Thomas White Global Investing
Israel
Israel Stamp
April 21, 2011
A Postcard from the Middle East
Israel: Techonomy success marks revival of startup culture

A soldier in the Israeli Army

Israel is believed to have benefited from its policy of mandatory military service for both men and women. The army fosters a problem-solving culture and acts as an incubator for talent in Israeli society.

For a Middle Eastern country, Israel has very little oil. But what it lacks in natural resources, it has made up for in human resourcefulness. The tiny nation of 7 million people is a much-envied model of technology entrepreneurialism. So much so that it is globally acknowledged as the “Startup Nation.” Indeed, Israel is believed to attract more venture capital per person than any other country and more NASDAQ IPOs have been filed from Israel than any country outside the U.S. and Canada.

Against this backdrop, the success of Techonomy3, this year’s edition of Israel’s annual startup-launch event, held in early April, is being seen as another proof of the Mediterranean nation’s extraordinary ability to churn out technology entrepreneurs. More importantly, the success of Techonomy3 is also evidence that Israel’s venture capital industry has recovered after the recession. In line with tradition, this year’s Techonomy was based around a competition among the six startups that announced their launch at the event. The ideas that were introduced ranged from a hardware and Web app solution that makes computers more toddler-friendly to an iPhone app that allows users to give friends virtual fist bumps. Chosen by the event’s audience through SMS voting, the winner was a venture called Magisto, which has developed the technology to create professionally edited versions of home videos.

Nonetheless, Magisto is not the only Israeli startup to be in the news today. Snaptu, a phone apps maker founded in 2007, was acquired by Facebook last month. In fact, high-profile companies have gobbled up quite a long list of Israeli startups over the past year. In September 2010, AOL bought video content provider 5Min Media and Google took over Quiksee, which has developed the technology to integrate personal videos into Google Maps. The same month Russian search engine Yandex invested a substantial sum in face recognition application provider Face.com, which was Techonomy winner in 2009.

But this is not just a recent trend. Since 1972 when medical imaging venture Elscint became Israel’s first company to file a NASDAQ IPO, at least 160 Israeli startups have filed IPOs at the technology stock exchange, hundreds of Israeli ventures have been acquired, and the world has benefited from Israeli innovations such as the USB memory stick, instant messaging, and advanced cardiac stents. Even non-Israeli technology giants such as Intel and Microsoft have grown on the back of their operations in Israel. In fact, Microsoft CEO Steve Ballmer has been quoted as saying that Microsoft is “an Israeli company as much as an American company,” given the size and importance of its Israeli teams.

So what makes Israel an innovation superpower? The reasons are many, according to Dan Senor and Saul Singer, authors of the book Start-Up Nation: The Story of Israel’s Economic Miracle. Both agree that the primary driver of innovation in the country is the famous Israeli chutzpah — a social trait that is a mixture of brazenness, irreverence, and inquisitiveness. So ingrained is chutzpah in Israeli society, goes one apocryphal story that a junior employee will not hesitate to ask his manager: “Why are you my manager; why am I not your manager?”

Then there’s the Israeli army. Military service is mandatory for all Israelis after the age of eighteen and such a transformational experience early in life instills among them a sense of perspective. Further, the Israeli army harbors an unusual culture of informality between the ranks and, thus, encourages critical thinking and the spirit of questioning. Young conscripts are also known to get difficult projects, which forces them to be enterprising. Some of the other reasons attributed to Israeli entrepreneurialism are the country’s openness toward immigrants, much like New York, and the enactment of the Law for the Encouragement of R&D in 1984. Curiously, the cancellation of a massive fighter-plane project in 1987, which made thousands of engineers jobless, also started a new wave of startup entrepreneurs.

But whatever the reason, Israel’s founding fathers must be proud. After all, the spirit in which the country was created, with tenacity and against all odds, is not too different from the way an entrepreneur creates and nurtures a startup. So in a world where oil is king, Israel is proving that hard work and ingenuity are just as formidable, if not more.

 

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