Sometimes dubbed “The Startup Nation,” today’s Israel is sprawling with technological innovation, especially when it comes to frontier technologies.

My learning adventure in Israel included a couple of months of exploration and familiarization with the local innovative ecosystem, including VR/AR technologies. My observations suggested Israel has the potential to become one of the world’s largest hubs for Augmented Reality.

Israel is already one of the largest technology ecosystems in the world. With the largest number of startups per capita, Israel is home to more than 2,000 startups founded in the last decade. In 2017, Startup Genome, a report that ranks the world’s largest startup ecosystems, ranked Tel Aviv 6th, just after San Francisco, New York, London, Boston, and Beijing. A great number of Israel-originated startup projects succeeded in the U.S. market and large American companies acquire dozens of startups every year.

Why Augmented Reality?

Historically, Israel’s strategic technological advantage relied on cyber-security and computer vision. Two vital components for creating an AR experience are vision and understanding the environment in real-time and having strength in these categories is essential to any ecosystem aimed at seizing an advantage for their next computing platform. More recently, startups have emerged from Israel with integrated vision-based systems including drones, robotics and AR. This existing tech expertise by local founders in computer vision systems can soon establish Israel as the world’s largest AR hub.

Here are four reasons that’s likely to happen:

Talent

One of the most extensive training grounds for nurturing young Israeli talent is military service. The Israeli armed forces are considered one of the most efficient in the world because of the government’s continuous investment in cutting-edge tech R&D. This provides young non-combat army recruits an opportunity to develop their technical skills using expensive R&D facilities. Israeli military command invests heavily in computer vision research which is utilized in aviation and video surveillance. Graduates of elite intelligence units such as 8200 and 9900 employ the latest technical skills in cyber-security, artificial intelligence, and computer vision.

Also, Israeli universities play a significant role in developing high-skilled technical talent. For instance, Technion University, ranked 75 in the world in Computer Science, is renowned for its training program that prepares experts in software development, artificial intelligence, and cybersecurity. One of the most prominent labs in the university is Technion Vision and Image Sciences Laboratory, which researches computer vision systems, 3D imaging, and real-time image processing. Other well known university labs in Israel include Tel Aviv University’s Robotics, Computer Vision and Geometric Computing Lab, and Ben Gurion University’s Interdisciplinary Computer Vision Lab. Weizmann Institute of Science, ranked #104 in the world and #6 in Asia, is also known or its Computer Vision & Graphics Lab which conducts research on object recognition and 3D reconstruction.

These academic institutions are an important signal of Israel’s commitment to creating an auspicious environment for nurturing talent in the country to tackle major technical challenges.

Corporate involvement

Given the abundance of talent in the country and strong expertise in computer vision, many international corporations and startups decided to open AR R&D centers in Israel which are focused on computer vision work. Below are some examples:

Apple Israel is Apple’s second largest R&D center in the world. Apple’s acquisitions of Israeli startups including PrimeSense, RealFace, LinX, and Anobit helped bring top talent and technologies to its R&D center. Reportedly, Apple employs more than 1,000 people to work on developing Augmented Reality solutions, such as AR glasses, that, supposedly, will hit the market in 2020.

Magic Leap opened its first R&D center in Israel in 2015 and then strengthened its position through the acquisition of Israeli cybersecurity startup NorthBit. According to LinkedIn, around 100 people work at Magic Leap’s Israel office.

Snap established its presence in Israel after the acquisition of Cimagine, a startup developing AR enterprise solutions. Close to 20 people are currently employed by Snap’s Israeli office.

Microsoft has a strong presence in Israel, and one of the groups related to AR R&D is Advanced Technology Labs, which focuses on computer vision technologies and natural user interfaces. This group works closely with other Microsoft divisions, including Hololens.

Other prominent computer vision and 3D design-focused corporations that pervaded the Israeli market are Intel, Samsung, Google, and Autodesk. Involvement of these corporations in the Israeli technological ecosystem is helping stimulate an increasing number of local startup acquisitions and investment in cutting-edge research.

Government and Venture investment

The Israeli government is actively involved in supporting the startup ecosystem through the Innovation Authority, previously known as the Office of the Chief Scientist. The Innovation Authority provides very favorable matching investments to startups building cutting-edge technologies, especially in the areas of artificial intelligence, computer vision, and VR/AR. The majority of VR/AR startups I met during my trip received some sort of support from the Innovation Authority, which created a favorable situation for startups to raise additional capital through venture firms. From the government’s perspective, supporting cutting-edge VR/AR projects brings emerging technologies to the army as well as contributes to the economy in the long term in by means of additional tax assets.

Israel also has an attractive investment climate. The success of many startups over the last decade and an ever-growing number of startups in the AR/VR industry have attracted many international investors and helped build several Israeli Venture Capital firms. Because of its extensive tech expertise, Israel created an attractive ecosystem for operation from an investor’s perspective as well as a desirable spot for acquisition by international tech giants. Israeli startups have raised a total of $5B in venture capital from both foreign and domestic firms. Increased access to capital in Israel also allows startups to scale up quickly and compete in global markets.

High success rate of existing startups

There have been several significant acquisitions of startups in Israel that have sparked an interest in computer vision and AR. The most significant M&A deal in the country was Intel’s $15.3 billion acquisition of Mobileye, whose main strength was in computer vision. In regards to Augmented Reality, the most significant acquisitions were Snap’s acquisition of Cimagine for $40M in 2016, and Apple’s acquisition of PrimeSense for $360M in 2013.

The database of Startup Nation Central, an organization that aims to serve as the gateway to the Israeli startup ecosystem, lists 239 active startups in Computer Vision and Augmented Reality. Several of these startups have been developing AR solutions before the recent wave of excitement. For example, Lumus AR has been working on the first versions of its AR glasses since 2000. After the recent $45M Series C round and partnerships with a Chinese manufacturer, Quanta, and Swedish eye-tracking company, Tobii, the company is on the path to becoming a strong AR startup coming out from the Israeli ecosystem.

What’s Next?

If Israeli startups succeed in utilizing the ecosystem’s strengths and build the core AR infrastructure, we should see a number of significant acquisitions, and an even higher number of corporations establishing an R&D presence in the country. Additionally, the Israeli government and VC firms can propel the growth of consumer AR startups and allow them to compete in the global arena. If that happens, Israel can become the top global center for the AR industry.

Firdavs Abdunazarov is an investor at Rothenberg Ventures, where he focuses on early-stage investment opportunities in the fields of virtual reality, augmented reality, and machine intelligence. Rothenberg Ventures is one of the most active VR/AR investors in the world, with more than 40 investments in the field.