'Israel's high-tech industry mired in adolescence'

Report: "Everyone who sells a company is a hero."

August 26, 2010 19:19
2 minute read.

Technology iPhone iQuran 311. (photo credit: Associated Press)


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While Israel boasts the most high-tech start ups per capita in the world, its high-tech industry is mired in adolescence, as successful companies are generally acquired by larger, foreign corporations rather than remaining in Israel to grow to maturity, the Wall Street Journal report Thursday. 

An absence of later-stage funding for companies, as well as a lack of local management skills contribute to the problem, according to analysts and CEO's of high-tech companies, but an Israeli mentality toward short-term thinking is a big factor as well.

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"Israelis act before they plan because you can never know what will happen tomorrow," said Ori Hadomi, CEO of Mazor Surgical Technologies. Mazor's spoke the day after recent clashes on the Lebanon border caused the death of one Israeli and three Lebanese soldiers.

Selling out early is also part of the mentality of the high-tech sector itself, according to the WSJ report. "Everyone who sells a company is a hero in Israel," said Inon Beracha, CEO of PrimeSense Ltd. a maker of 3D-sensing technology.

"They tend to exit as soon as possible to get some sort of return. They don't have the patience or confidence to grow to the next level," says Eldad Tamir, chief executive of Tamir Fishman Group, a Tel Aviv investment and venture capital company.

But Israel could lose its famed innovative edge if it doesn't produce more mature companies in the high-tech industry, says Yoram Tietz, managing partner of Ernst & Young Israel, according to the WSJ report.

"There are weaknesses in the model; we don't have the whole ecosystem to grow companies in Israel," said Eugene Kandel, head of the National Economic Council, a division of Prime Minister Binyamin Netanyahu's office, which is studying the issue. "We need at least a small part of our start-ups to turn into big companies and stay in Israel."

The high-tech industry in Israel makes up about 15 percent of its $200 billion yearly GDP, but accounts for a full 40 percent of Israel's exports, according to the Ministry of Finance. Kandel said of 3,800 high-tech companies, only four have a market capitalization greater than $1 billion, according to the WSJ.

Prime Minister Netanyahu addressed the issue in a speech at the conference of the High Tech Industry Association in Jerusalem earlier this summer, saying it is a priority for Israel to develop larger companies to keep the industry competitive in the long-run.

"We're not resting on our laurels," Mr. Netanyahu said. "We want to create a structure both of ideas and people and money that encourages these ideas to develop into actual companies, into products and services that stay in Israel."

Saul Singer, author of the bestseller "Start-Up Nation," doesn't think a lack of larger companies is a bad thing. "The lack of patience, lack of respect for authority, lack of planning, chutzpah—whatever you want to call it—are things that make us good at start-ups but don't make us particularly good at big companies," he said. "We need to appreciate the importance of start-ups in the global economy, and if we can build bigger companies along the way, well, that's nice too."

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