Israel: The Secret Sauce of The Startup Nation

350 multinationals, 40 VCs, $6,4 billion VC investments in 2018, and a long list of billion dollar exits to IT giants like Intel, Google, Cisco, IBM or HP: Israel is calling itself the „Startup Nation“ for many good reasons. When AI company Mobileye sold to Intel for $15.3 billion in 2017, Israelis celebrated the biggest exit of a startup to date.

“The core strength of Israel is software”

Why is Israel so successful in creating startups? „Because of our survival DNA. We needed to survive many years, so we have to come up with creative solutions“, says Shani Yossefon, Investor Relations Director at iAngels based in Tel Aviv. Tech has been a big focus of the economy of the small country since many years and always has been supported by the government. “Israel has been in the AI space for 17 years, when Mobileye was founded. Mobileye is an AI company. We understand the technology and the ideas ahead of the curve”, says Yossefon.

Investments from abroad and especially the strong connection between Israel and the United States are vital for the ecosystem that flourishes in Tel Aviv and Jerusalem. “We have 350 of the biggest enterprises in the world here – Apple, Microsoft, Amazon, IBM, Facebook, you name it”, says Yossefon. “The reason for it is software. The want their R&D centers here. The core strength of Israel is software.”

Foreign investors are coming

“I’m impressed of the startup scene here”, says Austrian investor Micheal Altrichter, who joined a group of business angels that came to Tel Aviv and Jerusalem in the program „Business Angels Connect” organized by AUSSENWIRTSCHAFT AUSTRIA der WKÖ and Co-Host aws i2 Business Angels.

“Everything here seems to be 10 times bigger. There are 50 VC funds here compared to maybe five in Austria.” Altrichter is one of many business angels who invest in Israel. “I have already one investment here, in Dnatix, which is combining DNA tests and blockchain. Maybe there are coming more, there are really cool startups in Israel.”

Israeli entrepreneurs focus on the US market. The majority of startups plan to launch in the States. “Americans work faster than Europeans. Europe still works really slow in term sof decision-making. We do see some Israeli companies starting in the UK or in Germany, but not to the same extent as in the US”, says Yossefon.

Think global & out of the box

Israeli founders think global from the beginning. “We have to sell ventures to the world, we don’t have a local market”, says Dr. Eyal Benjamin, Head of Entrepreneurial Activities of the Coller Institute of Ventures at the Tel Aviv University. Investments from abroad have risen every year over the last decade. „The Israeli startup ecosystem has proven to be able to pay back the investments on average. This is what investors want, they want their money back”, says Benjamin.

“This money comes from many places, from the US, from Europe, from multinational corporates, from the Far East, China, India. Almost every multinational corporate has an investment representative in Israel. They want to make money on their investments, they want to tap the technology that is created here.”

International corporates and small startups have access to a very special pool of talent. There is a reason. “The Israel Defence Force is a compulsory service that every Israeli has to go through at the age of 18. During the service, you mature very fast, you get responsibility at a very young age. The startup ecosystem benefits from that character and technology spill-over.”

Is it easy to get funding?

There are around 1.200 new startups in Israel every year. Founders can count on a very supportive ecosystem. “We are such a small country, such a small group. Everybody helps each other, that’s what makes the startup ecosystem so successful”, says Matan Kadosh, CTO at Kaholo.

Especially in Tel Aviv, you can find offices of big VCs everywhere. To get funding, Israeli founders have to go through the same procedure as everywhere else. “It is very easy to get to all the meetings and to pitch your concepts. at the end of the day, the venture capital firms and the investors in Israel are like everywhere in the world, they ask the same questions”, says Guy Setton, CEO & Co-Founder of GemmaCert.

Thanks to  AUSSENWIRTSCHAFT AUSTRIA der WKÖ and Co-Host aws i2 Business Angels for organizing this awesome trip!