In 2021, many unicorns were born to a new Middle Eastern habitat. Unicorns, or privately-owned companies valued at over a billion dollars, are as native to Israel as the camel, and who knows? With some luck, they could be almost as commonplace.
The Tech Sector's Giant Leap
Israel's tech sector smashed records this year, raising an incredible $25 billion from January to November 2021. This represents 136% growth in equity investments over 2020. Mega funding rounds jumped from 22 in 2020 to 74 in 2021, a 310% increase since last year.
So how many unicorns were there in 2021? That depends on who you ask.
Some lists include Israeli companies with pending IPOs or SPAC (special purpose acquisition company) and companies located out of Israel with Israeli founders. Tech Aviv claims that there are a total of 79 Israel-founded unicorns (41 in 2021) with a combined value of $228 billion. Of these, 32 have their headquarters in Israel, 20 in New York, 15 in Silicon Valley, with others in Boston, London, Singapore, Chicago, and Los Angeles. Other lists include only companies with headquarters in Israel and therefore count 32-35 new unicorns and a total of about 53.
Still, those numbers only make up the first three quarters of this year. There were only four new tech unicorns in 2015, nine in 2019, and 16 in 2020. Growth in 2021 represents a significant leap forward for the sector.
It is not like Israel was the only country with a booming startup scene. As of early December, there were 936 unicorn companies worldwide with a cumulative valuation of almost $3.049 trillion. Nearly 500 of these companies gained their unicorn status in 2021. But considering that funding in Israeli startups and companies was 71% more than the global average, and 78% more than in US companies, the Jewish State was ahead of the game.
What Drove Record-Setting Gains?
Global trends like the rise in investments in technologies and pandemic-induced emphasis on digital innovation affected Israel's success. But the fact is, the tech sector was already primed, ready, and waiting for the market to mature enough to dish out the big bucks. The "big 3" areas of interest, infrastructure, cybersecurity and fintech, were already being produced by local startups. Israeli companies got used to creating technologies for distant markets. With limited travel and other COVID-19 restrictions, these innovations became high in demand.
Other factors supported Israel's success. This included the State's rapid vaccine rollout, which let the country resume normal functioning quicker than others. The nature of the startup ecosystem was also a factor. Smaller companies could move and adapt to change faster than larger ones more prevalent in other countries such as the USA. During the pandemic, speed and flexibility led to increased prosperity.
Will the Bubble Burst?
Investors keep flocking to Israel and, according to Start-Up Nation Central CEO Avi Hasson, there is no real concern that the bubble will burst. He explains that the ample investment is rational and the valuations are simply high. While there is some reasonable concern regarding devaluations, he is convinced that price adjustments will be technical and investment trends won't be significantly affected.
According to Hassan, the forces at play are very strong when it comes to supply and demand for capital. He explains that while Israel used to be considered a nice market, over the last two years they are now a go-to source. Israeli companies are becoming increasingly attractive to foreign investors.
A bigger problem is whether Israel will have enough manpower to keep the tech sector flourishing. Companies are in dire need of programmers and engineers and need to fill other positions as well. Many hope this will cast a wider net, bringing in lower-income parts of society into the tech sector through training programs.
Unicorns in the Spotlight
So who are these companies that the world is going crazy over? One is the Boston-based biotech firm Immunai. As its name suggests, Immunai is a biotech company focusing on the immune system. They essentially built a database of the human immune system with the vision of improving personalized medicine and transforming therapeutics.
The company tripled in size in the last year. In October, they earned unicorn status with $215 million Series B.
Cybersecurity is one of the most in-demand technologies of 2021. Wiz, a cybersecurity startup, allows companies to find security issues in public cloud infrastructure. The company has only been around for a year and a half and is already valued at $6 billion!
Jeff Horing, co-founder and managing director of venture capital firm Insight Partners, explained that the world is in desperate need of the technology Wiz is providing. The company uses "agentless monitoring" which means the network can be monitored without needing to install any software. Their program analyzes the entire cloud environment to deliver a view of security risks across clouds, containers and workloads. The technology has a unique structure as it can scan across all computer types and cloud services.
Fintech is also in high demand. In a world where payments move to the digital sphere and cash becomes a faded memory, Melio developed a payment platform for small and mid-sized businesses.
Melio, which soared to unicorn status in September 2021, adapted the model of person-to-person digital payments to transform business transactions from cumbersome to seamless. Their platform "allows businesses to transfer payments faster and more easily, while providing them with data insights about their cash flow."
The jump that the Israeli tech scene has witnessed is remarkable. It padded the economy from global inflation, increased job opportunities and propelled the country into the future. If 2022 brings in a similar level of expansion, Israel is well on its way to becoming a significant player in the global scene. It could even become an attractive option for Jews around the world, despite chronic issues in others spheres.