What’s hot in Israel?

Israel’s technical prowess has long stemmed from the training engineers receive in nation’s defense apparatus, including its secretive intelligence Unit 8200.

Today this expertise is expanding beyond the traditional areas of cyber security and network infrastructure into the newer disciplines of fintech, autonomous driving, the Internet of Things and virtual reality. This, in turn, is sparking new interest from foreign investors to put capital to work.

“An investor can find opportunities in just about every high-tech sector found in the U.S., and entrepreneurs are quick to identify and address the same future-looking technology sectors.” said Adam Fisher, a partner at Bessemer Venture Partners. “The Israeli entrepreneurial scene is diverse and adaptable.”

The result is that investing in Israel hit a record in 2016, with money from abroad playing a big role.

As in the United States, software companies raised the largest chunk of the capital, gathering slightly more than a third of it. Growth also was evident in cyber security, where dollars put to work rose 13 percent, and proved more explosive among IoT and fintech companies, where money invested rose more than 400 percent, according to Internet site Geektime. Autonomous vehicles efforts likewise saw a sharp increase in capital deployed.

In contrast, Internet companies experienced a sharp decline in 2016 after a solid 2015, and pullbacks took place in adtech and life sciences.

A key reason Israel has become a hot spot is entrepreneurs have moved from social, Web and Internet to virtual reality, drones, cyber security, said Idan Netser, a partner at DLA Piper. A lot of companies also were started in artificial intelligence.

“The Israelis are very good at creating complex technologies in those spaces,” he said. “A lot of it comes from the army.”

In cyber security “we’re seeing a lot of activity,” concurred Adam Benayoun, a venture partner at 500 Startups, even if it’s reached the point where too many companies are going for the available budget, with over funding evident.

Benayoun expects to see activity rise in robotics and drones.

“There is an arbitrage opportunity vs. the rest of the world” from investing in Israel at attractive valuations and bringing the companies to Silicon Valley, he said.

“We decided it was a strategic place for us,” said Benayoun, who pointed out 500 Startups did 11 deals in Israel in 2016, a big increase, to become one of the most active VCs in the country.

Another important area of expertise is infrastructure technology for data centers.

Interest as well has grown in digital health, said Chemi Peres, a managing general partner at Pitango Venture Capital. In general, the innovation level is “stepping up,” he said.

Unfortunately, pricing also appears on the rise.

“I wish I could point to pricing as a reason investors are attracted to Israel, but let’s just say it’s not yet a reason to avoid Israel,” Fisher said.

Israel’s flag-bearer Vladislav Bykanov leads his country’s contingent as they march in during the opening ceremony of the 2014 Sochi Winter Olympics, Feb. 7, 2014. Reuters/Jim Young