In recent years, Israelis have tried to prove they can beat the Americans on their home turf by establishing major consumer brands and direct-marketing them online to consumers in the western world. Thus there emerged digital insurance companies like Lemonade, apps for learning to play music like JoyTunes and for retouching selfies like Facetune, task management software like Monday.com, and website building services like Elementor. All have previously charted high on Globes' list of most promising start-ups, as ranked by Israel’s best investors.
This year, it’s clear that any company that relies on end customers, or even on small businesses, will find it hard to grow fast. Rampant prices and mass layoffs have reduced the purchasing power of average consumers, whose brand loyalty has turned unpredictable, while marketing costs to reach them remain high. So there is no place this year for downloadable apps, insurtech, e-commerce, or personal learning.
It's no wonder that companies - such as those ranked at the top of this year’s list - prefer to target large enterprises seeking to become more efficient, and grow with them even as they downsize. This is perhaps the main trend observable in this year's list.
The efficiencies offered by these Israeli companies are usually powered by artificial intelligence to improve organizational processes such as production, marketing, development and financial management. This ostensibly makes obsolete the jobs of employees who, for the most part, perform these tasks manually. In other cases, it increases the transparency within the organization, allows managers to monitor waste, make cuts where necessary, help different departments to work together, avoid duplication and create a common language, and, no less importantly, to justify migration from a number of old software programs to a single, efficient one.
The top-ranking company, ProteanTecs, for example, lowers costs for chip development and production by detecting faults at each stage of the process, and helps different departments within manufacturing plants, automotive and technology giants to communicate with one another. Buildots uses artificial intelligence and image processing to coordinate between building managers, contractors and workers, to detect faults in real-time, and locate discrepancies between plans and execution. Fintech company Mesh Payments allows financial managers at high-tech companies and large enterprises to spot unnecessary expenditure in a timely manner and to manage company expenses in a more centralized fashion. Walnut saves companies from having to hire sales presentation specialists, while Pecan gives business teams customer insights without their needing to hire high-priced analysts.
One exception to this trend is Bookaway, a company riding the tourism wave that has returned to pre-Covid levels. Bookaway allows tourists to purchase tickets for public transportation in developing countries with outdated infrastructure. This company benefitted from the "back to normal life" effect, with tourists compensating for years of lockdown at home, which has had the incidental effect of boosting airline stocks and supporting the public offerings of digital tourism companies like Israeli-American TripActions.
It appears that the focus on large organizations has been at the expense of, or in addition to, small and medium-sized businesses. Sales cycles for large companies are indeed longer, but in the post-Covid era, it has become acceptable to conduct sales remotely, and to offer more plans for different types of organizations. In the past, it took a salesperson to sell a product to a large enterprise. Today, more and more companies are developing self-service websites. It is also easier for companies to grow by selling online services. Then, with the help of support staff and marketing campaigns to existing customers, they expand their product offerings, and retain their customers for a long time.
As in previous years, missing from the top ten, and even top twenty and thirty rankings are companies from other sectors such as foodtech, agritech and cleantech. Despite the severe energy and climate crisis, Israeli high-tech investors do not gravitate towards companies in these sectors, although they have all the qualifications: high growth rates with profit potential, and on track for an IPO in two to three years - should the capital market open its doors.
Israelis are doing what they know how to do best: improve existing processes with software. One cannot fault the Israeli investor: it takes a long time to nurture companies to the rapid growth stage, especially companies in complex fields like food alternatives or green fuel that require long periods of development and market education. Climate and energy have been discussed for years, but it seems that the pendulum began to shift only after the war in Ukraine broke out nine months ago, followed by the current upheaval in oil and gas prices. It will take some time before we see the wave of most promising start-ups from these sectors.
The Most Promising Startups rankings are part of the annual Enterprise Technology Summit held by "Globes" and JP Morgan.
Published by Globes, Israel business news - en.globes.co.il - on December 14, 2022.
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