there were 94 Israeli companies listed on the Nasdaq and cyber security firm Check Point Software was listed on the Nasdaq-100 index as of January 2019 – rubbing shoulders with the likes of eBay, American Airlines, Apple, Alphabet, Starbucks and Tesla.
Israel also accommodates more than 300 of the largest corporations in the world in an area the size of New Jersey.
Investors are very active, helping Israeli high-tech companies raise $5.2bn (£4bn) in capital in 2017 and bringing $23bn (£18bn) worth of exits through mergers, acquisitions and IPOs.
Gilad Be’ery, director of economic research at the country’s inward investment group Invest in Israel, believes the “capacity for innovation” is the main strength of the Israeli economy.
He says: “Israel is strong where you need the high-end technological capacity. This is obviously true for the tech, ICT and life sciences sectors.
“But recently, innovation also pervades what was perceived in the past as traditional and non-tech, such as automotive. In this space, Israel has taken centre stage.”
Gilad gives the example of Californian tech giant Intel’s presence in Israel. After launching an R&D lab in Haifa in 1974, it has gone on to open four sites in the country and now employs 12,000 people.
This includes multiple R&D centres and a state-of-the-art semiconductor fabrication plant in Qiryat Gat, a city in the south, which utilises the country’s prowess in advanced manufacturing.
But Intel didn’t stop at chips for ‘regular’ computing,” says Gilad. “Although the growth in the first few decades was based on the classic chips, Intel made a bold move last year by betting on Israel for leading its growing business in the automotive sector.”
“Intel has acquired the Israeli company Mobileye for $15bn (£11.7bn) and declared that its autonomous driving group will be led from Jerusalem.”
Mobileye, which was launched in 1999 as a spin-off from founder Amnon Shashua’s university project and is billed as a “crash detector” for self-driving vehicles, is just one example of how Israel’s tech capabilities extend beyond Tel Aviv.
GPS navigation software app Waze, based in the city of Ra’anana, won the best overall mobile app award at the Mobile World Congress in 2013 and was bought by Google for $966m (£750m) the same year.
Herzeliya-based StoreDot, meanwhile, makes quick-charging batteries that have contributed to the boom in electric vehicle use – culminating in the company raising $60m in funding from investors such as car maker Daimler and Samsung.
Jerusalem, in particular, is a strong rival to Tel Aviv and was highlighted as a global hub for life sciences and biotech innovation in the latest Global Startup Ecosystem Report by innovation and policy group Startup Genome.
Challenges of keeping the Tel Aviv tech hub alive
Of course, Israel and Tel Aviv aren’t without their challenges. Despite its vibrant culture and thriving start-up ecosystem, it remains limited by its small size and geography.
Straddled between Europe and Asia, it’s a long way from the economic hubs of Western Europe and the Far East – leaving the somewhat isolated at times.
Having the big tech firms based in the country has many positives but as they offer high salaries to engineers, Sharon acknowledges how it can create a wealth gap with the rest of the workers – while the cost of living is increasing too.
Keeping the best of its homegrown talent in Israel can also be a tough task, leading to a “brain drain” as software engineers, architects and developers have their heads turned by the draw of Silicon Valley.
“The downside of having those big companies here is that, after a while, those guys want to go work there,” admits Sharon.
“We obviously don’t want to lock anyone in – and hopefully they can come back with some nice ideas – but we need them, so this is a challenge.
“Our jobs is to make Tel Aviv good enough for people to want to come back.”
It would be difficult to discuss Israel without mentioning political tensions with Palestine, and the disputed West Bank and Gaza territories lie just outside the city limits.
Sharon doesn’t shy away from this subject but adds: “Our answer is to show what we’ve achieved here – this is our answer to questions about our neighbours.
“We don’t want to say bad things about anyone – we just want to say what’s good about what we have.”
Making Tel Aviv a lighthouse city
The powers that be at Tel Aviv are more occupied with turning it into a so-called lighthouse city – a living lab for conceiving, testing and financing smart technology that will be key to our lives in the future.
Sharon adds: “Our wish is to be a lighthouse city to show everyone the way forward and be positive.
“That involves bringing value to our residents, our country and the world. This is what we’re doing with the innovative mind that you can find in all major companies.
“They all have something that was either developed in Israel, with an Israeli team or by an Israel.”
She believes the way the country has overcome its “faults” sets an example for other countries.
“We didn’t have the resources or a big market, and we don’t have kind neighbours at times, so we do what we can in order to break these walls and succeed,” Sharon adds.
“People are coming here and asking what we put in our water and what’s the secret sauce is. The world is really starting to recognise us.”