New Report by Startup Nation Central: Israel's Tech Ecosystem Leads in AI Focus, with Investment Share 3-4 Times Higher than U.S. and Europe

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Nov 14, 2024, 11:00 ET

Israeli AI Startups Lead Innovation with 173% Growth, compared to only a 12% increase in non-AI companies.
AI companies receive 47% of total funding and account for 40% of funding rounds, showing strong investor confidence in the sector's growth potential
Global tech giants, including NVIDIA, Microsoft, Google, Amazon, Meta, Apple, and more, invest in Israel's AI landscape, driving core strategic developments from IL R&D centers

TEL AVIV, Israel, Nov. 14, 2024 /PRNewswire/ -- Startup Nation Central has released a comprehensive report on artificial intelligence (AI) in Israel, featuring insights and commentary from NVIDIA, a world leader in AI and accelerated computing. The report highlights the continued expansion of Israel's AI sector, showcasing consistent year-over-year growth. Titled "Israel's World-Class AI Powerhouse: Leading Through Applied Innovation", the report utilizes data from Finder, Startup Nation Central's business engagement platform, along with global comparisons from Pitchbook, the report examines trends in funding, exits, and startup formations. It provides an in-depth comparison between AI-driven startups and other tech companies within Israel's dynamic tech ecosystem.

Avi Hasson, Startup Nation Central CEO (Photo by Miri Davidovitz)

The report indicates that Israeli AI startups are leading the tech ecosystem with remarkable growth, highlighted by a 173% rise in active companies since 2014, far outpacing non-AI startup growth. This surge is fueled by robust early-stage funding, with AI firms outperforming non-AI counterparts by at least 10% in initial capital acquisition, signaling strong investor confidence. Though only 30% of the ecosystem, AI startups capture 47% of total funding and 40% of funding rounds, emphasizing their critical role in innovation. Israel's share of AI investment has consistently outpaced those of the U.S. and Europe, often by three to four times, since 2018. Despite a recent surge in U.S. AI investment due to high-profile deals, Israel retains a unique competitive position within the global AI landscape.

"Israel stands at the forefront of global AI innovation, propelled by an extraordinary ecosystem of startups, academia, and multinational support," said Avi Hasson, CEO of Startup Nation Central. "Major corporations like NVIDIA, Microsoft, Google, Amazon, Meta, and Apple have significantly invested in Israel's AI landscape, underscoring its global impact. Yet, to fully harness this momentum, additional government investment is essential to extending academic talent and research —both to advance public-benefit technologies and to sustain this critical engine of growth."

"Israel's ecosystem is uniquely positioned as a global innovator, with a distinct blend of cross-industry expertise, and a thriving network of academia, startups, and multinational companies' operation" said Arik Kol, Sr. Director and Head of NVIDIA Inception Startups Program at NVIDIA Israel. "As we're at the beginning of the AI and accelerated computing era, with the potential to transform trillions of dollars' worth of industries, now is the time for the Israeli ecosystem to accelerate its efforts and establish itself as a world leader in AI."

"Israel is rapidly establishing itself as a global leader in AI innovation, leveraging its unique focus on applied AI to tackle specific, high-impact challenges across sectors like cybersecurity, healthcare, agrifood, and more," said Yariv Lotan, VP of Digital Products and Data at Startup Nation Central. "With one of the highest densities of startups and scaleups worldwide, Israel's robust ecosystem consistently demonstrates quality and strategic value, as evidenced by the impressive exit activities of Israeli AI companies."

Key Findings from the Report:

AI funding is higher than the proportion of AI companies in the ecosystem

Both AI and non-AI startups saw substantial growth in total funding until 2021, when the increase became more consistent for AI startups. The proportion of funding allocated to AI companies is higher than their representation in the Israeli ecosystem. Both the share of private funding rounds and the total funding amount consistently exceed the share of active AI companies. In 2024, although the funding share for AI dropped to 30%, the share of AI rounds remained above 40%.

AI startups demonstrated greater resilience compared to their counterparts

Israeli AI startups have shown remarkable resilience and growth, with the number of active AI companies increasing by over 173% from 779 in 2014 to 2,170 in 2023, compared to only a 12% increase in non-AI companies. This surge has created a significant quantitative advantage, establishing a strong ecosystem of over 2,000 AI-driven companies and more than 400 multinational research centers operating within Israel.

Israel's tech ecosystem is more AI-oriented than U.S. and Europe

Since 2018, Israel's AI investment share has typically been 3-4 times higher than Europe and the U.S. However, the recent surge in AI funding in the U.S., driven by substantial investments in companies like OpenAI, alongside a slight decline in Israel's AI funding share, has narrowed the gap between the regions, especially in the share of the total funding amount. Preliminary data for 2024 shows this trend continuing. For the first time in recent years, the U.S. leads in AI investment, mainly due to high-volume mega deals.

