Eighty Israeli unicorns exist in U.S. amid concerns of Israeli high-tech industry’s future viability

Known globally as the Start-Up Nation, Israel has recently been successfully producing more and more unicorns, start-up businesses with a value of $1 billion or more. 

Today there are 80 Israeli-established unicorns in the United States, including 32 in California alone. 

By comparison, five years ago, there were only 18 Israeli unicorns in the entire world. The combined value of the current 80 Israeli-founded U.S.-based unicorns is estimated to be $224.8 billion. 

Aaron Kaplowitz, founder and president of the U.S.–Israel Business Alliance (USIBA), compares the Israeli tech industry to a powerful Ferrari that generates plenty of jobs in the United States. 

“On the surface, Israeli innovation is a flashy red Corvette that draws considerable capital investment on the strength of exciting game-changing solutions. But underneath the hood, Israeli innovation is a Ferrari: a powerful economic engine that employs tens of thousands of Americans and generates billions of dollars in local economies,” said Kaplowitz. 

Israeli unicorns exist today in nine U.S. states. However, the majority are concentrated in California and New York. 

“While Manhattan and Silicon Valley are generating Israeli-founded unicorns at an unprecedented clip, the real story here is that Israeli founders are identifying states beyond New York and California as viable options to grow their companies,” Kaplowitz said. 

IS ISRAEL'S HIGH-TECH INDUSTRY VIABLE?

The Israeli high-tech industry is the main engine in the Jewish state’s economy. On the surface, Israel's tech sector appears to thrive in the best of times. But the reality is more complex and concerns remain about the viability of the Jewish state’s vaunted high-tech industry. 

The State of High-Tech 2022 report, recently published by the Israel Innovation Authority (IIA), paints a mixed picture. The good news is that high-tech represented 54% of the total Israeli exports in 2021. In addition, the number of workers in the high-tech industry surpassed for the first time 10% of the total Israeli workforce. Israel was also ranked first place among advanced OECD countries with 5.44% of GDP in R&D expenditure. 

However, Israel was ranked last in OECD in terms of government expenditures on R&D. The report criticizes the Israeli government for neglecting and under-funding the crucial Israeli high-tech industry. 

Dror Bin, CEO of the Israel Innovation Authority, stressed that the Jewish state stands out among advanced economies with its unique profile. 

“We have a very unique profile as a country with the highest R&D expenditure as a percentage of GDP, but with the government investing very little,” said Bin. 

While the Israeli high-tech industry is currently thriving, continuous insufficient government funding could potentially undermine the tech industry’s viability in the future. 

“We all agree that we are in a good position, but this isn’t guaranteed to last forever. Other countries are investing a lot of money in innovation. The private market might be compensating for that in Israel at the moment, but I don’t want to find out that we have fallen behind in a few years. High-tech is still the driving engine of the local economy and it would be a disaster if we didn’t have the tech industry,” warned Bin. 

OTHER CHALLENGES PLAGUE THE INDUSTRY

The Israeli tech sector faces challenges including a shortage of skilled workers, which has forced the industry to outsource some of its activities abroad. The industry is currently dominated by male workers and is concentrated in the Tel Aviv metropolitan area. 

Efforts to diversify the high-tech workforce with more women, as well as Israeli Arabs and ultra-Orthodox Jews, have had limited results. The new report revealed that the number of ultra-Orthodox Jewish employees in the high-tech industry fell with 6% in 2021. At the same time, the number of Arab employees remained stagnant. 

Innovation remains Israel’s key skill. Israel is also considered a global leader in cooperation between the high-tech industry and academia. 

The new report noted that merely 15% of the current industry-academia collaboration projects involved Israeli companies. In other words, the main beneficiaries of these collaborations were large global multinational companies. In another worrying trend, Israel dropped to the 15th place in the Global Innovation Index in 2021. In 2019, Israel was ranked 10th in the world.  

In sum, the Israeli high-tech industry is hugely successful and is currently thriving. However, long-term success requires increased government investments, long-term strategies and an expansion and diversification of the Israeli high-tech workforce to include more women, Israeli Arabs and ultra-Orthodox Jews.