Creating the next Silicon Valley is the new Holy Grail for cities around the world and Tel Aviv is arguably among the closest to the goal. It has one of the highest densities of tech start-ups, ranking number two globally after Silicon Valley, according to Startup Genome’s Startup Ecosystem Index.
But cracking the innovation code — the theme of this year’s Cities Summit during the DLD Tel Aviv Innovation Festival — also requires the ability to compete for creative talent with other cities and ecosystems on the world stage. And in that category the Start-up Nation has a special challenge.
How do you lure foreign entrepreneurs to set up shop in a place where residents have recently had to run for cover in bomb shelters and feel the need to stock gas masks in case of attack from chemical weapons?
The economic impact of the latest conflict with Gaza was significant. Hardest hit was tourism, with reports suggesting the number of visitors in July fell by 26% compared with the previous year.
The conflict cost the tourist industry at least $566 million, according to the Ministry of Tourism. Some estimates suggest economic output will contract between 1.5% and 2% in the third quarter. That would be on par with 2006 when the economy contracted 1.4% in the third quarter following a previous action.
Luckily for Tel Aviv, entrepreneurs of any nationality are risk takers. Kentaro Sakakibara arrived in Tel Aviv from Japan this summer while rockets from Gaza were still flying, to set up a new incubtor called Samurai House on Rothschild Boulevard, known as Start-Up Boulevard for the density of entrepreneurs that have set up in the heart of the city.
Sakakibara, who goes by the name ‘Ken Samurai’ locally because it is easier for Israelis to pronounce and remember, has already convinced several Japanese entrepreneurs to join him in Israel.
“For us it is 100% no worries,” he says. “Some older Japanese businessmen left Tel Aviv two months ago [when the most recent conflict with Gaza started] but for the younger entrepreneurs it’s ok.”
Entrepreneurs Keep Arriving Despite The Rockets
Samurai House has a $5 million fund with plans to raise a second, larger one. The goal in the first phase is to invest in 10 joint ventures between Israeli and Japanese entrepreneurs and then create another 50, says Sakakibara, who has committed to living in Israel for five years.
The new incubator will also serve as a bridge between large Japanese companies looking to bring innovation in from the outside and Israeli start-ups. To that end, Toyota InfoTechnology Center, the R&D arm of the Japanese automaker, has already scheduled a hackathon with Israeli engineers.
The incubator appears to be off to a good start: 77 people showed up for Samurai House’s inauguration party on July 31st, only a week after U.S. and European airlines canceled flights to Israel over security concerns.
The rockets also didn’t discourage a cohort of entrepreneurs from the National University of Singapore who simultaneously started internships at Israeli startups and courses at the Zell Center for Entrepreneurship on July 1st, in the heat of the conflict. “They didn’t even think of leaving,” says Liat Aaronson, Executive Director of the Zell Entrepreneurship Program Interdisciplinary Center (IDC) in Herzliya, north of Tel Aviv.
And security concerns didn’t faze entrepreneurs from 16 other countries who won all-expenses-paid trips to Tel Aviv during the DLD Tel Aviv Innovation Festival as part of Start Tel Aviv, a contest designed to attract foreigners to Israel.
At press time, none of the entrepreneurs had canceled, says Yael Weinstein, head of Start Tel Aviv and Director of Economic Development at Tel-Aviv Global, a job focused on promoting Tel Aviv’s development into an international hub.
Create More Diversity
AGROMALL, a Bogotá, Colombia-based start-up aiming to connect farmers to markets, even elected to pay for a second member of its team to come along.
“We are really enthusiastic about coming to Tel Aviv,” says CEO Camilo Reyes.
The hope is that the company will learn from people in Israel’s ecosystem and possibly raise money to help it go global, he says. But would the team actually consider moving to Israel? “We hadn’t thought about it yet but why not?” says Reyes, who is not Jewish.
Attracting more foreign entrepreneurs to set up shop in Israel would be a good thing, says Zack Weisfeld, head of Microsoft Ventures Europe and Global Accelerators Program, a scheduled speaker at DLD Tel Aviv.
“All of the Israeli companies are started by bald-headed guys coming out of the same Israeli army unit — the logos are the only thing that is different. They come up with great stuff but there is still something missing.
“The biggest win for Tel Aviv would be to bring in more international start-ups to create more diversity.”
Special Visa For Foreign Entrepreneurs
If the city can get them to come — even just for a visit — it has a good chance of convincing them to stay.
