"The digital revolution is a wave. A wave we have to ride as best and long as possible. Those not ready for this will fail."

Israeli head of entrepreneurship: Ride the wave of the digital revolution or fail

Israel, also known as the Startup Nation, allocates significant amounts of resources for innovation, especially in high-tech. Billion dollar exits have become the beacon for the many startups founded in the country every year, and according to one of the leading Israeli officials, multinational companies’ expansion to Israel is to consolidate its leading position within entrepreneurship.

We are on Highway 2. The coastal highway. The vast, smooth surface of the Mediterranean contrasts the chunky high rises, which in recent years have multiplied in Herzlia, a high tech area in Central Israel on route from Tel Aviv to Haifa.  Among others, names like Microsoft and WeWork adorn the facades.

We pass the Carmel mountain range as another cluster of glass constructions emerges: Intel, Yahoo, Google. Undeniably, we are in the midst of the high tech center of Haifa.

In Israel, they have a saying: In Jerusalem you pray, In Tel Aviv you laugh and in Haifa you work. However, one thing unites all three cities: a vibrant energy of innovation.

The Startup Nation

In 2017, Israeli startups received more than 5.2 billion dollars in Venture Capital, exceeding the previous year by 9 percent. This makes Israel world leading within investments in Research & Development (R&D).

Despite its relatively short existence, modest size and an ongoing geopolitical conflict, worldwide, Israel has the second most companies on Nasdaq, and high tech make up 43% of the country’s total export. For every dollar invested in startups, the Israeli economy grows by 5 to 8 times.

No wonder, Israel has become known as the Start-up Nation.  

”I’m a CEO. The driver is a CEO. Everyone in Israel is a CEO,” says our guide, laughing, while taking us on 4 day-tour around the thriving startup environment in three cities. And this is no joke.

If talking to an Israeli, chances are he or she is an entrepreneur themselves or at least they will know someone who has founded their own company. The country counts more than 5.500 startups, and with about 2.700 of them in Tel Aviv, the city has the highest density of startups pr. capita in the world. Also Jerusalem sees its share as the number of startups has grown from 250 to 600 in just four years.

It is this spirit of entrepreneurship along with governmental initiatives for foreign investments which has now made the multinational tech-companies expand their offices to Israel. In Tel Aviv, the corporate tax is 16% and in Jerusalem, where the mayor himself has 15 years of experience in the startup field, it is as low as 7.5%.

“The digital revolution is a wave. A wave we have to ride as best and long as possible,” Amiram Appelbarm, Chief Scientist at the Israeli Ministry of Economy and Industry.

Riding the wave of the digital revolution

The number of international companies establishing offices in Israel has been growing ever since 1970. Since the year of 2000, one can even be talking of a ‘hockey stick’ growth (as defined by Bobby Martins ‘Hockey Stick Principles’).  

The incoming money deriving from the multinational companies and their R&D departments now makes up 4.3 % of Israel’s BNP. And Israel now seizes the chance to consolidate the success.   

“The digital revolution is a wave. A wave we have to ride as best and long as possible. Those not ready for this will fail. To be a startup-nation gives us ownership of the development, but this is not enough. We need to embrace the innovation and create an industry around it. Here, we have the idea generation but not the production.  We want to change that. We want the multinational companies to expand their businesses to here so they can benefit from the ecosystem in Israel,” says Amiram Appelbarm, ph.d., Chief Scientist at the Israeli Ministry of Economy and Industry and chairman for Israel Innovation Authority, a governmental innovation initiative.

He illustrates his words by showing a layout of the ecosystem of the Israeli economy and industry.

“If you ask me what makes Israel the leading startup-nation, attracting R&D and VC investments, I’d say there is no ‘silver bullet’. It is the result of a complete ecosystem as well as the society in which one is born and bred. To me, the most important player is the government, which many love to hate and criticize. However, they should be credited for establishing the Chief Scientist post,” he says.

This post has come to play a vital role for making Israel a world-leading startup-nation.

Israel invests in high risks fields

In 1969, the Ministry for Economy and Industry established the post as Chief Scientist with the aim of accelerating technological innovation, entrepreneurship and by that economic growth. Since then, various people taking office has had a significant influence for the ongoing high tech boom in Israel.

The office has funded entrepreneurs, initiated accelerators and incubators and given out endowments. Moreover, it has invested in high risk fields within R&D, which others, like VCs, wouldn’t dare to touch due to risk of bankruptcy. However, high risk can also mean large potential.

