Israel’s Secret Weapon

Israel must look outwards for people and ideas if it wants to marry the startup nation to the global economy.

By
April 19, 2018 14:57

Israeli Innovation Throughout the Decades (OurCrowd/YouTube)

Israeli Innovation Throughout the Decades (OurCrowd/YouTube)

 
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At the center of Israel’s 70th birthday celebrations are the traditional televised lighting of 12 torches by those who have made significant contributions to Israel’s growth and prosperity. Clearly, this year one of those torches should be lit by a representative of the global community (aka “the nations”) who have contributed enormously to the success of Israel’s booming tech economy, the “Startup Nation.”

Jack Ma from Alibaba, Warren Buffet from Berkshire Hathaway, or Mark Zuckerberg from Facebook would all nicely fit the bill. These giants and thousands more like them have enabled and supported the tremendous growth of Israel’s tech hub and are destined to play an even larger role in its future development.

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Overseas Investors have set a torrid pace in pouring ever increasing amounts into Israeli startups. Total annual startup investment has grown from $2.4 Billion in 2013 to over $5.2 Billion in 2017. Unlike other tech centers, these funds are almost entirely foreign sourced, with 85% of these funds originating outside of Israel. While the US leads the pack, there are significant funds invested from Europe, and Asian investors (mostly China, Japan, and Korea) are catching up fast. Today there is hardly a major venture capital fund anywhere that doesn't proudly count Israeli companies among their portfolios.

Public “exits” for these venture-backed companies also generally occur abroad. Israel has long accessed NY capital markets, such as NYSE and Nasdaq, and today it boasts New York’s forth largest country delegation of traded companies. London is also a liquidity target with 30 Israeli companies trading there. Singapore, Sydney, Hong Kong and Shanghai are also becoming IPO beacons for investor hungry Israeli growth companies.

Most Israeli startups make their exit via M&A, by a foreign multinational. Google, Apple, Facebook, Cisco, Intel and hundreds more are scouring the country looking for the “next big thing” and buying almost 100 Israeli tech companies each year. While many of these are modest transactions, lately the dollars have grown considerably as “Startup Nation” turns into “Scale-Up Nation.”

While Intel last year bought autonomous driving leader Mobileye for a whopping $15 Billion, there have been three other billion-dollar global-Israeli M&A deals in the last 15 months: chip inspection leader Orbotech bought by KLA from the US, drip irrigation pioneer Netafim bought by Mexichem from Mexico, and pharma innovator Neuroderm acquired by Mitsubishi from Japan. The pace of these acquisitions shows no signs of slowing, as old economy companies join the M&A hunt to access innovation, and many multinational corporations become “serial acquirers” buying multiple companies around which they can build their “Israeli R&D centers,” joining the over 300 multinationals that have already set up these facilities.

However, if Israel is to continue this unparalleled tech growth it will need to deepen and strengthen this partnership with the global market. Israel will need to embrace tech “globalization” in a big way to overcome several structural limitations that threaten its continued success.

“Israel is facing a shortage of skilled workers in the ICT sector of the high-tech industry," says Aharon Aharon, CEO of the Israel Innovation Authority. The Innovation Authority plays a crucial role in the effort to increase the number of skilled high-tech personnel by implementing programs designed to fully utilize existing potential and increase the number of high-tech professionals by 40 percent.

While plans are being implemented to increase training and integration of more tech workers (especially among women, Arabs and ultra-orthodox Jews), there is no question that Israel must open its doors to talent from abroad. While the US is making it more difficult for foreigners to join in Silicon Valley’s success, Israel must provide visas and incentives for the world’s best and brightest to join us.

Already Israeli companies are banding together to put Israel on the global recruitment map, by launching branding campaigns such as BETA (Be in Tel Aviv) that broadcast Israel’s tech reputation, as well as its family-friendly culture, renowned beaches, and hipster party scene. It’s never too early to start this recruitment, as thousands of interns are already flocking to Israel to work at startups, turning today’s millennial interns into a modernized version of the once iconic foreign kibbutz volunteers.

Moreover, more Israeli startups will need to become “baby multinationals” at inception or near infancy—setting up offshore development centers to take advantage of talent in Eastern Europe, India, Southeast Asia and Latin America. Hundreds of Israeli startups are already doing this, and this phenomenon will need to grow considerably in order to produce the troops necessary to scale these new products and companies. This will require collaboration tools, major frequent flyer miles, and many red-eyes, especially when you need to have staff meetings that literally span the globe, across multiple time zones.

Recruiting senior tech talent globally is a delicate art form that Israeli’s will need to better learn, since tact and patience are not naturally produced qualities in our country.  I am convinced that Israeli dynamism and demo/prototype genius, combined with Asian or American planning and customer service, will make for some great joint companies.

Israel must embrace a new set of global challenges for its technology companies. We must no longer set our sights only on wealthy markets and solving their problems. The potential to solve the numerous problems of the developing world, in agriculture, environment, energy, transportation and more—will provide not only huge returns, but will inspire a new generation of entrepreneurs and investors.

Global startup engagement requires new global platforms that link up venture capitalists, entrepreneurs, multinationals, and countless individual investors. The next set of problems to solve and companies to build, are too big and too important to be left only to the “experts.”

New investment platforms such as OurCrowd, and Angelist will continue to emerge and ultimately engage millions of limited partners from every country in the world. These partners will not just join these innovative endeavors as “crowdfunders” but as “crowdbuilders,” helping these companies with money, but also with skills, connections and manpower.

Israel needs to tap into this turbocharged source of crowdsourced energy, so it can emerge as an even more connected, more global innovation hub. 70 years hence, perhaps only one torch for “the nations” won’t suffice, but a host of international partners will light their torches in honor of the critical role that global partners play in powering Israel’s innovation nation and connecting it to the rest of the world.

The author is a serial entrepreneur and according to the Washington Post (2007) “one of Israel’s leading high-tech venture capitalists”.  In the 2008 NY Times Supplement “Israel at 60” Jon Medved was named one of the top 10 most influential Americans who have impacted Israel. Medved is the founder and CEO of OurCrowd, the world’s largest equity crowdfunding platform for accredited investors which has raised more than $700M for almost 150 companies since its launch in February 2013.

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