Two pieces of economic news came out of Israel recently showing both the ups and downs of the local tech scene.
On the up side, during its meeting on December 13, 2016, held in Tel Aviv, Israel, the Board of Governors of the Israel-U.S. Binational Industrial Research and Development (BIRD) Foundation approved $7.2 million in funding for eight new projects between U.S. and Israeli companies. In addition to the grants from BIRD, the projects will access private sector funding, boosting the total value of all projects to approximately $17 million.
As is known, the BIRD Foundation promotes collaboration between U.S. and Israeli companies in various technological fields for the purpose of joint product development. In addition to providing conditional grants of up to $1 million for approved projects, the Foundation assists by working with companies to identify potential strategic partners and facilitate introductions.
The eight projects approved by the Board of Governors are in addition to about 940 projects which the BIRD Foundation has approved for funding during its 39 year history. To date, BIRD’s total investment in joint projects has been over $330 million, helping to generate direct and indirect sales of more than $10 billion.
Some of the projects approved include: Motorola Solutions Israel and Eclipse Identity Recognition Corporation (Campbell, CA) for the development of distributed enhanced video analysis; NovellusDX and Christiana Care Health System (Newark, DE) for the development of in-vitro mutagenesis for a functional characterization of patient mutations and their response to drugs; Pluristem Therapeutics and The New York Blood Center (New York, NY) for the development of placenta derived PLX-R18 cells to improve the efficiency of cord blood for hematopoietic regeneration; along with Vimmi Communications and Tech Mahindra Technologies (Wilmington, DE) for the development of a system to significantly reduce resources required for transmitting video on mobile networks, among others. Clearly, the strategic cooperation between Israeli and overseas firms (in this case from the US) continues apace.
In the same week, PwC Israel issued a report that high tech exits in Israel dropped by 67% in 2016, to $3.5 billion from $10.69 billion the prior year. (Exits are defined as initial public offerings and merger and acquisition deals.) According to Rubi Suliman, high-tech leader at PwC Israel, the decline did not necessarily indicate a problem but mean among other possibilities that the market was taking a “breather” after the latest boom in acquisitions, which reached highs in 2014 and 2015.
The two top deals in 2016 were Oracle’s acquisition of Ravello for $430m and Francisco Partners’ purchase of SintecMedia for $400m, according to the PwC report.
So while the pace of tech development continues to grow (some say there are 20 new startups a week in Israel, with others putting the figure as high as 40) and off shore companies continue to seek partnerships with Israeli firms, it may well be that the reduced pace of exits means something other than a slowing down of the tech sector.
Some of the companies who would normally exit early in their development may have decided to remain as Israeli owned companies a while longer and some of them may aspire to become the next world class company headquartered in Israel. If that’s the case, even what might seem on the surface to be a negative development could actually bode well the future of Israel’s economy.
A good example of this is Playtika, which was bought in 2016 by a consortium of Chinese companies led by Shanghai Giant Network Technology for $4.4 Billion, one of the largest deals in the country’s history. Following the transaction, Playtika has made a commitment to run independently with its headquarters remaining in Israel, and its existing management team will continue to run day-to-day operations.
The company, a social and mobile gaming company founded in 2010 has since opened studios and offices in the US, Argentina, Australia, Belarus, Canada, Japan, Romania and Ukraine but has kept its main operation in Israel. It has grown from a 10-person startup into a global leader. Playtika today is a highly profitable growth company with more than 1,300 employees, multiple top grossing titles and millions of daily users.
Hopefully Israel will see more of these examples as the economy gestates more successful companies.
Sherwin Pomerantz is president of Atid-EDI Ltd., an economic development consulting firm with 26 years’ experience in assisting overseas companies and public entities in their export promotion and foreign direct investment attraction efforts.