How Israel Became the New Silicon Valley
Why it’s known as “Startup Nation.”
The tiny Middle Eastern country of Israel, has earned the nickname of “Startup Nation,” due to having the largest number of startup companies, per capita, in the world.
Between 1,100 and 1,400 startups are established in Israel every single year, which is pretty impressive for a country roughly the size of New Jersey, with a population of only 9.5 million. The vast majority of these startups are technology oriented, and a large number of them have gone on to be very successful. The traffic and navigation app known as Waze, was created in Israel, and was sold to Google for 1.3 billion dollars. And the Israeli autonomous-driving company Mobileye, was bought by Intel, for 15.3 billion. And there have been many more similar success stories. Israel actually also holds the title for most unicorns per capita.
In case you’re unfamiliar with the term, “Unicorn” is a term used in finance to describe a startup company, that reaches a valuation of at least $1 billion. All these high profile successes have given Israeli entrepreneurs the confidence and motivation to dream big, and the country has become known in the international business community, as an excellent place to discover and acquire emerging technology.
So, this leads us to the question, of why Israel is so effective at producing successful tech companies, and of course there is a myriad of answers.
Their military’s high-tech influence
One major contributor to Israels’ startup culture, is their military. Most Israeli citizens are required to serve in the military for between 24 to 32 months, and many young Israelis leave their mandated time in the service with skills and attributes that are perfect for starting or working at a tech company; such as leadership skills, teamwork, performing under pressure, discipline and complex problem solving.
Unit 8200
The military also equips many Israelis with vast technological knowledge. The Israeli military’s cyber-intelligence unit, known as Unit 8200, is one of the most advanced in the world. In a Financial Times article, a senior research fellow at Britain’s Royal United Services Institute, was quoted as saying, “Unit 8200 is probably the foremost technical intelligence agency in the world, and stands on a par with the NSA in everything except scale.” The unit trains its members in coding, hacking, cyber-espionage and even in the development of certain types of smart phone apps. The unit also has after-school feeder programs that teach computer coding to high schoolers.
One reason the agency has become so technically advanced, is the usage of a very unique screening process that helps them decide on who to recruit. This process helps them identify the candidates with the most aptitude to learn complex ideas quickly, as apposed to just finding people who already have the most knowledge. This screening process has allowed them to recruit some of the brightest minds in the country and equip them with advanced computer skills.
It is estimated that the unit has around 5,000 people assigned to it at a time, most of whom are between 18 and 21 years of age. This means that there are large numbers of unit alumni that graduate to the private sector every year. Many of these former members have gone on to start, or occupy top positions in major tech companies.
The power of shared space
Another factor of Israel’s business success, is that Israeli companies have very effectively utilized the concept of co-working spaces, where multiple companies share the same office space, equipment, utilities, receptionist and custodial services. This type of arrangement allows young companies to operate with much lower overhead, as they get their feet off the ground.
The psychology of accepting failure
Another potential factor of Israeli business success, is psychological in nature. Some believe that the prowess of Israeli entrepreneurs, can be partly explained by a cultural ethos, of embracing and learning from failure.
Amos Meiri, co-founder and CEO of the successful Israeli smart city tech company, Colu; summarized this ethos for an article on economist.com. Meiri was quoted as saying: “Israel’s tech ecosystem is characterized by a ‘can-do’ attitude, and perhaps the most important differentiating factor is how the Israeli ecosystem embraces failure. In fact, it is almost viewed as a necessary step towards success. Entrepreneurs or startup CEOs who have suffered setbacks are valued for their crucial experience and lessons learned. The effect of this is that people are more inclined to take risks and experiment.”
Government collaboration
Another contributing factor to Israeli business success, was the creation of The Israel Innovation Authority, which is a government agency underneath Israel’s Ministry of Economy. The agency’s objective is to nurture business development and technological innovation within the country. One of its’ main initiatives is connecting promising startups with private sector business incubator programs.
Incubator programs help startup companies to prosper by providing them with technological, logistical, business and administrative support, in addition to helping them find investors. These programs will do everything from provide an office for the startup to work in, give them management training, help connect them with strategic partnerships, assist them in developing their monetization strategy, and provide academic experts to help them refine their technology.
These programs are either directly managed by, or partnered with, venture capital firms. The Innovation Authority works with a variety of incubators that are each oriented toward a specific type of business or technology. The Innovation Authority provides most of the initial startup capital, which only has to be paid back if the company becomes profitable. This arrangement allows entrepreneurs to pursue their business ventures without risking themselves financially, and allows the private sector incubators to invest a much lower amount; with the startup still getting the amount of capital it needs to have a chance of success. This makes it more sustainable for the incubators to invest in high risk businesses.
This approach has created a very effective collaboration process between local entrepreneurs, the venture capital industry and the Israeli government. Tel Aviv University has also created a very successful academy incubator program, which is considered one of the best in the world.
The vital contribution of venture capital
A crucial part of this equation is that Israel contains a thriving venture capital industry. There is currently an estimated 335 venture capital firms either based in Israel, have offices in Israel, or invest in Israeli companies from afar. And this number is growing. Since 2015, an average of 23 new VC’s are established in Israel, every year. Their presence has made it significantly easier for local startups to acquire investment capital. In 2021, venture capital investment in Israel totaled about 25.6 billion dollars, which in an astronomical amount for such a small country; and is one of the highest concentrations of venture capital in the world, relative to population
A fertile ground
In summary, the significant technological education and experience of Israel’s workforce, combined with a very supportive business ecosystem, has created a uniquely fertile ground within Israel where innovative ideas can flourish. Most of Israel’s business activity is centered in the coastal city of Tel Aviv, which has been compared to the United States’ Silicon Valley, in terms of its importance within the international business community.
