A Startup Nation Central report with commentary by NVIDIA
November 2024
Foreword by Avi Hasson, CEO of Startup Nation Central
Israel stands at the forefront of global AI innovation, driven by an exceptional ecosystem of startups, academia, and strategic support from both local and multinational players. Leading corporations—including NVIDIA, Microsoft, Google, Amazon, Meta, and Apple —have deepened their investments in Israel’s AI landscape through significant R&D and acquisitions, pointing to Israel’s standing as a global AI leader. Complementing these efforts, initiatives like Israel’s National AI Program, backed by a 1 billion NIS investment, are aimed at enhancing our AI sector, advancing research, and nurturing local talent.
With over 430 multinational corporations operating R&D and innovation centers in Israel, these tech giants are not only innovating but are also driving core strategic developments, especially in AI, from their Israeli centers. The synergy between Israel’s vibrant startup ecosystem, multinational investments, and academic collaboration provides a powerful foundation for continued sector growth. However, to fully leverage Israel’s potential, expanding government investment is essential. To maintain its position as a global AI powerhouse, Israel must address key challenges by enhancing academic talent, strengthening the National AI Program with its 1 billion NIS commitment, attracting top AI researchers locally and globally, and facilitating the transfer of research into business applications. This will support R&D, academia, and high-tech industries, and foster AI talent, to integrate advanced technologies for public benefit and to expand support for this critical growth engine.
Overview: Israel’s World-Class AI Powerhouse
by Yariv Lotan, VP of Product and Data at Startup Nation Central
Israel is rapidly establishing itself as a global leader in Artificial Intelligence (AI) innovation, boasting one of the highest densities of startups and scaleups worldwide. Its outstanding entrepreneurial DNA provides a quantitative advantage through the large number of AI-driven companies and the attraction of leading multinational research centers, thereby leveraging the principle that in AI, quantity begets quality. Complementing Israel’s robust ecosystem is a remarkable diversity of applied AI domains and exceptional quality of AI entrepreneurship.
However, sustaining Israel’s leadership in this competitive field presents significant challenges. It requires not only a continual influx of talented individuals and substantial resources but also ongoing excellence in academic and business research.
Unprecedented AI Density
Israel has long been recognized for having one of the highest densities of startups per capita. Currently, AI startups constitute 30% of its tech landscape, accounting for up to 40% of funding rounds and securing 47% of total investments. Despite a recent surge in U.S. AI investment driven by high-profile deals, Israel’s AI startup activity remains two to four times greater than that observed in the United States or Europe, highlighting the unparalleled density of its AI sector.
The Quantitative Growth Factor
Since 2014, Israeli AI startups have demonstrated remarkable growth, experiencing over 170% increase in active companies compared to a 12% rise in non-AI startups. This surge has created a quantitative advantage, resulting in over 2,000 AI-driven companies and more than 400 leading multinational research centers operating within Israel.
Sustaining this growth is supported by a significant funding advantage. While just under 50% of non-AI companies secure equity funding within the first two years of their establishment, a remarkable 68% of AI companies succeed in raising funding. This disparity indicates strong investor confidence in Israel’s AI ecosystem, the sector’s robustness, and the attractiveness of AI ventures to investors.
Applied AI Excellence Across Diverse Sectors
While infrastructural AI is predominantly dominated by global tech giants and necessitates multi-billion-dollar investments, Israel distinguishes itself through applied AI—leveraging AI models to address novel and specific challenges. Applied AI is critical for driving economic and business value from the rapidly increasing investments in AI. Israel’s unique startup density and the industry-wide diversity of its innovation ecosystem enable impactful applications across sectors such as healthcare, agrifood, cybersecurity, robotics, and more.
This report identifies that seven out of twelve key innovation sectors each attract over 60% of funding allocated to AI companies. The broad spectrum of AI applications, combined with Israel’s entrepreneurial agility, academic research talent, and robust funding growth, fosters heightened interest from leading multinational corporations. Six out of seven of the “Magnificent Seven”, such as Microsoft, Google, Amazon, Meta, NVIDIA, and Apple, are leveraging Israel’s AI ecosystem through significant R&D operations and acquisitions.
Microsoft and Google lead with AI development centers focusing on machine learning and natural language processing, while Amazon’s AWS center drives AI integration within cloud services. Meta enhances AI-driven communications, and Nvidia has bolstered its AI hardware capabilities through the acquisition of Mellanox. Apple’s Israeli centers work on AI-powered features, including facial recognition. These strategic investments highlight Israel’s pivotal role in global AI innovation.
