Israel fintechs: From start-up to scale-up
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Israel fintechs: From start-up to scale-up

Israel has become one of the world’s most important fintech hubs, attracting millions in investment from some of the biggest global brands and venture capital funds. Can its start-up culture now evolve to grow large fintech businesses at home?


24-7 Tel Aviv: The city has more start-ups per capita than anywhere else in the world

“Unit 8200 is where start-ups are born,” claim many graduates of this elite Israeli army unit. Unit 8200 is responsible for collecting signal intelligence and code decryption, but it is also acquiring a reputation as something of a tech incubator: graduates of the unit have founded three accelerator programmes.

Gadi Mazor, COO of BioCatch, which uses AI-driven behavioural biometric identification tools to verify customer identities online, is a graduate of Unit 8200. Being accepted into the unit after graduating from high school is a big achievement in itself: potential recruits are required to pass around 10 rounds of interviews and tests before they can join.

But unlike most armies, recruits are given unprecedented freedom – freedom that most 18-year-old soldiers across the globe could only dream of.

“That’s the secret sauce, the fact that you are given a lot of space to think for yourself and come up with your own solutions to the problems they throw at you,” Mazor says.

Military experience has developed the minds of Israeli’s youth and has led to the creation of some the world’s most successful businesses. This has spurred a large number of others to try their luck in the start-up world. And as more and more successful start-ups are founded, money has poured in, accelerator programmes have had success, and big tech companies have started to pay attention to what’s going on in Israel.

“These kids [in Unit 8200] are exposed to some of the highest tech in the entire world,” says Neil Corney, Israel country head for Citi during a presentation at the bank’s innovation lab in Tel Aviv. “And for all intents and purposes, they can do what they want with it. That’s huge.”

Israel’s start-up culture – particularly in fintech – is based around the country’s capital, Tel Aviv. The city has more start-ups per capita than anywhere else in the world – 1,700 of them in a city with a population of just 440,000. Israel also has more venture capitalists, scientists and tech professionals than any other country on a per capita basis.

These kids [in Unit 8200] are exposed to some of the highest tech in the entire world - Neil Corney, Citi

“Talk to someone in a bar in a café and they will most likely say that they work in or run their own start-up,” one Israeli entrepreneur tells Euromoney over lunch at a seafood restaurant in Tel Aviv. “But most of them will be out of work within a week.”

Between 1,100 and 1,380 start-ups are established in Israel every year, though 80% of them will fail. Those that survive attract millions of dollars in investment from global tech, venture capital funds and banks across the globe.

“Israelis have come up with solutions where some people may have thought it impossible,” says Assaf Feldman, co-founder and chief technology officer at Riskified, an AI platform that helps online retailers recognize legitimate customers and keep them moving towards checkout.

“Our ability to turn nothing into something is lucrative and incredibly attractive,” he says.

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Neil Corney, during a presentation at Citi’s innovation lab in Tel Aviv


According to Startup Nation Central, an independent and non-profit organization based in Tel Aviv, 645 high-tech companies in Israel raised $6 billion in over 681 funding rounds in 2018 – up 15% on the previous year in terms of value and an increase of 140% since 2014. In the same period, investment in high tech companies in the US grew at less than half that rate – 64%, according to data compiled by PwC.

“If we want to make money from fintech start-ups in the country, we have to support the Israeli ecosystem and increase visibility of the sector,” says Ornit Shinar, head of venture investing, Israel at Citi. “Naturally, more players will get involved.”

As the sector grows, international and local tech companies are on the lookout for companies to acquire.

In January, Amazon bought cloud computing company CloudEndure, which has headquarters in both Israel and the US, in a deal estimated at $200 million. Later that month, Samsung signed a deal to acquire Tel Aviv-based smartphone camera company Corephotonics for an unconfirmed $150 million.

According to PwC, M&A deals rose 77% in 2018 to $23.3 billion, compared with $12.2 billion in 2017, although that was lower than 2016’s $16.8 billion. Deals over $15 billion were not included in the data.


Today, there are 420 multinational corporations with R&D and innovation hubs in Israel. Amazon opened an R&D centre in Israel in 2014 and is now hiring engineers in the country to develop its virtual assistant, Alexa.

In January, Intel announced it would invest $11 billion in a new manufacturing facility in Israel, which the company aims to complete in the next five years. This will be in addition to its semiconductor manufacturing facility in Kiryat Gat, southwest of Jerusalem, which already employs 11,000 people. Intel alone is responsible for more than 1% of Israeli GDP.

There are several tax breaks as well as R&D and employment grants to encourage local and international companies to set up shop in Israel and hire locally. These were among the reasons why Citi chose Tel Aviv as the location for its own innovation hub and accelerator programme.