Advantage to AI Startups in Securing First Funding

Israeli AI startups excel in securing early-stage funding, consistently outperforming non-AI companies by at least 10% in capital acquisition within the first two years post-foundation.

Another sign of AI companies' funding advantage is reflected in the disparity between funded and non-funded companies: just over 50% of non-AI companies have not yet secured equity funding, whereas only 32% of AI companies fall into the non-funded category.

Israeli AI acquisitions by foreign MNCs outpace non-AI

To gauge the relative strength of Israel's AI ecosystem, an analysis was conducted on the number of AI companies acquired each year since 2014 by top AI multinationals. This list includes NVIDIA, Google, Microsoft, Meta, Apple, Amazon, IBM, and Intel. By the end of 2023, for every four American AI companies acquired by a "Magnificent Seven" or other MNC, one Israeli AI company was also acquired. This ratio is even more favorable when compared to European AI companies. In contrast, the acquisition ratio between Israeli and American non-AI companies is about 1:11. This indicates that while Israel's broader tech ecosystem is remarkable for a country of its size, the interest from leading MNCs in Israeli AI companies is particularly strong.

The report highlights sector-specific insights in healthcare, climate tech, and robotics, with commentary from NVIDIA leaders:

Health tech:

AI is transforming healthcare through applications in medical imaging, electronic health records, robotics, drug discovery, and clinical trials, promising improved outcomes and efficiency. However, challenges persist, such as data privacy and scarcity, complex business models, lengthy drug development cycles, and navigating regulatory hurdles. Israeli digital healthcare leads the market, comprising 58% of active AI health tech companies and receiving the majority of AI investment in the sector.

"AI plays a significant role in healthcare, with diverse applications in areas such as medical imaging, electronic health records, robotics, drug discovery, and clinical trials. While these applications hold immense promise for improving healthcare outcomes and efficiency, there are several challenges that need to be addressed for successful adoption, including data privacy concerns, data scarcity, business model complexities, long development cycles in drug discovery, and navigating the regulatory landscape," noted Kimberly Powell, VP of Healthcare at NVIDIA.

Robotics:

AI is revolutionizing robotics, driving advancements in industries like logistics, agriculture, and healthcare. Key AI applications include autonomous navigation for path planning, perception for object handling, and automation in industrial settings. The robotics domain also faces challenges such as data scarcity for training and the need for high precision in physical environments, requiring costly testing. In the face of these challenges, AI is transforming the robotics industry in Israel. Between 2019 and 2024, AI-driven robotics companies attracted 78% of the total investment in the sector, far exceeding the non-AI segment.

"AI is already at the forefront of the robotics industry, driving significant advancements in robotics applications across fields like industrial technologies, agriculture, and healthcare. As we move toward a new frontier in robotics, the transition from single-purpose to general-purpose robots is becoming a reality. This shift could help address global labor shortages in manufacturing, filling vacancies with advanced robotic solutions, ultimately boosting global GDP. While still on the horizon, future robots may become an integral part of everyday life," noted Amit Goel, Director of Robotics and Edge Computing at NVIDIA.

Climate tech

AI holds significant potential in climate tech, helping tackle challenges in areas like weather modeling, geospatial monitoring, sustainable agriculture, wildfire prevention, and renewable energy optimization. However, barriers to widespread AI adoption in climate tech include fragmented data sources, the need for high-resolution datasets, and limited computing power. Energy tech and agritech are leading the adoption of AI within the climate sector, capturing nearly 70% of funding compared to their non-AI counterparts.

"There is an exciting potential for applying AI in climate technology. It can be used to address various climate challenges, including improving weather forecasting, monitoring deforestation, optimizing farming practices, preventing wildfires, and promoting renewable energy. However, the obstacles to AI adoption in climate tech include data silos, lack of high-resolution data, and the need for powerful computing resources. There are efforts to overcome these challenges through digital twin technology, accelerated computing, and hybrid AI models. These solutions are leading to more accurate climate simulations and allowing for more effective climate action," said Dion Harris, Director of Product, Accelerated Computing, at NVIDIA.

For more information and to access the full report, please click here.

About Startup Nation Central: Startup Nation Central helps global solution seekers tackle complex challenges by giving them frictionless access to the expertise and solutions of Israel's problem solvers - and their bold and determined approach to innovation. We call this Impatient Innovation. Our free business engagement platform, Finder, grants unrestricted access to real-time, updated information and deep business insights into the Israeli tech ecosystem, explore potential opportunities, and forge valuable business connections.

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SOURCE Startup Nation Central