The big figures for fundraising and exits we see year after year give the impression that it’s easy to succeed in Israel’s high-tech sector. The reality is less glamorous: The great majority of startups fail and don’t even earn back the capital invested in them.
A report by the Central Bureau of Statistics released on Monday showed that of 5,313 startups were founded in 2011-18, 45% of them had shut down by the end of the period. That was a higher failure rate than the CBS’s previous report for 2011-16, which showed a failure rate of 37%.
The number of active startups (the number of firms that were formed minus the number that have closed) had been rising by an average of 4% annually until 2015. But the CBS data show that since 2016, the net increase has been falling and in 2018 for the first time there was a net decline, i.e., more startups closed than opened.
The CBS not only relies on figures from industry trackers like Startup Nation Central and IVC Research Center, it uses data from the Israel Tax Authority, National Insurance Institute and Israel Innovation Authority. Therefore it's figures are more reliable and up to date.
In fact, Israel is in line with a global trend toward fewer startups raising more capital.
Israel has sold itself as the “Startup Nation” on the basis of its wealth of young tech companies. But the CBS figures show it would be more accurate to call it “Startup City” because the greater Tel Aviv area is home to 73% of the nation’s startups and accounts for 79% of its startup employment.
In 2018, the situation was no different. Some 225 startups were launched in Tel Aviv and another 135 in the center of the country, That compares with fewer than 50 in each of Israel’s other regions. The concentration of startups gives Tel Avivians greater bargaining power versus employers: Tech wages in the Tel Aviv area averaged 22,100 shekels ($6,390) a month, 1.3-times what Jerusalemites in the industry get on average.
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The percentage of startups that develop into what the CBS calls “mature companies” is just 16%, although they account for 62% of local high-tech employment (not counting multinational research and development centers).
Startups are defined by the CBS as mature when they have been in operation for more than 10 years, employ more than 80 people or amass revenues exceeding 20 million shekels annually. All tech companies less than three years old are classified as startups.