Israel s R&D Landscape. Yoram Yaacovi General Manager Microsoft Israel R&D Center (ILDC)

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1 Israel s R&D Landscape Yoram Yaacovi General Manager Microsoft Israel R&D Center (ILDC)

2 World s Most Innovative Countries World Economic Forum Global Competitiveness Report 1. Switzerland 2. Israel 3. Finland 4. United States 5. Germany 6. Sweden 7. Netherlands 8. Japan 9. Singapore 10. Denmark Source: World Economic Forum Global Competitiveness Report

3 Growth 2016 Q1-Q3: Most Prolific in History for Israeli Hi-Tech Capital Raising Total capital raised reached $4B in 510 deals +27% YoY in capital raised +22% YoY in average deal size 57% of H1 deals included at least one foreign VC investor Capital Raised in $B and Number of Deals Q1-Q Source: IVC-Exits Report, October 2016

4 Chinese Investors are Tapping into the Israeli Tech Market A growing trend of Chinese companies and investors looking to tap into the local technology market and acquiring Israeli technologies Total Investment $ Over the past 4 years alone, Chinese investors have invested over $15B in Israeli companies Tech Investments High-tech investments with Chinese participation grow by ~50% annually and are expected to reach over $500M this year, up from $118M in R&D Chinese giants such as Alibaba Group and Huawei have set up R&D centers in Israel as well as invested in local tech companies Source: Catalyst Fund Research, 2016

5 Key Sectorial Trends in the Israeli Ecosystem

6 Israel Leading in Cyber Security In 2016, over 430 local companies alongside 20 R&D centers developed security solutions 20% of global investments in the Security sector are in Israel 2 universities ranked $300M top 20 globally in computer science; heavily invested in cyber security Nearly $300M raised by cybersecurity companies in 2015 (+50% YoY) Source: IVC Research, 2016

7 As Vehicles go High-tech, Israel s in the Driver s seat Israel s expertise in the Security, Communication, ML and IoT is being deployed in automotive technologiess, leading to unparalleled dominance in the field Home to some of the leading automobile technology companies Global automobile vendors are establishing relations with local companies Leading global automotive companies invest in local R&D Israel s Automobile Startup ecosystem is rapidly growing 150 startups and research groups, +100% from 2013 Source: Vertex Venture, June 2016 The Marker, October 2016

8 Israel Becoming a Global Leader in IoT There are approx. 330 IoT startups, ~5% of the Israeli startup ecosystem The IoT ecosystem leverages Israel s strengths in sectors like Big Data & BI, Life Science, and Security There is much more IoT growth to come: most companies are in early R&D or initial revenue stages Source: Vertex Venture, June 2016 The Marker, October 2016

9 Fintech is Flourishing Israel is a main source for Fintec development. There are over 200 Fintec startups, most launched in the last two years Local companies and startups focus their developments around investments (37%) payments (21%) and loans (13%) Global and local banks and credit card companies are opening local innovation centers, hubs and accelerators Source: Bank Leumi research, 2016 Globes, September 2016

10 Israel continues to attract global companies R&D Centers

11 Some however are choosing to close their local operation

12 Hi-Tech Workforce Trends Changes in demand and pay YoY (2015/2016) Changes in number of hi-tech employees

13 Shortage in Relevant Graduates Computer Science, Math & Statistics Graduates 3,500 3,000 2,500 2,346 2,476 2,635 2,649 2,806 2,984 2,917 3,020 10% 9% 8% 7% 2,000 6% 1,500 1, % 5% 5% 4% 4% 5% 4% 4% Number of Graduates % of all-up graduates number 5% 4% 3% 2% 1% Source: Israel Bureau of Statistics, 2016

14 Key Takeaways Local expertise creates leadership in key technological domains: Security, Fintec, IoT and Automotive Israel continues to lead in global innovation and as a result attracts interest and investments from foreign investors Shortage in skilled professionals is worsening, short and long term solutions must be put in place Classified as Microsoft General

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17 Source: BVP Israel Cyberscape Israel s Cyber Startup Domain Map

18 *Startups that raised >$100K Source: Vertex Ventures, June 2016 Israel Startups - Automotive 2.0

19 Startups that raised >$100K Source: TLV Partners, December 2015 Israel s IoT Startups Map