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April 11, 2014 11:34 am

Survey: In 2013, 1,000 Start-Ups Founded in Israel; For Each Start-Up That Closes, Two More Launch

avatar by Joshua Levitt

Uri Levine, co-founder and president of the company that developed the Israeli traffic crowdsourcing app Waze, speaks during The Second Jerusalem International Tourism Summit. Photo: Flash 90.

A survey of Israel’s start-up eco-system revealed on Friday that 1,000 nascent ventures came to life in 2013, and for each that fails, two more start-ups are created, according to a new survey produced by Terra Venture Partners and Donna Abraham for Israel’s Globes business daily.

TVP’s Barak Goldstein said, based on the survey, “We estimate that, in 2013 alone, almost 1,000 start-ups were founded in various fields. For every start-up that closes, two new ones are opened.”

“Happily, the Israeli entrepreneur tends to ignore dry statistics and loves risks and adventure,” Goldstein said. “This is what makes Israel one of the best start-up creators in the world.”

As for the fabled recent pay-off of Waze, which was sold to Google for more than $1 billion, Goldstein says exits on that scale are unlikely:

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“The chance that an entrepreneur’s first start-up will achieve a $100 million exit barely exists. Israelis who achieve this are usually experienced entrepreneurs; it usually isn’t with their first venture. They have widespread ties in Silicon Valley, and they sell to industry or big companies. The statistics don’t favor them either: their chances are no more than 2%. Israelis should not fall for Cinderella stories like Viber or Waze. They are very rare.”

Asked about their venture’s exit potential, 12% of the entrepreneurs said that they “would be the next Waze,” 29% believe that they could make more than $100 million, and 42% said $10 to 100 million.

“It can be seen that the exit amount has been gradually rising over the years, but this should not mislead you,” Goldstein said. “These numbers have been seen in the start-up industry and have fired the imagination of both entrepreneurs and funds. The Israeli entrepreneur is an irredeemable optimist, but the reality is that the chances of a $100 million exit are close to zero.”

As for the entrepreneurs, the survey painted a clear portrait:

In Israel, 86% of the respondents served in the IDF, 36% of them in technology units  — Mamram computer and IT systems unit, Talpiot program, or Intelligence – and 36% served in combat units.

“Military service has an important role in shaping the personality of Israeli entrepreneurs. It teaches responsibility, creativity, and management skills – experience that American entrepreneurs, for example, gain only at a much later age,” Goldstein said. “The American counterpart has to work in several positions within an organization to acquire the skills that Israeli entrepreneurs acquire in the army.”

While 46% of the respondents have a university BA or BS degree and 35% have Masters degrees, the same 5% have either a high school education or a PhD.

Most entrepreneurs are team players: 78% of the respondents said that two or more people co-founded their ventures.

A full 40% described themselves as serial entrepreneurs who were involved in more than two start-ups before their current venture.

Of the conditions at these young companies, 32% worked in an office, 14% at a technology incubator or accelerator and 5% of the respondents said that they worked from home.

Bootstrapping is par for the course, with 66% of the respondents reporting that their companies had not yet raised capital. Of the respondents who had, 34% have raised $50,000 to $400,000, 25% have raised $400,000 to $1 million, and 34% have raised more than $1 million.

In terms of hours, 44% of the entrepreneurs work at least 50 hours a week on their ventures, and 85% said that they work on the weekends. Making the entrepreneur’s launch harder, two-thirds are married and two-thirds of them have children.

Despite the government’s efforts to encourage entrepreneurship outside central Israel through creating regional incubators, 72% of entrepreneurs live in the center of the Jewish state, 17% live in the north, and 4% in the south.

In terms of industry, half of the entrepreneurs were in mobile or internet ventures, followed by media, cyber, and gaming. Just 16% work in cleantech or medical ventures.

Goldstein said, “We see congruence between the kind of venture and the entrepreneur’s age. The younger the entrepreneur, the less likely he’ll work in medicine. Most young entrepreneurs are blinded by fast exits and go for developing apps with low impacts.”

“In the past two years, we’ve seen a major increase in cyber ventures, as part of the growing mini-bubble in this sector in Israel,” he said. “There is no question that Israel has an advantage in this sector, mainly because of military service. The next two sectors which we see picking up in the next two years are Google Nest and networked cars. The vehicle industry is about to undergo a revolution to network our cars, which will of course be followed by automated driving.”

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