The Israeli high-tech industry is dynamic and constantly changing. What happened to the High-Tech Index, what are the prominent financing trends, and which regulatory changes were introduced? Developments in high-tech 2016-2017​

The High-Tech Industry in Israel – The Surge Continues

In 2015, we were witness to the peak of the Israeli high-tech industry's performance, as was reflected by the Innovation Authority's High-Tech Index (see below). In 2016, the high level of performance has been maintained, although a slight decline has been recorded in several indicators, expressed in both the Start-Up Companies Sub-Index and in the Mature Companies Sub-Index. This raises a question – does this level reflect the glass ceiling of high-tech performance given its present limitations (mainly the shortage of skilled labor)? Alongside a discussion of the industry's performance during the years 2015-2016 as reflected by the various weighted indicators in the High-Tech Index, in this section we will also present initial indicators of high-tech performance in 2017.


What is the High-Tech Index?    

The High-Tech Index is a synthetic index created by the Innovation Authority's Strategy and Economy Division. The index is intended to reflect the different levels of activity in the Israeli high-tech industry. The index is divided into two sub-indices: The Startup Companies Sub-Index and the Mature Companies Sub-Index, out of an understanding of the fundamental differences between the large mature companies and the startup companies operating in the local market (for more details on the indicators comprising the index and their values throughout the period of their use, see the appendix to this chapter). The cumulative result of the index itself incorporates a weighted calculation of these two sub-indices.

This year, with the cooperation of Prof. Camil Fuchs, the methodology used for calculating the index was revised. The main adjustments are surveyed in depth in the methodology appendix that can be found on the Authority's website under Strategy and Economy Division Publications.


As we did in previous years, in discussing the high-tech industry, we are continuing to distinguish between two groups: the startup companies group and the group of mature companies. In the group of startup companies, we saw a continuation of the positive and consistent trend that began with the end of the global financial crisis, even if at a slightly lower level than the peak of last year (See Diagram 2).

The large scope of funds raised by high-tech companies had a significant influence on this result. According to the IVC Research Center, approximately USD 4.8 billion flowed into the companies' cash reserves, a figure that constitutes a new Israeli yearly record. This is while in the United States, venture capital investment actually declined for the first time after five consecutive years of growth. Furthermore, the financing rounds themselves were larger than normal: the average round stood at approximately USD 7.2 million, some 20 percent more than the average during the previous five years. Specifically, the average round in advanced stages[1] grew from approximately USD 20 million in 2015 to USD 25 million in 2016.[2] 

2017 commenced at a similar pace with USD 2.3 billion being raised during the first half of the year, 75 percent of which was in mid-stage and late-stage deals (all with a scope of at least USD 10 million per transaction).[3] These results apparently testify both to the maturity and readiness of the Israeli companies and also to higher investor willingness than in the past to become involved in follow-up investments at later stages. 

A slight decline in relation to 2015 was registered in the net addition of new startup companies (companies opened less those closed), but it should be mentioned that a net increase of more than 600 companies to the total number of start-up companies is a significant addition of which many countries would be proud.

The scope of 'exits' during 2016 was slightly lower than in previous years, however it is important to mention that consensus regarding this figure is not universal, specifically concerning the definition of an "Israeli exit".[4] Nevertheless, the scope of exits may yet reach a new record in 2017, this in light of several huge deals that have been completed this year: the closing of the Mobileye sale to Intel for the sum of USD 15.3 billion;[5] the sale of NeuroDerm, that had enjoyed the support of the Innovation Authority since inception, to the Mitsubishi Corporation for USD 1.1 billion, and the sale of Plarium to the Australian company Aristocrat for USD 500 million. This figure testifies again to the attractiveness and high technological level of the Israeli startup companies but also presents a policy challenge – how to retain more of the fruits of Israeli high-tech in Israel when the technology giants are eager to acquire Israeli technology in its early stages. This issue is discussed in the chapter on the Innovation Authority's strategy in this report.

