Innovation can happen anywhere. It shouldn’t be solely entrusted to Cupertino or Mountain View nor should it be limited to self-styled visionaries in New Balance sneakers. But it does seem to happen in clusters. Why Silicon Valley? Why Waterloo? Because creativity is cultural. For the better part of a decade, the Martin Prosperity Institute at U of T’s Rotman School of Management has been studying the complex web of factors that encourage and sustain innovation in regions around the world. First published in 2004, the institute’s Global Creativity Index measures a nation’s innovation potential, focusing on what it calls the Three Ts: technology, talent and tolerance. We used this index, but also dove deeper, to choose cities that are best positioned to nurture their creative edge into the future. “The GCI is really trying to help regions understand where they are,” explains Kevin Stolarick, research director of the Martin Prosperity Institute. “Even when times are good, you have to worry about what comes next.” Here are five cities —and some of their start-ups—that we think have very bright futures.
The entire population of Israel may only number seven million—smaller than New York City—but this Middle Eastern state spends more of its GDP on research and development than any other nation. And it shows. In April, 2011, Israeli software start-ups PicApp and PicScout sold for a combined $30 million (all currency in U.S. dollars) to Indian and American buyers, respectively. A month later, cellular company Provigent was snapped up by U.S. chip maker Broadcom for $313 million, while Google paid $70 million for app developer Snaptu. In September, eBay bought e-commerce site The Gifts Project for a reported $20 million. All are start-ups. All have offices in or near Tel Aviv. In the first three quarters of 2011 alone, 422 Israeli start-ups raised $1.57 billion in venture capital, and an estimated 250 multinationals maintain R&D operations there. What makes Silicon Wadi—as the coastal region between Tel Aviv and Jerusalem is known—so special? Some say that a service requirement in the country’s famously high-tech military has given many young Israelis a technological sophistication that bolsters creativity and inventiveness. What we do know is that while Tel Aviv is small, it’s one giant innovation engine. —Steve Brearton
“Here’s how we form start-ups in Israel: A bunch of guys meet up, usually over beer; one of them comes up with an idea, everybody gets excited and, minutes later, there’s a company,” says Gil Hirsch, who founded Face.com in Tel Aviv with three colleagues. The idea to create a fast, highly accurate facial recognition platform—one that can identify faces in digital photographs, even at varying angles and orientations—grew out of a recurring techie meet-up that Hirsch led for several years out of a Tel Aviv auto garage.
“The most important piece was the technology,” he says. Officially launched in March of 2009, Face.com’s software spoke for itself when it was presented to early investors. A $200,000 seed investment came first, followed by $1 million in the company’s first significant stage of funding. In 2010, another $4.3-million round of financing included a substantial investment from Russian search engine specialist Yandex.
But Face.com really made waves when Facebook integrated its site. Two Facebook-specific apps—Photo Finder and Photo Tagger—spawned calls from other developers eager to work with the technology. To gain market traction, Face.com offers its base API code for free, and currently has 30,000 developers using the platform, including an increasing number of mobile developers. Large-scale users, namely those who want to process more than 5,000 images per hour, pay a per-usage rate.
While Hirsch now spends about one week per month in California, the company’s 10 employees remain based in Tel Aviv. “When it comes to things like facial recognition, Israel’s engineering talent is huge, and the prices are sane,” says Hirsch. “There’s also no fear of failure here. Just a fear of not trying.” —Andrew Braithwaite
When your city is the freeway hub for all of traffic-choked Israel, you’ll find yourself stuck in your car with time to kill, often. In 2006, Israeli software engineer Ehud Shabtai decided that the pre-loaded navigation software in his PDA couldn’t handle the demands of notoriously gridlocked Tel Aviv. So he hacked the mapping program to input real-time local traffic conditions. The results were halfway decent, and he decided to share the hack with others, who began contributing more data. When a cease-and-desist letter arrived from the software’s manufacturer in 2009, Shabtai and a pair of friends launched Waze, a crowd-sourced GPS navigator.
As a free downloadable app running on mobile devices, Waze optimizes driving routes in real time. Drivers contribute their own live data simply by activating the program. Today, with $67 million in capital investments and eight million users across 45 countries, Waze has become a global “phenomenon.” At least, so says its newly appointed California-based director of communications Michal Habdank-Kolaczkowski.
He may be right. The company claims that one in three Israelis have used the software. Since its arrival in the U.S. last year, two million users have begun contributing data, and Waze is now working to develop partnerships with broadcasters (who will feature Waze in on-air traffic reports) and auto manufacturers (with an eye toward in-car integration). In October, Chinese business magnate Li Ka-shing contributed a large chunk of Waze’s most recent $30-million funding round, betting that China’s booming population of drivers and smartphone users will be the firm’s next market.
As Waze gears itself toward bigger things, the company’s creative brain trust has shifted to Palo Alto, California, but 90% of its 65 employees remain firmly based in traffic-mad Tel Aviv. “On my recent visit to Israel, anybody who figured out I work for Waze was either trying to buy me a drink or asking me for a job,” says Habdank-Kolaczkowski, laughing. “Waze is a way of life in Israel. It’s a rock star.” —A.B.
Herzliya, the bougie suburb just north of Tel Aviv, is one of Silicon Wadi’s most important hubs. It’s where you’ll find the likes of Microsoft, Freescale, Matrix, Formula Group, HP and IBM, not to mention a large number of Israeli VC funds. Word is, 12-hour days are pretty normal for Tel Aviv’s tech crowd, but if you’re looking to find execs and entrepreneurs unwinding after the long workdays, head to one of the city’s grill bars: The Whitehall Steak House and the Herzliya location of the Meat & Wine Co. are always packed after-hours. —Nancy Won
“In Israel, personal relationships aren’t all that relevant to business. Israelis will do business with you within five seconds of meeting you. In fact, there’s virtually no small talk at meetings. Nothing. Zero. They’re very direct.”
—Dr. Neal Naimer, CEO of Woojer, a Tel Aviv-based start-up. He’s originally from Montreal.