History is happening in 'Israel Valley, The Technology Shield of Innovation' - book excerpt

Beyond explaining the Israeli “model,” the three authors of Israel Valley: The Technology Shield of Innovation offer a view of the Israel behind the headlines, of the small country grounded in entrepreneurial spirit and cultural resilience. Their book examines Israel’s tech power, high defense spending, and start-up agility, along with the country’s social division and internal struggle. It also provides powerful insights into Israel’s resilience and its cracks.

A new report published in 2024 has ranked Tel Aviv as the most productive start-up ecosystem in the world: The city is responsible for 19% of all Europe, Middle-East and Africa (EMEA)’s unicorns created since 2019, with less than 4% of the region’s funding. More Tel Aviv Seed-funded start-ups reach unicorn status than any other hub in the world (4.8%) – more than the Bay Area in the USA (3.6%) or Boston (2.7%), coming in at second and third. This economic hub of the Jewish State also creates more unicorns for every dollar of venture capital invested than anywhere else in the world.

Throughout the country, one can discover active centers where men and women in their 20s and 30s are active, know each other well, have strong connections, and communicate frequently. With its multitude of small meeting places, its modern business parks, and its trendy restaurants, the “Israel Valley” is full of “venture capitalists,” professors, and engineers that are the architects of our future way of living in a digitalized, connected, and artificially intelligent environment.

The city of Tel Aviv, known as the “White City,” lying on the coast, provides an edifying illustration. Its thriving mixture of large international companies and start-ups personifies what American professor Michael Porter characterized as the “cluster effect”: like grapes, many small start-ups cluster around large international industrial groups. Silicon Valley giants – as well as many multinationals and hundreds of start-ups – are the incarnation of this scheme.

Continuing along the shore further North, toward Haifa, the San Francisco of the Middle East, can be found a very different hi-tech hub, Matam. Founded in the 1970s as the first “hi-tech park” or space where such companies are concentrated, it houses some of the most competitive firms in the world.

Behind the huge state-of-the-art building complexes are the offices of Intel, Alphabet (formerly Google), Microsoft, Apple, Philips, etc. Each year, they host or hire thousands of the best students from the famous Technion in Haifa – Israel’s leading technological university, comparable to the Massachusetts Institute of Technology (MIT) – for internships, research, and engineering work.

The geographical and academic proximity of hi-tech, venture capital, and young entrepreneurs underpins one of Israel’s recipes for success. As one of the 10 most important centers in the world for scientific research – and one of the only two outside the United States – it occupies a strategic position near the “Bio Tech Valley,” with which it maintains permanent exchanges.

Invisible connections link industry, professors, and researchers from the institute whose academic activities are often compatible with the development of start-ups. These links have translated into the creation of many new start-ups. From 2016 to 2020, the number of start-ups developed yearly originating from academic institutions grew by 120%, from 34 to 75 – or one out of seven start-ups established.

Smaller clusters are found in the cities of Herzliya, Ra’anana, Petah Tikva, Netanya, and Rishon Lezion.

Yet, despite the study of these objective factors, the success and the particular alchemy of the Hebrew state remain a mystery to all. Researchers and journalists have repeatedly tried to unravel the mystery of the creativity and dynamism of this tiny country.

These questions help us to explore the reasons behind Israel’s success in creating and maintaining a technological advantage in a challenging geopolitical environment. This book examines the role of innovation and R&D, public policies, education, and support for “up and coming start-ups.”

It also looks at the cultural elements that have allowed Israel’s hi-tech economy to flourish, such as the “chutzpah” spirit of boldness and audacity, mandatory military service, and intense networking activities.

The book also explores the impact of the defense sector and high technologies on Israel’s survival and development, including the transfer of technology from the defense to the civilian sector, such as the unique contributions of Unit 8200 of the Israeli Intelligence Service and similar units. Finally, the book aims to draw lessons for other countries and businesses from Israel’s experience, such as the connection between universities and industries, encouraging young talent, and the development of incubators.

We have also attempted to conceptualize a model capable of describing the reasons for the success of Israeli hi-tech: the shield, a national vision open to the world.

From the moment of the declaration of the state, or even from its modern conception by the fathers of Zionism, its greatest leaders understood that its survival would depend on a fundamental principle: the presence and development of a technological and scientific shield capable of protecting and strengthening the country’s security against external attacks.

