from the April 2014 issue

Attracting high-tech multinationals

Many global corporations have come to Israel, either to benefit from its intellectual capital or its acquisition opportunities. General Electric was among the first international companies to establish a presence in Israel. In 1970, NBC Universal, a GE subsidiary, opened its Tel Aviv office, and by 1984, the Israel Defense Force (IDF) was buying GE engines for its F-16 aircraft. GE solidified its presence in Israel in 2002 through GE Healthcare Israel Ltd., which revolutionized healthcare in producing the world's first miniature, portable cardiac ultrasound system; the first combined nuclear and CT imaging scanner; and a new generation CT reconstruction engine.

SAP, the German-based business software developer, which has more than 33,200 customers in over 120 countries and employs more than 36,600 people in 50 countries worldwide, made its initial investment in the Israeli company OFEK-Tech, which in 2000 became a SAP subsidiary called SAP Labs Israel. SAP Labs Israel is the company's fourth largest development center worldwide. Today, the R&D facility in Carmiel employs around 800 people.

The Next Silicon Valley?
Can Israel compete with high-tech centers in the U.S. like Silicon Valley for venture capital investment? In absolute terms, Israel's venture capital market is significantly smaller than the U.S. market. Still, Israel is growing and attracting new investment, particularly in the area of seed stage development.

Israel's venture capital industry equals roughly 7 percent of the U.S. venture capital market. In 2007, 462 Israeli high-tech companies raised $1.7 billion from local and foreign investors compared to 1,169 California companies that raised $10.8 billion. But, venture capital investment in Israel continues to grow year over year, and seed stage investment in Israel is roughly equal to the U.S. - $88 million in Israel compared to $110 million in the U.S. at the end of 2005. In 2006, Israel's Mergers and Acquisition (M&A) activity hit an all-time high with 84 transactions aggregating more than $10 billion. In 2007, mergers and acquisitions of high-tech companies totaled $3.2 billion. There were 60 Israeli company acquisitions totaling $2.5 billion, while 27 companies raised $701 million in IPOs. In relative terms, Israel's performance statistics in venture capital investment are nothing short of impressive. Israel's ability to raise funds was outmatched in the U.S. only by Silicon Valley and Boston. Israel has raised more venture capital investment than any European country by a margin of 20 percent. Israel reported 20 venture-backed public offerings in 2006 and 26 in 2007 compared to 57 and 86 for the same years in the U.S.

With 1,800 active start-ups - the highest seed stage investment levels since the dot com boom of the 1990s - and a diversified high-tech pipeline spread out evenly over the communications, life sciences, semi-conductors, and internet technologies fields, Israel is poised for greater growth as a venture-backed economy. In early 2008, IBM and Microsoft made acquisitions in Israel aggregating in excess of $300 million.

Reprinted from the Israel High-Tech & Investment Report April 2014

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