“When we were looking to develop our innovation hub, we had narrowed down our choice to either Moscow or Tel Aviv,” recalls Corney at Citi. “An hour before the team landed in Moscow, there was a terrorist attack there. This was obviously not the reason for choosing Tel Aviv as our hub – it was because of government incentives and the talent Israel has to offer – but the coincidence wasn’t lost on us.”

And there is a lot of talent in Israel. After the US and Holland, Israel has the highest number of university degrees per capita.

“We have won 12 Nobel prizes,” says Shinar.

People in Israel don’t give up easily... If there’s anyone that knows how to turn weakness into advantage, it’s us - Oren Ellenbogen, Forter

That is quite an achievement for a small, young country with few natural resources and surrounded by hostile Arab neighbours. Israel is dependent on oil from Russia and Kazakhstan, with some allegedly coming from the disputed territories of Northern Iran – namely Kurdistan – further fuelling tension in the region.

Terrorism is a constant threat. In the first weekend of May this year, Hamas and the Palestinian Islamic Jihad showered Gaza with nearly 700 rockets, killing four people and injuring hundreds. It was one of the worst clashes between Palestinians and Israelis since the Gaza War in 2014.

Data from the United Nations Conference on Trade and Development (UNCTAD) showed that just $6.4 billion was invested into the country in 2014 compared with $11.8 billion in 2013, a fall of 46%. But since 2016, foreign direct investment (FDI) into Israel has increased year on year. In 2018, FDI reached $21.8 billion, up from $18 billion the year before, according UNCTAD.

Indeed, Israel attracts the most FDI of all countries in the Middle East. So, what’s driving capital into a country with a real threat of terrorism?

“People in Israel don’t give up easily, we are people with grit, and this has a lot to do with the environment we have been brought up in,” says Oren Ellenbogen, vice-president of engineering at online fraud prevention company, Forter. “If there’s anyone that knows how to turn weakness into advantage, it’s us.”


The standard path for a successful Israeli company has traditionally been to raise two to three rounds of early-stage capital and then list on Nasdaq as soon as possible.

“An exit was a tangible measure of success, something that your parents could brag about on your behalf,” says Feldman.

Israel is home to more Nasdaq-listed companies than any country except the US and China. Since the 1980s, over 250 Israeli companies have listed, and currently there are 93 Israeli companies on the exchange. Cloud-based web development company Wix, online security companies CyberArk and Radware, and big data company Attunity are some of the largest and best-known companies on Nasdaq.

Listings came in thick and fast in 2014 and 2015, with nine Israeli companies listing in each year. “There was a shift in 2015 where everything seemed to come together,” says Shinar at Citi. “Enough people began to grasp the weight of the Israeli fintech world around that time and this was illustrated by all the investments we saw in 2014 and 2015.”

The whole mentality is changing now towards building big and meaningful companies right here from Israel - Oren Ellenbogen, Forter

Today in Israel, fintech chief executives have ambitions to exit later in their company’s development and the measure of success is changing. It’s no longer who can make a quick exit and retire early but who can create Israeli fintech champions.

According to Dealogic, in 2016 there were two IPOs out of Israel with a total value of $10 million. This grew to 19 deals worth $835 million in 2017 but fell to 11 deals for $508 million in 2018. So far in 2019 there have been seven IPOs with a total value of $944 million. The total number of IPOs may fall again this year, but, as with M&A, the values are higher. According to PwC, between 2017 and 2018, the average deal price rose 88% to $267 million – but the number of deals dropped from 131 to 124 in 2018.

So, is the country moving from a start-up to a scale-up nation?

“For a long time, Israel was known as a country that didn’t have scale-up potential,” says Shinar. “If you were an entrepreneur and someone offered you a pretty penny for your shiny new start-up, you would take it, but that may not be the case anymore.

“In fact, what I’m seeing is that chief executives of start-ups that have listed or have been acquired in the past are now looking to build something new and are keen to stay for the longer term,” she says.

Ellenbogen at Forter agrees.

“The whole mentality is changing now towards building big and meaningful companies right here from Israel,” he says.


CyberArk: Central control

CyberArk was founded by Alon Cohen in 1999. It is a cybersecurity company offering Privileged Account Security, which uses confidential password management controls to centrally secure, manage and monitor privileged accounts.

Alon Cohen CyberArk_160x186

Alon Cohen

Governments, financial institutions, healthcare providers and energy companies are among the company’s main customers.