Education, research, innovation, technology transfer, military technologies, venture capital, intelligence, networks, and corporate culture are the key words. They imprint their mark in a transversal manner on the key values of Israel Valley: the human shield, the informational shield, the entrepreneurial shield, the start-up shield (incubators), the shield of anticipation, and the technological shield of the IDF, the Israel Defense Forces. These factors combine to constitute and nourish the shield of independence and hi-tech of Israel: its technological shield.

To introduce such a concept, one can find inspiration in defense technologies: The serious threat of incoming rockets from both the southern and northern borders of Israel created an impetus for the development of the Iron Dome (as can be seen in action on the book’s cover). The “Iron Dome” (Kipat Barzel) uses small radar-guided missiles to intercept short-range rockets, drones, and artillery and mortar shells.

Furthermore, links with the military illustrate one of the elements of the technological shield of Israel. As military service is mandatory, one of the elite technology units of the IDF, Unit 8200, has produced many positive benefits and spillovers to the civilian world.

Some of its veterans, like Talmon Marco and Avishai Abrahami, respectively of Viber (messaging app) and Wix (website design platform), have greatly contributed to the tech ecosystem. Other renowned Israeli entrepreneurs, such as Zohar Zissapel and Eyal Waldman, have established companies with Unit 8200 graduates at their core.

The idea of a shield is omnipresent in the collective consciousness of Israeli society. It appears in the Bible and refers to the great moments in the history of the Jewish people, marked by exile and mistreatment, pogroms and the Holocaust, the history of antisemitism and its radical, criminal expressions.

The shield is one of the greatest symbols of the Hebrew state: it appears on its flag, recalls the Star of David (Magen David, literally “Shield of David”), and is expressed in the very name of the IDF, Tzahal in Hebrew (acronym for “Tzava HaHagana LeYisrael,” translated into English as “Army for the Defense of Israel”), which explicitly mentions the idea of protection. This philosophy represents a characteristic trait of Israeli society.

The concept of a shield (defensive value) protects against aggression but also (positively) allows for organization, development, and openness to the outside world, in the same way that in psychology, a human being can only assume their part of sociability if they are centered, built, and secure in their foundation.

In Israel, the technological shield is the basis of military and civilian doctrines: Israeli political and military leaders have invested heavily in it, and the technological knowledge acquired has been systematically redirected into the civilian sector.

Of course, no picture is perfect. Cracks in the shield remain.

Difficulties to assimilate the growing ultra-Orthodox population, expected to reach 16% of the population by 2030, are one of them. Excessive dependence on the United States and on a quite fluctuating tech market constitute new challenges.

But even in times of terror and war, Israel maintained business as usual. For instance, even in 2023, when Israel faced social unrest due to controversial judicial reforms followed by the war with Hamas, Israel’s cybersecurity exit deals grew by 75% to $7.1 billion, and tech private funding raised almost $10 billion. This resilience was apparent during earlier rounds of the conflict with its neighbors or terror organizations, as well as during COVID and other economic crises.

Israeli tech is already adapting to a “new normal.” Companies have made the necessary adjustments in order to continue delivering their service at the highest level to customers worldwide. Local tech companies are agile and acting swiftly and are ready to maintain normal operations, even if dramatic events happen in the future. In the meantime, the people of Israel stay strong.

In the last three months of 2023, Israel’s GDP shrank by 20% in annualized terms, and Israel’s credit rating was downgraded by Moody’s, one of the leading global credit rating agencies.

On top of this, in 2023, Israel, along with the rest of the hi-tech sector, faced a global venture investment slowdown – US VC investments were down 60% in 2023. Investor confidence in Israel was further negatively affected due to the proposed judicial reforms (subsequently shelved due to the war) and mass demonstrations against the judicial reforms prior to October 7.

In January 2024, Jefferies, a leading US-based investment bank with offices in Israel, led the sale and distribution of 20% of the shares of the Tel Aviv Stock Exchange, mainly to foreign investors, the most prominent of whom was US hedge fund billionaire Bill Ackman, who bought a 4.9% stake.  But what is more interesting is that 14 global funds bought shares of the Tel Aviv Stock Exchange, during a war, with most of them buying shares in Israel for the first time. For most it was a purely financial decision.■

Hermann Editeurs

242 pages; $19