Global Validation of AI Quality
Measuring the quality of AI is more art than science, as it blends academic research, intellectual property, funding, and revenues. Instead of traditional metrics, this report examines exit activities as a distinct signal of quality. Since 2021, Israeli AI companies have outperformed their overall ecosystem representation in exit activities. From 2014 to 2023, top multinational corporations (MNCs) acquired one Israeli AI startup for every four American AI acquisitions, showcasing Israel’s strong global appeal. In contrast, non-AI acquisitions by MNCs follow a much lower ratio of approximately 1:11. This stark difference underscores the strategic global interest in Israel’s AI sector and highlights the exceptional quality and attractiveness of Israeli AI ventures to leading international investors.
Challenges Ahead
To maintain its position as a global AI powerhouse, Israel must address key challenges by taking effective steps in four strategic directions:
1. Extend Academic Talent and Research
Double down and expand Israel’s National AI Program to attract more AI researchers both domestically and internationally, and facilitate the transfer of AI research into business applications. Backed by a 1 billion NIS investment released in two phases, the National AI Program aims to position Israel as a global AI leader by supporting R&D, academia, high-tech industries, and fostering AI talent.
2. Attract Multinational AI R&D
Israel must continue to incentivize global businesses to establish and expand their AI R&D operations within the country, thereby enhancing collaboration, innovation, and the integration of cutting-edge AI technologies.
3. Implement AI Across Israeli Economic Sectors
Promote the widespread adoption of AI solutions across various economic sectors, including healthcare, agrifood, finance, and transportation, to drive operational efficiency, innovation, and economic resilience.
4. Support AI Funding
In the face of a volatile economic environment and geopolitical tensions, the government should encourage international investments in AI startups and support AI R&D investments by scaleups to ensure sustained financial backing and growth in the AI sector.
Sector-Specific Insights
Health Tech
Artificial intelligence is revolutionizing healthcare by enhancing medical imaging, electronic health records, robotics, drug discovery, and clinical trials. These advancements promise improved patient outcomes and increased operational efficiency. However, the sector faces significant challenges, including data privacy concerns, data scarcity, complex business models, lengthy drug development cycles, and stringent regulatory requirements.
In Israel, digital healthcare stands out as a market leader, representing 58% of active AI health tech companies. This dominance is further reinforced by the majority of AI investments flowing into the health tech sector, underscoring Israel’s pivotal role in driving innovation and investment in healthcare AI solutions.
Robotics
AI is at the forefront of transforming the robotics industry, driving advancements in logistics, agriculture, and healthcare. Key applications include autonomous navigation for path planning, advanced perception systems for object handling, and automation in industrial environments. Despite these advancements, the robotics domain contends with challenges such as data scarcity for training AI models and the necessity for high precision in dynamic physical settings, which often require expensive testing and validation processes.
In Israel, AI-driven robotics companies have significantly outpaced their non-AI counterparts in attracting investment. Between 2019 and 2024, these companies secured 78% of total sector funding, highlighting the robust investor confidence and the critical role of AI in advancing the robotics industry within the country.
Climate Tech
AI holds transformative potential in climate tech, addressing critical challenges in weather modeling, geospatial monitoring, sustainable agriculture, wildfire prevention, and renewable energy optimization. Nonetheless, the widespread adoption of AI in climate tech is hindered by fragmented data sources, the need for high-resolution datasets, and limited computational resources.
Within Israel, energy tech and agritech are spearheading the adoption of AI in the climate sector, capturing nearly 70% of the funding compared to their non-AI counterparts. This focused investment reflects the strategic emphasis on leveraging AI to enhance sustainability and resilience across key environmental sectors.
Conclusion
Israel’s AI sector serves as a cornerstone of its technological innovation, driving substantial growth across diverse industries such as health tech, robotics, and climate tech. The nation’s unique combination of academic excellence, entrepreneurial dynamism, and robust global partnerships solidifies its position as a leader in AI development.
Looking ahead, while Israel’s vibrant AI ecosystem is poised to continue attracting significant investments and strategic interest from multinational corporations, however, sustaining this momentum requires addressing key challenges. By expanding academic talent and research, attracting multinational AI R&D operations, implementing AI solutions comprehensively across economic sectors, and ensuring consistent support for AI funding, Israel will not only preserve its current advantages but also unlock new opportunities for innovation and economic growth. Balancing these strengths with proactive measures to overcome obstacles will reinforce Israel’s status as a global AI powerhouse, ensuring sustained innovation and economic growth in the years to come.
Full Report: Israeli Tech Report: Applied AI Powerhouse | Startup Nation Finder
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