One huge 'exit' that stood out during 2017 expresses the unrealized potential within the Israeli pharmaceutical industry. The Kite Pharma Corporation, with products based on technology developed at the Weizmann Institute, was recently sold for USD 12 billion to the American corporation Gilead. Although Kite Pharma was initiated at the Weizmann Institute and is headed by an Israeli, its entire operations are conducted in the United States where it is registered. Furthermore, the majority of its investors and employees are American. The State of Israel will therefore benefit from only a tiny portion of the economic profit of Israeli-developed technology.

The mature companies group displayed a similar picture i.e., positive performance but lower than that of 2015,[6] a fact expressed in the decline of the relevant sub-index (see Diagram 3)

In 2015, almost all the indicators comprising the Mature Companies Sub-Index rose with noticeable increases in the total value of acquisitions made by Israeli high-tech companies[7] and the total of secondary issues of Israeli companies.[8] These issues served, among others, to finance these same acquisitions. During 2016, most of the sub-index's indicators showed a decline as could be expected following a record year and yet, a number of indicators reflect important achievements. Specifically, the total acquisitions made by Israeli companies continued to climb and reached USD 8.5 billion;[9] the ratio of high-tech employees out of the total employees in all sectors returned to the previous record level – 8.3 percent – at which it stood on the eve of the 2008 crisis;[10] and total high-tech exports reached a record level of approximately USD 43 billion, reflecting an increase of approximately 5 percent (see Diagram 4).[11]

The increase in high-tech exports stems entirely from a growth of approximately 20 percent in service exports (that includes mainly computer and software services, R&D services, communications and others). Industrial exports, on the other hand, dropped by approximately 6 percent. The trend of change in the composition of high-tech exports and the diversion of focus from manufacture to services, is expected to continue in coming years, as is already reflected by the results for the first half of 2017.[12] A cause for concern is the recent weakness of the TEVA Corporation that may negatively affect the total Israeli exports as well as the Tel Aviv Stock Exchange.


Global Trends: Are 'Exit' Possibilities Diminishing?

The global innovation system is witness in recent years to two prominent financing trends that could also influence the Israeli high-tech industry.

Firstly, the "unicorn'" phenomenon (companies valued at more than USD 1 billion), that began to spread throughout the global innovation industry in 2014, sometimes hinders capital raising during advanced stages or 'exits' for start-up companies. During the phenomenon's early stages, unicorns raised capital on a massive scale, at valuations of billions of dollars. Today, many investors who participated in these capital-raising transactions, are now waiting, sometimes in vain, to see whether these companies will succeed in increasing their value even more, thereby making an exit worthwhile. A current example, recently becoming public knowledge, is the collapse of the American Jawbone Corporation, that developed wearables technology and that at its peak had an estimated value of USD 3.3 billion. The company received an acquisition offer prior to its collapse, that it was however forced to reject as it reflected a value significantly lower than the previous capital recruitment – only USD 1.5 billion.

There are those who claim that the deceleration in venture capital investments in the United States during 2016 stemmed, among others, from this phenomenon. Venture capital funds preferred follow-up investments in later-stage companies in their portfolio rather than investment in new and young companies, however the high valuations according to which companies recruited capital between 2014-2016 hindered implementation of successful follow-up investments. Nevertheless, the first half of 2017 has witnessed a trend of recovery in the global venture capital industry. Specifically, during the second quarter, the trend of stagnation in valuations for later cycles ceased and 16 companies became new unicorns,[13] suggesting that it is still too early to eulogize this phenomenon.

In any case, it seems that the difficulties created by the unicorn phenomenon have thus far passed over Israeli industry. We are witness in Israel, and indeed worldwide, to an increased emphasis on follow-up investments at later stages and to a parallel consistent increase in the value according to which companies recruit capital. It appears therefore that the valuations assigned to Israeli companies at the market height in 2015 reflected their real value.

An additional global trend is the consolidation process occurring among the large technology companies. In 2016, a record number of merger and acquisition transactions was recorded in the international high-tech industry (see Diagram 6), including huge deals such as the acquisition of NXP by Qualcomm for USD 47 billion and the purchase of LinkedIn by Microsoft for USD 28 billion. There are those who claim that this trend may reduce the feasibility of strategic acquisition for young technology companies. This is because the abundance of giant mergers means a reduction in the number of potential buyers, and among those that remain – a depletion of cash reserves and the shifting of managerial attention to the application of integrational processes that accompany mergers.

