Innovation

Does Israel deserve the title ‘Startup Nation’?

innovation ecosystem and culture are a few key factors

Simple answer – Yes

But what makes Israel so successful as a startup hub, and can that be emulated or surpassed elsewhere in the world?

I recently arrived back from a trip to Israel, and to say it is an interesting place is an understatement. I had heard a lot in the news about Israel, most of it negative, but I’d been invited to join an Australia-Israel Chamber of Commerce trip there with Minister Pisoni and thought it would be a good opportunity to see for myself what it was like.

Israel has a technologically advanced free market economy and a developed innovation ecosystem.

But its not the best starting point

On the face of it, Israel is not blessed with much in the way of natural resources. There’s hardly any fresh water, some minerals and gas, and most of its exports could be produced anywhere, diamonds cut from Africa, and the rest are pharmaceutical and technology equipment.

rainfall
Rainfall map of Israel

But in spite of a lack of freshwater, Israel has a burgeoning ag sector – Jaffa oranges, mini tomatoes, bell peppers and pomegranates, which are all exported to the world. In Israel, the desert, through irrigation, blooms. But where does that water come from? 50-60% of fresh water is from desalination, and of the wastewater, 85% is recycled as grey water for agriculture. Other signs of deep-rooted innovation abound – almost all homes have solar hot water for example.

Innovation ecosystem

Israel’s innovation ecosystem is widely recognised to have started 20 years ago in the telecoms, then software sectors. Now the top areas are cybersecurity, AI, automotive and agtech.

Today 450 multinationals have set up in Israel, including Apple which has established a 1000+ person R&D centre.

Israel is a powerhouse of technology. >50% of the top chips in the world are developed in Israel, and the country is well known as the home of app development, the flash drive and medical tech.

1e72d685-92cf-485b-9cd3-e6459c9f037f.jpg
Visiting startup crowdsourcing company – OurCrowd

Startup nation

But perhaps the biggest innovation is in the startup sector. There are currently 6-7000 startups registered in Israel, that’s almost 1 per thousand head of population, in a country of 8 million.

The joke is that in Hollywood, taxi drivers are budding actors, in Israel, they own a startup.

The Ag sector is also well supported in this innovation ecosystem, with a strong tradition in developing irrigation technology, which is now rapidly adopting sensor and prediction technologies, AI and machine learning, and looking at off-grid solutions.

agtech

Startups are strongly supported with approximately $5B of funding available per year for the right idea/startup. That’s approx $0.5B from government funds, $1.5B from Israeli private equity and $3B from international equity.

If you establish a startup and are taken on by one of the countries 12 sector incubators – only about 1% do though – you can expect to get access to $1-2M in your first couple of years and all the business, marketing and legal mentoring and support you will need to make it. Sure this will cost you equity in your company but if it isn’t successful you won’t owe anyone a cent and if it is successful you pay back the money as if it were a low-interest loan out of your profits.

Now that’s a supportive, low risk, startup environment!

innovation ecosystem
Positive start-up environment (left) – easily available and low-risk investment cash, combined with talent and ideas gives economic growth. Negative start-up environment (right) – low investment funds, jobs and ideas not realised and poor economic growth

Guns and olives

But there are also some other things which make Israel fairly unique.

Jerusalem MEE_0
Israeli Defence Force on Temple Mount

All young adults, men and women, do military service and most spend 2 and 5 years in their chosen service sector. They are given alot of responsibility in these roles and it helps develop them as leaders. By the time they leave the army they are disciplined and mature and have good organisational and team skills – almost ideal for entering the business world.

The religious and community context of Israel also can’t be underestimated. During my trip, Jews who had settled in Israel from elsewhere in the world talked of ‘coming home’ and it is clear the foundation that is felt from building on 3500 years of history.

Top 5 contributors to startup nation

So here are my top 5 reasons why Israel is the startup nation.

  1. Cultural – Natural desire to get on, self-belief, willingness to try (and fail), celebrate success
  2. Military service – Instilling a sense of responsibility and leadership
  3. Economic – An innovation ecosystem with co-located multinationals, commercial incubators and easy to access startup cash
  4. Education – Good education system and flow of ideas
  5. Supportive government – low tax for companies and incentives for startups

The typical route into a startup is for someone who has completed their military service and then a degree in their chosen area of specialisation to work in a multinational. Then armed with their domain expertise, leadership and business experience they have a go at starting a new company by late twenties or early thirties, an ideal age to take the risk.

In fact in Israeli society, particularly Tel Aviv, its almost the norm and certainly the expectation that a young person will be involved in a startup.

Australia just needs to invest more in early-stage, low-risk funding for startups to really get the startup economy going.

But has Israel hit peak innovation, and what can we do in Australia?

Whilst I was impressed in Israel, I also noticed a few issues.

There was an apparent mad rush to commercialise almost all ideas and in the time we were there saw at least 3 technologies for monitoring plant water stress. One was clearly superior to the other two, and I guess that’s the point of a startup culture to get a number of promising ideas to market readiness – not all of which will succeed.

I was left feeling that Israel had hit peak innovation and that many of the low hanging fruit had been commercialised and that the ones remaining would be a harder call

Also, I noticed that the flow of ideas out of universities was surprisingly low, with only 5% of startups coming out of universities, most driven by individuals with a keen sense of a business idea.

So where does this leave Australia? I think the ‘have a go’ attitude and natural business acumen of the Aussies at least counters the cultural and military training aspects of the Israeli ecosystem. Also, the excellent universities and relatively similar taxation structure and business support are bonuses. Australia just needs to invest more in early-stage, low-risk funding for startups to really get the startup economy going.

In South Australia, there is a significant opportunity to build an innovation ecosystem around the expanding agricultural and agtech sectors, developing wine, horticulture, livestock and cropping.

The three main challenges as I see it are:

  1. entice multinational companies to co-locate with the world leading R&D expertise that exists in the state – and is exactly what Lockheed Martin has done to build on the State’s world leading AI R&D expertise;
  2. liberate the ideas from the university sectors where cutting-edge research is being undertaken. Students should be incentivised to take ideas and products to markets supported by the university and government sector;
  3. Build a complete startup ecosystem around agtech from early stage low-risk funding, through mentoring and incubators, to access to serious international investment.

Is Australia up to the challenge?  I think so. There can’t just be one startup nation!

Prof Andy Lowe is a British-Australian scientist and expert on plants and trees, particularly the monitoring, management and utilisation of genetic, biological and ecosystem resources. He has discovered new species, lost forests, championed to eliminate illegally logged timber in global supply chains, served the UN’s Office of Drugs and Crime and has been responsible for securing multi-million dollar research funding. He is an experienced and respected executive leader, as well as mid-career mentor. Andy is the inaugural Director of Food Innovation at the University of Adelaide serving as the external face for all significant food industry and government sectors across South Australia, and the world.

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