“There is no other city in the world with such a gap between its image prior to a visit and what is discovered in reality,” says Ron Huldai, Tel Aviv’s mayor.
“Anyone who comes sees how open, free, pluralistic, energetic and creative this city is — even during times of security situations — and how the economy continues to grow and flourish.”
The government has been working on a special visa for foreign entrepreneurs, which it hopes will be available soon.
What’s more, “we have launched free Wi-Fi in the whole city; we’ve opened co-working spaces for entrepreneurs in attractive locations, including new centers that are going to open for women entrepreneurs and the Arab public in Jaffa; we have developed a direct connection between entrepreneurs and the municipality at our young adults centers; we have relieved municipal taxes that are charged to start-up companies,” says Huldai.
Like other tech hubs it also offers personal consulting services to entrepreneurs to make it easier for them to find housing, deal with visa issues and set up meetings with people in the ecosystem. It has also set aside room in co-working spaces for foreign entrepreneurs to interact and network with the Israeli start-up community.
Most Sophisticated Technology Ecosystem Outside Of Silicon Valley
The real draw — beyond the beaches, the nightlife and the weather — is that Tel Aviv has the most sophisticated technology ecosystem outside of Silicon Valley.
“Tel Aviv is the commercial capital of a start-up nation and that does make it different from any other tech hub, including the Bay area,” says Saul Klein, a partner at Index Ventures and the UK’s tech envoy to Israel.
“Tech and entrepreneurship are so fundamental to the Israeli economy — tech is over 30% to 40% of GDP at this point — and no other city or country has that.
“It has an incredibly concentrated, highly-evolved end-to-end ecosystem for all types of innovation — mobile, Internet, e-commerce, security technology, cleantech, ag[rigultural]tech, life sciences, etc., so Israel and Tel Aviv are unique.”
Tel Aviv also has closer ties than other hubs (with the possible exception of London) to the U.S.
Over the past few years NASDAQ had more listings from Israeli companies than from companies from the UK, Germany and France combined, says Klein.
Israel also has been an early mover in developing relationships in China part of a global outlook that developed because of its small home market.
250 Global Research And Development Centers
The city’s talent pool is constantly being replenished by youth who are exposed to sophisticated technology while completing their military service.
“There is a camaraderie amongst people coming out of the military,” says Oona Rokyta, an American who counsels Israeli firms on branding and marketing. “In San Francisco it’s a bit more cut throat. Israel is unique in there is so much pride in companies succeeding and working together.
The ecosystem also benefits from the more than 250 global research and development centers that have been set up in Israel as well the acquisition of local companies by big tech giants, exposing a significant number of Israelis to American management style and organization.
What’s more, there is a growing group of entrepreneurs in Israel who have built and sold their own start-ups for the second, third or even fourth time. They want to leave a lasting impact and they are finding funding both in Israel and from big, deep-pocketed foreign VCs willing to support bigger companies.
One example is SimilarGroup, a web measurement company that earlier this year raised an estimated “tens of millions of dollars” from Naspers and is going global from Tel Aviv.
London Probably Biggest Competitor To Tel Aviv
But it would be wrong to think that Tel Aviv doesn’t have any real competition. Amsterdam is more international. Berlin, another diverse city, is attracting young talent from across Europe and the tech ecosystem there is rapidly evolving. Barcelona has a beach, great weather, rich culture and is home to the Mobile World Congress.
London is probably the biggest competitor to Tel Aviv. “It is the biggest English-speaking city in the world, it is home to some of the biggest enterprises in media, finance, healthcare, utilities, it is home to some of the best universities and design schools in the world, it is one of the biggest sources of venture capital and has a extremely diverse population with over 60% of the people in London born outside of the UK,” says Klein.
Like Tel Aviv, the tech sector in London has strong support from the government and is active in recruiting foreign talent from abroad.
The proof? It appears to have beat Tel Aviv to the punch with at least one of the start-ups in this year’s Start Tel Aviv contest. 30dayhealth, a Johannesburg, South Africa-based start-up that monitors patients at a distance to avoid hospital readmission, has been courted by the UK government. The company is planning to move to London in the first quarter of 2015 “no matter what happens during that week in Israel,” says CEO Nuno vaz dos Ramos.
You can’t win them all. But, with more than 1,000 international visitors expected at this year’s DLD Tel Aviv innovation festival, the city is bound to entice some of them to stay, swelling its army of entrepreneurs, rockets or no rockets.