1) IoT is booming with activity in Israel. According to the landscape research, there are around 330 Israeli IoT companies. As Israel is home to approximately 6,100 active startups in total, IoT represents a surprisingly whopping 5% of the Israeli startup ecosystem! These companies pertain to all verticals, stages, and levels of the stack, and address unique problems across many major markets.
2) Israeli IoT leverages Israel’s strengths in sectors like healthcare, life science, and cyber security. Given Israel’s historical proficiencies, it is not surprising that most of the IoT activity in Israel plays to the country’s unique strengths in areas such as healthcare, science, and cyber security, in new and interesting ways. For example, one Israeli company in the cyber security vertical is Argus Security, which is building a “firewall” for the connected car, defending your vehicle from being compromised by outside attackers, especially hackers that can take control of your car remotely! If, on the other hand, you’re less worried about hackers and more worried about calories, Consumer Physics’ molecular pocket sensor allows you to measure the physical world around you, including food, medicine, plants, and more. For instance, you can scan a piece of cheese and find out complete nutritional information like calories, protein, fat, etc.
3) The Israeli IoT industry is still far from mature. Regardless of sector, most companies on the landscape are stuck in the middle stages of their lifecycle, i.e. the R&D or initial revenues stages. Moreover, nearly 80% of companies are focused around the applications category rather than other levels of the stack (such as IoT platforms or components). This unbalanced distribution in terms of stage and level suggests a severe lack of infrastructure and maturity in this market wherein startups have not yet found their long-term product-market fit or verticalized their supply. However, this also represents an opportunity for companies to capitalize on such “whitespaces” in the landscape, particularly around the platform level where the numbers indicate that it is still early in the lifecycle curve.
What IoT means for Israel
As opposed to the belief that Israel will never be a leader in IoT, we found that if Israeli entrepreneurs can capitalize on their existing IoT-related proficiencies, they can dominate in this space. This is mainly because in Israel IoT already actually has strong, real context. In other words, the sectors that are currently most relevant to IoT – like cyber security, ag-tech, and healthcare – also happen to be the ones in which Israel is already the most advanced around the globe. For example, Israel has some of the most cutting-edge cyber security and defense expertise in the world thanks to elite Israeli military technology units. Team8, one of our most recent cyber security investments, brings together top Israeli cyber talent and ideas to build new technology companies that challenge the current cyber security paradigm. Furthermore, Israel’s rich agricultural “pioneer” history – when early settlers turned to innovation in order to transform what was then an arid desert into fertile land – has enabled Israel to establish itself as a world leader in ag-sciences and ag-tech like Netafim, the world’s first surface drip irrigation technology. This is why we developed our Farm2050 initiative to support such innovation. Not to mention that Israel is only the size of New Jersey, yet holds the most medical device patents per capita in the world. These existing proficiencies have positioned Israel to become a mighty force in IoT going forward.
Not only can Israel benefit from its existing strengths, but also IoT has come along at just the right time for Israel, and is thus enabling it to penetrate new markets that were historically impenetrable. Specifically, Israel has never been very successful at building consumer-facing startups, especially consumer hardware, but today this is changing. As Israeli companies transform their approach in dealing with global markets and have new distribution channels like Kickstarter, at the same time IoT has reinvigorated the consumer devices market. This convergence of factors has created a meaningful window of opportunity for Israeli entrepreneurs to get back into the consumer and hardware spaces.
Issuing IDC’s top 10 predictions for 2016, chief analyst Frank Gens advised enterprises to transform or die, noting that the overarching theme for 2016 is “digital transformation scales up.” Scale is the “critical ingredient in the unfolding battle for digital success,” said Gens, warning that while for some enterprises, “scale wins,” for others “scale kills.”