CyberArk is headquartered in both Israel and the US and was listed on Nasdaq in 2014. Since its listing, the share price has risen from $16 to $142 as at July 22, 2019. First-quarter earnings for the company in 2019 rose 34% year on year; total revenues were $95.9 million.

Alon Cohen came up with the idea of CyberArk while he was travelling in Nepal after his stint in Unit 8200 of military intelligence.

“I had fallen madly in love with a woman during my time in the army and I had started writing stories about our lives together on my computer,” he says. “But one of the guys in the unit found out about the stories and thought it would be hilarious to print and distribute them around the unit. I was humiliated, obviously, but I was also concerned about the fact that it was so easy for him to access my stuff and spread it across the unit. If I couldn’t trust the network, why should any of us?

“That’s where the idea for CyberArk came from,” he says.

Cohen is no longer chief executive of CyberArk and has left the running of the business to his co-founder, Udi Mokady.

If I couldn’t trust the network, why should any of us? - Alon Cohen, CyberArk

“In the early years, I think I spoke to Udi more than I spoke to my wife,” Cohen recalls. “But that’s how it had to be if you wanted to develop a successful start-up. We were in each other’s pockets, in constant contact. It’s a surprise that we are still friends today.”

Since his CyberArk days, Cohen has gone on to set up several other cybersecurity and financial security companies, including nsKnox in 2016, which safeguards corporations from hackers and payment fraud. Microsoft is a strategic investor in nsKnox, which is headquartered in the US and Israel, with offices in the UK.


BioCatch: Behavioural verification

BioCatch uses AI-driven behavioural biometric identification tools to verify customer identities online. Its platform looks at over 2,000 behavioural, physical and cognitive parameters of user-device interactions to generate real-time risk scores based on a wide range of human and non-human cybersecurity threats.

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Gadi Mazor

“Think of it this way,” says Gadi Mazor, COO of BioCatch from the head office in Tel Aviv. “Instead of simply adding additional security layers – such as a password or an answer to a security question following two-step authentication – BioCatch technology focuses on the online behaviour of customers to decipher whether information has been compromised.”

The biometric technology “can go as far as to work out whether the way in which you type on your keyboard matches usual patterns and decide if your information is being used by someone else,” explains Mazor. It can assess whether the way your mobile phone is being held or your mouse wiggled has changed to decide if you or someone else is using your information online.

“If you are more likely to copy and paste information and then suddenly we see that the info is being manually typed in, our technology can sense that someone is different and it would be flagged.

“In fact, the way you scroll and type on a phone screen or keyboard can be as unique as your fingerprints or facial features,” Mazor says.

BioCatch was founded in 2011 and was one of the first investments by venture capital fund OurCrowd in 2014.

The way you scroll and type on a phone screen or keyboard can be as unique as your fingerprints or facial features - Gadi Mazor, BioCatch

“I was a partner and chief technology officer at OurCrowd when we invested in BioCatch,” says Mazor. “When the opportunity came to join the team, I thought it would be a good fit.”

To date, BioCatch has raised $47.6 million in funding. The last round was in March 2018 when the company raised $30 million with participation from American Express Ventures, NexStar Partners, Kreos Capital, CreditEase, OurCrowd and Janvest Capital, as well as existing partners OurCrowd and Blumberg Capital, which were involved in round A.

“Financial security companies such as ours will definitely have an increased role to play in the short to medium term, especially as fraudsters become much more sophisticated,” says Mazor. “I don’t think we will be short of customers, but there will be more competition in the space, I’m sure.”


iAngels: Co-investments

iAngels is an online equity crowdfunding platform that gives accredited investors the opportunity to co-invest with prominent angel investors in Israeli start-ups. Investors can actively choose which start-ups they invest in or allow iAngels to make the decisions. Investors can start with as little as $10,000 per company.

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Mor Assia and Shelly Hod Moyal

Some of the companies that iAngels has invested in include social trading and investment platform eToro, next-generation radar technology company Arbe Robotics, agritech company SeeTree and sports tech leader WSC Sports.

iAngels currently has $200 million in assets under management. So far, the firm has invested in over 65 companies and has eight exits under its belt. The most recent investment was in April 2019, when iAngels put $3 million into Theator, a US-based company that provides surgeons with AI-powered decision support tools.

The firm was founded in 2013 by Mor Assia and Shelly Hod Moyal. Assia is another graduate of Unit 8200, while Moyal comes from an investment and banking background.

“Start-ups in Israel are an attractive asset class, and private investors want to get involved,” says Assia. “We serve as the bridge between global investors and the Israeli high-tech ecosystem, and play an important role in opening up our insiders’ access to the world.”

Over the last five years, there has been growing interest in early-stage funding; investors are increasingly eager to get in at the ground level.

