Israel’s challenging transformation from start-up nation to scale-up nation

Tuesday, August 18, 2020

Few people in the fields of business and technology today are unaware of Israel’s reputation as a world leader in innovation and entrepreneurship. The 2009 New York Times Best Seller Start-up Nation put Israel on the map as a force to be reckoned with for the disproportionate number of start-ups churned out by a country that is barely the size of New Jersey. Israel consistently appears at the top of international rankings and reports, such as the World Intellectual Property Organization (WIPO) Global Innovation Index (GII) and the World Economic Forum (WEF) Global Competitiveness Report.


With more start-ups per capita than any other country, Israel is second only to Silicon Valley in its level of innovation, with a ratio of 1 start-up per 1,400 people. This tiny nation, whose name doesn’t even fit within its borders on most world maps, is also home to the highest number of engineers per capita and boasts the world’s second-highest research and development (R&D) expenditure rate. Indeed, this places Israel first across several indicators in the 2019 Global Innovation Index, in terms of researchers per million population, gross R&D expenditure as a percent of gross domestic product (GDP), and research talent in business enterprises.


Israel enjoys an unusual richness of risk capital, ranking second in the world for venture capital (VC) availability. Initially spurred and continuously supported by public resources, this prevalence of risk capital has received a boost from the recent establishment of hundreds of local R&D centers by multinational corporations (MNCs), such as Facebook, Google, Amazon, and others that seek to benefit from the profusion of technological innovation that Israeli entrepreneurs are generating. As one of the first countries in the world to allow the creation of university technology transfer organizations over 60 years ago, Israel continues to make strides in academia-spurred products and services, with two of its largest recent exits—Mobileye’s acquisition by Intel and Mazor’s acquisition by Medtronic—originating in university technologies.


As Warren Buffet put it, “If you’re going to the Middle East to look for oil, you can skip Israel. If you’re looking for brains, look no further. Israel has shown that it has a disproportionate amount of brains and energy.”


Yet, often overlooked given this glowing data is a less fortunate fact: while Israel has excelled at launching game-changing start-ups and life-changing technologies, it has struggled to produce well-known multinational corporations. As far as large industry-leading global companies go, Israel has few. Those that have risen to the top of their fields, including Teva Pharmaceuticals and Check Point Software Technologies, locally employ less than 10,000 people put together. And with the recent challenges that Teva has encountered, Check Point is the only Israeli tech company to appear on Forbes’ Global 2000 list, which ranks the world’s 2000 largest publicly traded companies. In contrast, Israel is the third most-represented country on NASDAQ in terms of the number of companies listed.


For a highly innovative country that is rich with venture capital and entrepreneurial culture, this lack of industrial maturation has become a mystery to many. Is it a result of a purposeful strategic focus on early-stage innovation? Or perhaps the inevitable and uninvited outcome of an unbalanced public policy? As it continues to be a role model for aspiring innovation economies around the world, Israel must solve this conundrum to leverage its innovation ecosystem into a sustainable scaled economy for the benefit of its people.


This adapted excerpt comes from the upcoming GIobal Innovation Index 2020: Chapter 12— Israel’s Challenging Transformation From Start-up Nation to Scale-Up Nation, authored by Yaron Daniely from aMoon Venture Fund.


What could be the reasons behind Israel’s scale-up conundrum?


Find out on September 2, 2020.


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