High-Tech & Technology -
Status Change– The Story of the Israeli
Innovation Industry in 2016
By Avi Hasson – Chairman of Israel’s Innovation Authority and Chief Scientist of the
Ministry of Economy
n 2016 the Israeli innovation ecosystem
registered strong entrepreneurial and eco-
nomic activity in continuation to the posi-
tive trend of recent years. At the same time, both
the opportunities and the challenges became
clearer, indicating a current critical junction for
the Israeli High-Tech industry.
A prominent positive shift in recent years has
been the strengthening of growth companies.
These companies aim to lead the global mar-
kets in which they operate and prefer to risk it
all rather than sell the company and continue
to the next challenge.
This activity indicates the industry’s maturity:
the entrepreneurs are more experienced, the
global connectivity is better and the investors
are more prepared to make additional invest-
ments at later stages.
Indeed, this trend was also expressed in this
year’s statistics: IVC reported a new record of
capital-raising in 2016 (4.8B dollars in com-
parison to the previous record of 4.4B dollars
in 2015) and the average deal size that stood
at 7.2M dollars per round in 2016 (19% above
the past five year average). This occurred while
the extent of exits declined in comparison to
previous years ($5.6B and $3.5B as reported by
IVC and by PWC, respectively – excluding Play-
tika), a possible indicator for the shift towards
growth strategy of the industry’s companies.
However, we must not ignore the warning signs
and barriers which prevent the industry from
breaking its glass ceiling. First and foremost,
the lack of skilled workforce is intensifying.
Over the past two decades, the Israeli High-
Tech industry has steadily built its reputation
as a leading innovation hub, a reputation which
led the world’s leading technology companies
to establish innovation centers in Israel.
Alongside them, many Israeli-established
companies became leaders in their fields and
this increased the demand for engineers and
programmers who are able to handle the most
advanced technological challenges. Add anoth-
er 1,000 newly established start-up companies
each year, and you’ll get a large demand sur-
plus against the supply of engineers in Israel.
We estimate that the current gap in the industry
amounts to several thousand engineers, and
is steadily increasing.
This situation constitutes a major and serious
barrier for the industry’s growth, both because
of the labor shortage and because of the ris-
ing costs of employing engineers in Israel – an
increase which impacts the Israeli’s industry
This competitiveness impact is especially
problematic in light of the increase in inno-
vation investments in many foreign markets.
Many countries were already wise enough to
realize – what the Israeli economy understood
several decades ago – that innovation is the
most effective driver for sustainable growth. If
in the past the main competitors of the Israeli
economy were the developed economies in
Europe and in North America, currently we are
witnessing an impressive raise in activity of
innovation in developing economies as well.
However, it is important to note that the in-
crease in innovation activities in these markets
is not just a threat, it is also an opportunity.
This depends on our level of success in creating
high-quality bridges and cooperations between
the Israeli industry and the emerging industry
in these markets.
In order to handle these issues and others, in
recent years we worked hard to establish the
Innovation Authority. This, from the deep famil-
iarity and years-long mutual work with the in-
novation industry, and the understanding that
it is impossible to provide a proper response
to its needs under the traditional structure of
the Chief Scientist Office. In the past year – our
efforts bore fruits.
Following the enactment of the correction to
the Research and Development Law, the In-
novation Authority was established, moved to
its temporary offices in Airport City and recently
hired a new CEO. Nowadays, innovative solu-
tions and processes for the burning issues are
already being formulated within the Innovation
Authority. These include developing broad ac-
tions concerning human capital including pro-
grams for multiplying and upgrading High-Tech
professional trainings and increased integra-
tion of excluded populations; introducing a
new program called “innovation labs”, which
will provide physical and research infrastruc-
ture for start-up companies; and formulating
a program, in collaboration with the Ministry
of Finance, that provides guarantees to banks
against loans they give to growth-stage tech-
As is the case of every change of such magni-
tude, we are experiencing complex challenges
in the process of transferring to the Authority’s
Therefore, I wish to use this platform to ask our
customers – the Israeli Innovation Industry–
for their patience and endurance. I am confi-
dent that within several months the activity of
the new Authority will stabilize and the service
provided to the industry and the entire Israeli
economy will be more valuable, more efficient
I wish to all of our partners in the industry that
2017 will be a fruitful year, in which the growth
trend will continue and that with mutual work,
we at the Innovation Authority, will succeed in
becoming a significant factor in your success–
which is our success.
Photo By: Amnon Hass