The Second Most Important City in Israeli Tech

There’s no disputing that Tel Aviv is the Capital of Israeli tech, but where are the startups that raised the most money based?

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Har Hotzvim high-tech industrial park in Jerusalem
Har Hotzvim high-tech industrial park in JerusalemCredit: Ofek Aerial Photography

While Donald Trump has waded into the status of Jerusalem as the official capital of Israel, there’s no disputing that Tel Aviv is the Capital of Israeli tech. Start-Up Nation Finder is tracking 1,817 currently active innovation startups (companies with their own original R&D/tech solution) in TLV.

What’s less well known is the heated battle for the coveted number 2 spot between Herzliya, Kfar-Saba/Raanana, and Jerusalem.

In terms of number of startups, Tel Aviv leads by light years. Jerusalem is a distant second with 390 startups. Herzliya, just north of Tel Aviv and home to many multinationals, including Microsoft and Apple, comes in a close third at 361 startups.

So does that make Jerusalem Israel’s second tech city? Not so fast.

Herzliya beats both Jerusalem and Raanana-Kfar Saba in one significant way: the amount of money going into its tech companies. In 2017, Jerusalem tech raised US$ 158M. Raanana-Kfar Saba got $199.5M. Herzliya companies raised $531M - more than double (TLV got $2.4B) - 12% of VC funding in Israel.

Also, 11% of the acquisitions since 2013 were Herzliya-based companies, compared to 5% from Ra’anana-Kfar Saba, and 2% from Jerusalem. 36% of the acquisitions in Israel in those years were of TLV-based companies.

So that must make Herzliya Israel’s second tech city, right?

Well, hold on. If we’re trying to attract young tech talent, shouldn’t we also be looking at the average seed funding rounds startups raise? If that’s our measure, then Raanana-Kfar Saba ($3.48M) is much higher than Herzliya ($2.35M). RKS even beats out TLV here, where the average seed round is $2.84M. This may imply that there’s more investor trust in the potential of early stage startups established in Raanana-Kfar Saba than anywhere else. Which could signal to young entrepreneurs that apart from being a great place to raise kids, Raanana-Kfar Saba is also a great place to raise startups.

So why is it important to be number 2 anyway? Does it matter?

It’s important because they’re all trying to attract young people to come live and work in their cities; they’re competing for attention, and for financing into business and infrastructure. Being second matters: In the US, Boston and NYC vie for it. In the UK, Newcastle, Edinburgh and Bristol compete for it. Only so many people can live in San Francisco, Tel Aviv, or London for that matter.

Perhaps a Solomonic way of settling this: it’s good to look at the whole ecosystem and see what share each city takes. While this is an interesting way to look at relative advantage by city, keep in mind that the cities are not the same size, so there is bias in this view.

Having said that:

TLV is a cyber security powerhouse, with a 38% share of the whole cyber ecosystem.

Jerusalem tops with computer vision , with a 14% share  of all similar startups in the ecosystem.

Herzliya comes second to Tel Aviv in business intelligence startups, with 11%.

Raanana-Kfar Saba has 11% of all telecommunications startups in the ecosystem.

The bottom line: None of these cities can compete with TLV directly, but if they position themselves as a specialists, they could be known as #1 in something, and thus attract the kind of talent they’re looking for.

The DataNation series is published in collaboration with Start-Up Nation Central and is based on information and insights collected and analyzed by the organization. Start-Up Nation Finder maps the Israeli high-tech industry and connects the world to Israeli start-ups, investors and innovation programs