Start-ups in Israel are an attractive asset class, and private investors want to get involved - Mor Assia, iAngels

“The ecosystem is continuously evolving and, as the next-gen investor, we have an eye to companies who are going to disrupt markets and build the innovation of the future,” says Assia. “When we started out, we saw small investment rounds at a few hundred thousands. These days, entrepreneurs prefer to bootstrap longer and raise more serious funding rounds after they have successfully cracked their business model or initial MVP [minimum viable product].

“We created the platform to accommodate different types of investors and their interests,” she says. “These days we are launching our first institutional fund, the iAngels iNgenuity Fund, in collaboration with the European Investment Fund, to further introduce iAngels to institutional investors globally.”

In terms of exits, Assia says: “These investments are strategic and are looking into the future for potential high-yield performance. If investors seek liquidity before an actual exit, secondary offerings are something we can try to accommodate as well. As companies stay private longer, the need for secondaries will continue to grow.”


Forter: Machine learning

Forter uses machine-learning technology and automation to eliminate fraud in online transactions. The service is mainly used by online merchants and retailers using e-commerce platforms, but the benefits are passed on to customers as transactions are quicker due to the automation process.

Oren Ellenbogen_160x186

Oren Ellenbogen

A recent study by Forter found a 45% increase in account-takeover (ATO) attacks at the end of 2018 compared with the end of 2016. In such attacks, criminals have access to all an individual’s personal and private data, allowing them to make purchases without raising immediate suspicions.

The company was founded in 2013 by chief executive Michael Reitblat, president Liron Damri and Alon Shemesh, the chief analyst. All served in Unit 8200 together before joining the company Fraud Sciences, which was acquired by PayPal in 2008.

In September 2018, Forter raised $50 million in series-D funding, led by March Capital Partners, which brought total funding to $100 million.

Oren Ellenbogen is Forter’s vice-president for engineering and is based in Tel Aviv. He joined the firm in 2014.

“I started coding when I was 10 years old and my first paid job was for a small start-up when I was 15,” he says.

I started coding when I was 10 years old and my first paid job was for a small start-up when I was 15 - Oren Ellenbogen, Forter

“I was interested in joining the company because I felt like it approached fraud detection differently. Forter looked at how we could avoid using middle-men to detect fraud in online transactions – it was all about how we could automate fraud detection to make it a much smoother process for the retailer and the online customer.”

Ellenbogen refers to the irritating captchas customers are often forced to contend with when shopping online.

“Having to mark which of a number of pictures on your screen have trees in them isn’t my kind of idea of a painless shopping experience,” he says. “I’m sure most people agree with me.”

By June 2019, Forter had processed $100 billion in e-commerce transactions.


Riskified: Software against fraud

Riskified provides software as a service technology that prevents fraud. The company was founded in late 2012 by chief executive Eido Gal and Assaf Feldman, the company’s chief technology officer.

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Assaf Feldman

The company is often compared to Forter. In fact, founders of both companies not only have origins in the military’s intelligence section Unit 8200 but many of them also worked together at Trusteer, the digital identity trust software firm owned by IBM Security.

Like many other start-ups, Riskified is not yet focused on profitability and is instead investing in people and technology to diversify its product suite. So far, Riskified has raised $64 million over three rounds of funding. The company exceeded $100 million in annual recurring revenue in 2018. In the last five years, its compound annual growth rate was 250%.

One of the company’s key selling points is its charge-back guarantee, which means that Riskified reimburses retailers for any fraudulent transactions that occur on the company’s platform.

“All our retailers share charge-back information with us, which we have put through a database,” explains Feldman. “This means we have the most up-to-date information that can be used to prevent fraudulent activity that might be of concern to any of our other clients.”

All our retailers share charge-back information with us ... this means we have the most up-to-date information that can be used to prevent fraudulent activity - Assaf Feldman, Riskified

Early on, Riskified’s business grew by word of mouth, says Feldman. “Right at the beginning we were chatting to some of the largest retailers globally – companies such as Footlocker, Viagogo and Macy’s, which were all early adopters,” he says. “But no matter how big the corporations we work with are, we aim to see them as partners – to work with them as closely as we can, because this is how we will develop better products.

“We realized that our greatest assets were the data we had collected and the relationships we have built with merchants, which inspired a number of other products, including account protection, pre-authentication screening and alternative payments.”

As Riskified comes to play a bigger role in commerce, global banks are also becoming interested in how they can benefit from Riskified’s products.

“There’s a lot in the pipeline,” says Feldman. “But we are still waiting for some of our contracts to be finalized.”

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