“20 years ago when people talked about self driving car, many investors didn’t take it seriously. But our Chief Scientist at the moment invested and last year one of the companies had a 15 billion dollar exit,” says Amiram Appelbaum and refers to Mobileye, a company specializing in vision-based software, which Intel bought last year. The deal made a significant contribution in bringing the collected sales of Israeli companies to 24 billion dollars in 2017.     

Entrepreneurs educated in the military

The governmental goodwill towards innovation is not just a marketing gimmick, believes Louise Vibjerg Thomsen, Head of Trade & Innovation Officer in Innovation Center Denmark Tel Aviv. I meet her at OurCrowd Global Investor Summit in Jerusalem, which is the largest startup- and investor event in the Middle East as well as the culmination of our tour.

In Israel the government is willing to embrace the risk. Israel Innovation Authority gladly invests in companies prone to bankruptcy and the government provides financial support for companies without buying shares. If bankruptcy does occur, the company is granted debt remission and even though it succeeds, only a percentage of funding is to be repaid within the first couple of years, tells Louise Vibjerg Thomsen. A practice which Denmark possibly could take lessons from.      

Israel is characterized by both its geographical location and history, but also the military shapes the mentality of the nation. Over the course of the four days I’m here, every entrepreneur I talk to mentions the military.

“Rather than a Startup Nation, we are a tech-startup Nation. Historically, lots of technological innovations have been developed by the military, and so is the case here. We are a militant country surrounded by countries which refuse to conduct business with us. Furthermore, we have a notable number of good technical universities. Export is the goal from day one, and the technology leads many to success. If you have a good technology, it’s possible to make an exit or establish partnerships in the USA where they are more skilled in making a business,” tells Tarek Issa, founder and CEO of the music app Lofic.

Military service is mandatory in Israel. Two years for women and three for men. Beginning service at the age of 18, many obtain leading positions in a young age. According to the Israeli entrepreneurs, the military is a thus a unique opportunity for learning how to cooperate with others as well as gaining experience in directorship.

More possibilities, no hierarchy

Despite a deeply rooted military background, the hierarchy within the Israeli high tech field is rather loose. In general, things are taken more lightly here and time runs fast. However, if one wish to reach out to a CEO, investor or mentor it is very much possible, tells Diane Abensur, a French immigrant and CEO in Nanosynex. The startup is a spinoff from the elite university Technion, which is located just outside of Haifa and has bred other successes such as ReWalk.    

“In general, there are more opportunities here like accelerator programs and possibilities to pitch and present at many events.  They cherish it more here. Furthermore, people are much more available.  The Israeli mentality doesn’t care much about hierarchies,” she says.

As the sun sets outside Jerusalem Convention Center, participants make their way to Mahane Yehuda Shuk, a market in the old city. A large man, dressed in a Driza-Bone coat and a top hat, generously pours whiskey to the festive crowd of Israelis, Germans, Australians and the many other nationalities coming together at the summit.

The man is no other than the founder of OurCrowd, Jon Medved. He is a legend in the Israeli business world, but no security guards are in sight and there is no trace of arrogance or stress in his movements. In the land of contrast and diversity, he is the personification of the startup-mentality in the Startup Nation: Present, available, alive and in motion.  

Disclaimer: Bootstrapping was invited to OurCrowd Summit by the Israeli Embassy in Denmark.

FACTS:

Israel as Start-up Nation:

  • Number of startups: Approximately 5.500. Israel generates about 1000 new startups annually.
  • According to World Economic Forum, Israel is the second best in innovation.  
  • In 2017, Israeli startups received 5.2 billion dollars in venture capital.
  • In 2017, the sales of Israeli companies amounted to a total of 24 billion dollars. Of this, the sale of the company Mobileye to Intel made up 15 billion dollars alone.
  • Startup-nation, which has come to describe Israel, derives from the book of the same name. Authored by the researchers Dan Senor and Saul Singer and published in 2009. 
  • The startups are majorly to be found in the fields of electronics, internet, adtech, security, gaming, mobility and apps.

OurCrowd

  • OurCrowd is founded by multi entrepreneur, VC and angel investor Jon Medved.
  • OurCrowd is a venture capital firm where investors invest through crowdfunding. They have a choice of 12 funds with a total of 145 startups selected by OurCrowd. In total, 650 billion dollars have been invested. OurCrowd has hosted an annual investor summit since 2013, and this year 10.000 participated at the Jerusalem Convention Center.