Anyone who leaves the airport expecting to land in a high-tech mecca at Ben Gurion Airport near Tel Aviv will first of all be disappointed. The taxi driver fiddles with the credit card for several minutes, the check-in at the hotel causes paperwork, and the e-scooters outside on Rothschild Boulevard, yawn, they’ve known each other in Vienna for months.
Billions of exits churning
Nevertheless. Tel Aviv is considered to be THE world’s startup hotspot, alongside Silicon Valley, New York, London and increasingly Chinese cities. The small country with 8.7 million inhabitants has produced 19 exits beyond the 100 million mark between 2012 and 2018 – the sale of ICQ (remember? “Pling”) to AOL for $ 287 million made the prelude, then followed by Waze (2013 by $ 1.1 billion to Google), Viber (2014 by $ 900 million to Rakuten) or Mobileye (2017 by $ 15.3 billion to Intel).
There are 6,500 high-tech companies in Israel, with between 1,200 and 1,500 new startups each year, and 350 multinational corporations (including Facebook, Apple, Google, Amazon) have settled. “All the top companies in the IT industry are here. From these companies so many well-educated people come into the ecosystem, that can not be overstated, “says Gigi Levy-Weiss. He is one of the country’s most active business angels (120 investments, 40 exits), once led the gaming startup Playtika ($ 4.4 billion exit to China) and now advises Facebook and Bertelsmann.
The “Mum” test
Foundations, Investments, Exits – numbers are all well and good, but Levy-Weiss sees the main reason for the nutritious start-up soil of Israel in culture. For this he has developed the “Mum Test”. Ask a mother what she wishes her child to be. When I ask in Japan, the mothers say they want the children to live in a company. In Israel they say: I want my child to become a tech entrepreneur. ”
In Israel, entrepreneurship and tech are being taught to children and adolescents from a young age. In the small country almost everyone knows about corners one who works on Facebook or Amazon or has ever founded a startup. At the age of 16, the IDF, the “Israel Defense Forces”, comes on the scene. Because Israel is surrounded by countries that are not necessarily benevolent, and has led to some bloody wars since the founding of the state in 1948, military service is mandatory for men (at least three years) and women (at least three years).
IDF as a talent forge
Levy-Weiss was also at the IDF and served as a fighter pilot for many years. Today he knows by heart the abbreviation of the special units that train particularly talented young people. When he makes investments in Israeli startups, he also looks to see if the founders were in special units. “IDF is part of the culture. When you turn 18, you’re taken out of Mama’s kitchen and you serve two years in the army, “says Dr. Eyel Benjamin, who researches Entrepreneurship at Tel Aviv University.
In the military, many young people not only learn how to handle the latest military technology (such as drones, sensors, cybersecurity), but also act independently and lead a team. “The army has the largest HR big data project in the world,” says Business Angel Levy-Weiss. Already at the age of 16, teenagers are tested to find the best of the best for the special units. Later on, they are in high demand on the job market, where they can meet thousands of others in dozens of meetups per week who have ever done startup or tech.
The USA Connection
The geopolitical situation is shaped by Israel. Surrounded by enemies, the small country is heavily trimmed for export to the West. The US as a big backer (the last time US President Donald Trump officially recognized Jerusalem as the capital of Israel, a contentious issue) is an important factor. There are about 40 VC companies in Israel, many of them from the USA. Half of the 6.4 billion dollars that went into the country in 2018 come from foreign investors, many come from Silicon Valley.
“Israel is a lab. This is where entrepreneurs test their products, and then they immediately try to attract users to their target markets, “says Dr. Benjamin. For a world market to produce is always the top priority for startup founders, you always think global and not regional. Proximity to US giants such as Intel, Apple, or Amazon is driving startups to develop to allow exits to Big Tech.
Today, the state itself also plays an important role in the ecosystem. “For all these miracles to happen, tech must be a top priority for the government. Otherwise the top people will go to other industries such as finance, “says Levy-Weiss. “The government, whether left or right, has always been pro-high tech.” Thus, foreign investors were favored early on in order to attract international capital. The rules of giving stock options to employees are attractive, and in terms of R & D and the concentration of researchers, Israel ranks first in the Bloomberg 2018 Innovation Index.
The “80 percent” culture
For Israel to be able to translate the money, the spill-over of military technology and know-how, and the strong research into successful companies, entrepreneurs also need the will and the speed. “We are addicted to fast results. We are impatient and have a special Army mentality, “says Business Angel Levy-Weiss. Speed is crucial in his business, so as not to be killed by corporates. Execution just.
Dr. Benjamin calls it the “80 percent” culture. “It’s never perfect and done,” he says, but that’s exactly what startups would benefit from. It needs the necessary chutzpah, which is the Israelis own, so a mixture of courage and audacity, to quickly bring something forward. “Israel is ego-driven. Everyone is competing with everyone here. “Paired with a culture of mistakes – once or several failed founders are desired by investors – this gives fertile ground for ever new startups who want to know. “Done is better than perfect” – also a winged word in Israel.
But even in Israel there are challenges that need to be mastered. Although there is a startup visa to bring talent into the country, the process is not easy. The industry has matured, with the result that although the deal volume is increasing, but the sum of the deals is falling. Young talent problems and a fight for talent are known here just as well as in Austria, and without the strong connection to the Silicon Valley much would not work that way. “Technology is sometimes a bit earlier, but when it comes to business, we’re behind Silicon Valley,” says Dr. Benjamin.
And: as in Austria, there are too few women in the startup scene in Israel, both on the part of the founders and the investors. “Male investors tend to invest in start-ups founded by men,” says Sharon Gazit, Corporate Partner at Goldfarb Seligman & Co. That’s why she and other women launched Neome, the Women Investment Club. By increasing the number of female angels, they want to see new business and investment opportunities that will benefit women and make more women assume leadership roles in startups.
Also published on Medium.