While the possibility of acquisition by larger technology companies is diminishing, the giant corporations, active in other areas, are beginning to express interest in purchasing and assimilating innovative technologies. This phenomenon is part of a broader process of blurring borders between the high-tech industry and "traditional" sectors in which the latter are becoming increasingly technology based. For example, in 2016, the American retail giant Walmart purchased technologies for a total sum of USD 3.3 billion and both Unilever and GM acquired technologies for approximately 1 billion dollars each. Walmart even launched a business incubator for startup companies during 2017 with the objective of investing in pioneering technologies for the retail world. The flip side of the phenomenon is that technology companies are becoming interested in acquiring businesses from "traditional" sectors. One such example is the acquisition of the food retail chain Wholefoods by Amazon. The scope of this trend is still limited however its development should be monitored.


Government Activity – Easing the Conditions for Business and Advancing the Industry's Human Capital

Several steps have been taken by the government in 2016 and 2017 that are expected to prove beneficial to Israeli high-tech. Among these steps are regulatory easing measures and actions to strengthen the infrastructures necessary for the industry.

Firstly, the government has updated the taxation environment of high-tech companies in Israel. This has been done in reaction to publication of the BEPS Regulations that are aimed at preventing the shifting of high-tech companies' profits to countries with more attractive tax regimens and tax shelters around the world. Accordingly, at the end of 2016, an amendment was passed to the Law for Encouragement of Capital Investments which reduced corporate tax for high-tech companies from 25 percent to 6-12 percent, depending on the nature of the company. The Amendment also instituted additional tax benefits on dividends and capital gains tax. This development is presented in detail in the chapter dealing with multinational corporations' R&D centers later in this report.

Secondly, in August 2017, the Knesset passed a bill aimed at removing bureaucratic obstacles and easing the completion of high-tech mergers and acquisitions in Israel. The objective of the proposed law is to adapt the regulation on companies' structural changes to the needs of the high-tech industry which is characterized by frequent corporate changes and rapid growth. In this light, the law expands the application of tax benefits in cases of various structural changes such as company merger and acquisition and asset transfer. In addition, it removes bureaucratic obstacles such as the need for the Tax Authority's authorization to execute a merger by means of exchange of shares, and in order to implement a vertical split. The proposed law is consequently expected to increase the attractiveness of merger and acquisition transactions for both investors and companies. Thirdly, at the beginning of 2016, the Knesset passed an amendment to the 'Angels Law' that expanded application of a tax benefit granted to individual investors (angels) on an investment in high-tech companies at initial stages of their operation.

Finally, at the beginning of 2017, in light of the shortage of engineers and programmers in the high-tech industry (as presented in detail in the 2016 Innovation Report), a government resolution was passed to implement a national program for increasing the number of skilled personnel in the high-tech industry. The program enlists all the relevant government bodies towards this objective and comprises several steps aimed at increasing the industry's supply of human capital. Among others, it was decided that the Planning and Budgeting Committee at the Higher Education Council will act to increase the number of first degree students in high-tech professions by 40 percent. In addition, the Director of Employment will implement steps to integrate sectors of the population currently under-represented in the high-tech industry, primarily women, Charedim, and ethnic minorities. Likewise, the Innovation Authority will act to promote extra-academic training programs relevant to the high-tech industry (see about the 'coding bootcamps' below). Furthermore, a decision was made to implement different steps to increase the potential human capital for the high-tech industry by means of integrating personnel from overseas: returning Israelis, new immigrants and foreign citizens.          


[1] Series B and onwards.

[3] IVC figures

[4] IVC reported on a total of USD 10 billion in 2016 while PWC reported only USD 3.5 billion. The difference stems from disagreement regarding the inclusion of the Playtika acquisition by a Chinese consortium and with the participation of the gaming corporation Giant Interactive, from the previous owners Caesars Interactive Entertainment who were also not Israeli. For the purpose of calculating the index, use was made of the IVC figures without the Playtika transaction.  

