How Israeli Startup Culture Drives Innovation in Construction Technology

When mentioning startup hubs, Silicon Valley often comes to mind first. This branch of the San Francisco Bay Area is renowned worldwide for its massive cluster of tech companies, many of which boast market valuations in the tens of billions of dollars.

However, in the realm of construction innovation, another land across the globe is providing support and funding for emerging tech ventures—Israel.

According to Israeli research firm StartupBlink, the country is one of the world's most promising startup ecosystems, ranking third globally in startup activity, behind only the United States and the United Kingdom.

In Israel, entrepreneurs with startup dreams can access a robust support system, government funding, and the favor of investors—who value the country's unique strengths in the startup arena. However, when companies attempt to expand across borders, Israel's advantages begin to wane, forcing them to seek greater growth elsewhere.

Construction Dive spoke with several startup executives and experts who praised the country's startup incubation ecosystem and the attention founders receive, while also outlining the unique challenges companies face locally.

Connection is key

"Creating a startup from scratch and building it from the ground up is deeply ingrained in Israeli DNA," said Meirav Oren, CEO and co-founder of construction tech company Versatile, which started in Tel Aviv.

"It's fertile ground for industries that need excellent solutions and great companies," Oren added. She also chairs the Tel Aviv chapter of the Construction Solutions Association, an organization for the industry's future.

Aviv Leibovici, co-founder and chief product officer of Tel Aviv-based construction software company Buildots, points to the Israeli military as a key factor in cultivating business talent. By law, most Israelis (with exceptions based on ethnicity, religion, or health reasons) must serve in the military: men for 32 months and women for 24 months. One of the most famous programs is Unit 8200, an elite cybersecurity unit in the Israel Defense Forces, which Forbes has called "Israel's secret startup machine."

For Leibovici, building a network in the construction industry is a massive but surmountable task. He believes it's easier to accomplish in Israel than in the UK—where Leibovici is currently based, while Buildots was founded in Tel Aviv in 2018 and still has its headquarters there.

"Israel is a small, closed, and tight-knit community in many ways, and you can easily get in and explore," Leibovici said. "People will tell you: 'Oh, you want to start a tech company in this field? Great, fantastic, come on in.'"

Leibovici said that thanks to these connections, he quickly gained a deep understanding of the market by meeting CEOs and interacting with project teams on construction sites, learning the ins and outs of the industry.

Cheli Wasserman, CEO of Tel Aviv-based construction software company Bimmatch, echoed similar sentiments.

"Israel has a thriving startup ecosystem with a high concentration of tech companies and a strong culture of innovation, providing a valuable and mutually supportive network for legal, business, and development consulting," Wasserman said.

Funding is key

Those doing business in Israel say they benefit from the government's role in creating opportunities, as well as support from other players in the tech sector for entrepreneurs.

"There's always someone who knows someone who can make an introduction for you, and it's easier to find than elsewhere," said Molly Livingstone, chief liaison officer and ecosystem manager for MassChallenge Israel, a branch of the Boston-based U.S. startup accelerator MassChallenge.

Livingstone mentioned specific programs designed by the Israeli government to nurture startups, such as the Israel Innovation Authority (IIA). The IIA provides funding and support to Israeli companies, either independently or in partnership with countries like Japan, the United States, and India (as shown on its call for proposals page), helping them enter their chosen fields.

According to Hagit Sela-Lidor, head of international marketing at the IIA, the IIA's annual budget is approximately $500 million. After what Sela-Lidor describes as a rigorous screening process, startups can receive a significant portion of the funds they apply for. According to the agency's 2023 annual report on the state of Israeli high tech, the IIA provided approximately 1.7 billion Israeli shekels (about $449 million) in direct grants to startups and companies through its numerous grant programs.

However, the government doesn't solve all funding problems.

"If you apply for $100,000, you'll never get the full amount. You'll get up to 85%, and the rest must come from private funds. This way, we ensure the private sector shares the risk with us," Sela-Lidor said.

Despite government aid, these figures pale in comparison to the private sector—which is the bigger part of the funding equation. In the first half of 2023 alone, The Times of Israel reported that startups raised $3.9 billion through private funding rounds. This large figure also represented a 29% decline from the second half of 2022, according to the newspaper.

Sometimes, networks are built even before a startup begins. Sources point to the Technion—Israel Institute of Technology, a university whose reputation rivals MIT—as a key cradle for entrepreneurs.

"Israel is a very active ecosystem," said Gonzalo Galindo, president of Cemex Ventures, the venture capital arm of Mexican contractor Cemex. "In our annual startup competitions, we traditionally see a good number of companies from Israel."

"I think they really make the most of the funding available within their capabilities and scale," Galindo said.

Is there room for growth?

Despite Israel's many advantages, its startups still face their own issues. For the construction tech sector, according to Rafael Sacks, a professor of civil and environmental engineering at the Technion, the local construction industry is not pushing the technological envelope.

"Very few companies can truly experiment at scale with the local industry and lead as a result," he said.

Sacks said that any company looking to grow must go overseas, and many leave Israel for the United States and the UK to seek more opportunities. Additionally, tensions from Prime Minister Benjamin Netanyahu's push for judicial reform have led some startups across various industries to consider registering in the U.S., according to Reuters, bringing uncertainty to the sector.

"The market share is very small, and the construction industry is not mature or willing to take risks. There are only a handful of general contractors willing to work with these companies and use their products," Sacks continued. "It's easy to start a company, but hard to make money."

Additionally, companies with operations overseas report encountering issues when receiving funding from the IIA.

For example, if a company's R&D team is located abroad, it may hinder its ability to receive IIA grants. A source who spoke to Construction Dive on condition of anonymity due to concerns about affecting their grant application revealed this.

Inbar Blum, head of the IIA's growth division, said that while she understands companies want to grow and expand, the IIA insists that ideas and technology should remain Israeli.

"We have very talented people in Israel. We want to use them for worthy purposes—to change the world, tackle all challenges, and provide solutions to the world through Israel," Blum told Construction Dive.

Hagit Sela-Lidor, head of international marketing at the IIA, added that this also stems from serving taxpayers. Sela-Lidor noted that companies are free to pursue overseas and foreign expansion, but must pay penalties, which she said startups are aware of in advance.

"Our interest, of course, is to fund those who keep intellectual property within the local company," Sela-Lidor said.

With a spirit of innovation, many who enter construction tech often do so as a pivot rather than a first choice. Sacks said many who enter construction see peers moving into fields like cybersecurity and biotech, while construction remains a "blue ocean."

"They find that medicine and biotech are already crowded, and then they suddenly pivot to construction," Sacks said.