Israel's 199 new start-ups
102 of the 199 new Israeli companies founded in the second quarter of 2012 are Internet companies. Photo by Bloomberg
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Israel has recently seen a gigantic leap in the number of new start-up companies, with 199 new start-ups founded in the second quarter of 2012, according to a report by the Israel Advanced Technology Industries association. The new figures marked a substantial increase beyond the 114 start-ups that were founded in the preceding two quarters.

"The increase in the number of new start-ups created was due to the sharp growth in the number of new Internet companies," write the authors of the report, who are members of the market intelligence company International Data Corporation. The IDC report was also sponsored by the Foreign Ministry and Bank Leumi.

More than half of the start-ups that were established in the last quarter – 102 companies – were defined in the report as Internet companies, compared to 53 and 63 Internet companies founded in the preceding two quarters. The number of new companies also grew in the communications and life sciences sectors, according to the report.

In contrast, the number of new companies founded in the fields of cleantech, enterprise software and semiconductors, remained similar to the figures for these areas in the preceding quarters. The semiconductor industry in particular, which has been responsible for a majority of the largest Israeli investment exits in recent years, has barely chalked up any new starts. This trend can be explained by the large initial fixed investment required for the development of microchips, which discourages the creation of new companies in the field.

According to the report's figures, after a decline in the number of merger and acquisitions deals in 2009 and 2010 due to the global financial crisis, such deals have increased in Israel over the past two years. In the fields of computing and communications, 83 Israeli companies were acquired in 2011 for a total value greater than $5 billion. This trend is a continuation of momentum generated in 2010 when approximately 40 Israeli companies in both the computing and communications fields were acquired in the first half of the year for more than $3.5 billion in total. This figure does not include Cisco Systems' purchase of NDS, an originally Israeli company that was headquartered in London, which was bought for $5 billion.

Israel also experienced a sharp drop in start-up investments after the onset of the 2008 global financial crisis. In 2009, the amount of money invested in the Israeli start-up arena declined by 46 percent: from 483 firms that raised $2.08 billion in investment capital in 2008 to 447 companies that raised only $1.12 billion in capital in 2009. Despite this decline in investment being tied to the global drop in venture capital investments, according to the report, concerns were also raised regarding the volatility of the local industry.

Nevertheless, the improved economic environment in 2010 led to an increase in the level of investment in Israeli companies. In 2010, 391 Israeli companies raised $1.26 billion in investment capital. In 2011, investments returned to their pre-2009 levels, 546 companies drawing $2.14 billion in investment. This level of investment remained essentially unchanged during the first half of 2012, during which 270 local companies raised $936 million.

The Israel Advanced Technology Industries, the trade association for the entire Israeli high-tech industry, was created this year from the merger of two separate organizations: the High Tech Industry Association and the Israel Life Science Industry.

During the past year, the IATI has expanded its ranks with the inclusion of dozens of multinational companies with R&D operations in Israel. Alongside these new members, many local start-ups, university commercialization firms, service providers to high-tech companies and a number of venture capital firms have joined the new merged organization.