[5] Mobileye had already evolved from the startup to developed company stage prior to the acquisition. Accordingly, it can be said that this deal should be considered a merger and not an 'exit'.

[6]  The 2016 Innovation Report presented only a partial picture regarding 2015 for the Mature Companies Sub-Index.

[7] USD 7.7 billion, after disregarding the Teva-Allergan deal.

[8] USD 9.4 billion, compared with the previous high of USD 3.5 billion.

[9] According to Start-up Nation Central figures, 24 percent of all acquisitions of Israeli high-tech companies in 2016 were made by local companies.   

[10] Calculated after adaptation of NBS data by the Strategy and Economic Division of the Innovation Authority. The adaptation included revaluation and historic adjustment of all salaried employees by retroactively adding the number of salaried employees in the I.D.F. (regular and permanent service) including before 2012 (the year in which the NBS began publishing the total figure).

[11]  According to a combination of data from the Export Institute (for service exports) and the NBS (for industrial exports).

[12] The Trends and Developments in Exports Report – First Half 2017, The Economic Division of the Export institute

[13] KPMG. (July 2017). Venture Pulse Q2 2017.




The Startup Companies Sub-Index

  1. Net New Companies: The sub-index represents the net change in the number of Israeli companies operating in the high-tech industry. In other words, subtracting the number of Israeli high-tech companies that were closed from the number of Israeli high-tech companies that were established. It should be mentioned that the figure for 2016 is not final and is based on IVC estimations.

  2. Amount and Value of Capital Raised by Companies: The total value and number of financing transactions in which Israeli high-tech companies raised capital from all investors – venture capital funds, angels and other investors.
  3. Number and Value of Exits: The monetary value of, and number of exits in which the Israeli high-tech companies participated. An exit is defined both as an initial offering (IPO) and a merger or acquisition (M&A).
  4. Capital raised by VC Funds: The indicator totalizes the total capital raised by Israeli venture capital funds in a year. The figure constitutes an indication of the expected future investments of those same funds in Israel.


Actual Value

Normalized Value

Indicator / Year







Value of Exits







Number of Exits







Value of Capital Raised







Number of Financing Rounds







Capital Raised by VC Funds







Net New Companies








Mature Companies Sub-Index

  1. Added Value: Defined as the difference between the gross output and total input. The sub-index is calculated as the sum of the added value, both in high-tech manufacturing and in high-tech services (the computer and software sector and the R&D services sector which includes startup companies).
  2. High-Tech Exports: The total exports of the high-tech sectors in manufacturing and services including that of the startup companies.
  3. Ratio of Salaried High-Tech Employees: Ratio of high-tech employees, excluding employees in the communications services sector, out of the total employees in all sectors.   
  4. Technology Stocks: The Tel Aviv Blue-Tech 50 Index, that includes the 50 shares with the highest market value of all the shares included in the TA Technology Index and the TA Biomed Index. The figure is calculated as an average of the daily closing indices, for each year.
  5. Number and Value of PE Transactions: PE financing includes bridging loans, financing via sale of shares, Buyout and mezzanine loans by Israeli high-tech companies. 
  6. Number and Value of Secondary Offerings: Number and value of the rounds of public financing undertaken by Israeli high-tech companies whose securities are already registered for trade (secondary offerings). This variable represents the continued growth of Israeli public companies.
  7. Value and Amount of High-Tech Acquisitions: The total sum of all merger and acquisition transactions executed by Israeli high-tech companies, while the acquired company is not necessarily Israeli or technological. 


Actual Value

Normalized Value

Indicator / Year







Added Value (In Millions)







Ratio of High-Tech Employees







High-Tech Exports (In Millions)







Technology Stocks (Yearly Average, in Millions)







Number of PE Transactions







Value of PE Transactions
(In Millions)







Number of Secondary Offerings







Value of Secondary Offerings (In Millions)







Number of High-Tech Acquisitions







Value of High-Tech Acquisitions (In Millions)