Israel: A small country is ahead: Israel is a startup major power

2019-07-11T16:21:37+02:00July 1st, 2019|

Israel is about as big as Hesse state and has as many inhabitants as the Rhineland. One should not assume that such a small country is a major power in international start-ups. But the numbers have been making people sit up and take notice for years. Israel is number one in venture capital per capita and number one in start-up per capita.

International top companies – 320 of them in Tel Aviv alone – have recognised the high potential of young Israeli tech start-ups in the past. Many large German industrial players such as Telekom, Mercedes or Porsche are involved and have set up offices near the startup hotspots in Tel Aviv and Haifa. There have been more than 700 exits with a volume of almost EUR 80 billion in Israel since 2013.

Start-up financing in Israel peaked in 2018

2018 was a record year for high-tech start-up financing in Israel. A total of 6.47 billion dollars were invested, an increase of 17% over 2017 and more than a doubling of the amount for 2013. (Source: IVC Research Center). Another record was the number of mega deals (24 with $50 million or more), which accounted for 31% of the total raised in 2018. 30% of the capital invested in Israeli start-ups in 2018 came from Israeli investors and 70% from foreign investors – 35% from the USA and 3% each from China, Germany and Great Britain. 2017 saw the largest exit to date with over $15 billion paid for Mobileye (anti-collision technology for autonomous driving). In 2018 the chip developer Mellanox was sold for almost 7 billion dollars.

The success of Israel has many fathers

But how is it possible that Israel plays an important role in the concert of the big startup hubs? Here there is not one decisive reason, but rather a multitude of factors. The country is comparatively young and has a complicated history behind it. People were confronted early on with the fact that they had few resources, while other states had access to mineral resources or agriculture. Especially water and food were very scarce in Israel at the beginning.

Thus the necessity arose early to find innovative solutions, which function fast and which can be realized with the own possibilities. On the island of the country, people are accustomed to helping themselves. For Israelis, the slogan “Impossible is irrelevant” applies. This is the foundation for today’s high-tech developments. An additional catalyst for technological development at the highest level is the country’s military. The army is forcing the creation of its own technology in order to become more independent of supplies from abroad.

The mindset of the Israelis brings the will to succeed

Israel’s complicated situation in the Middle East and the constant conflicts with neighbouring countries have meant that its inhabitants are able to live with risks. They see things a little more calmly and also have fewer problems with their own failure. This mindset is especially useful when setting up a company. Israelis also have little respect for authorities – and they like to get to the bottom of things. This thirst for knowledge is a good basis for developments, especially in basic research.

Startups seek international markets early on

Israel has a very young population and there is a steady immigration from other countries. As a result, many people already bring experience from abroad or have access to a network. Start-up teams are often multinational right from the start. An international orientation is essential for Israeli companies to survive, as the domestic market is too small. For this reason, the growth strategy focuses early on internationalisation, new markets are sought and foreign investors are approached.

First-class universities ensure innovations

The two most important universities, the renowned Weizmann Institute in Tel Aviv and the Technion in Haifa, also play an important role in the impressive technical developments. The Weizmann Institute conducts basic research at the highest level and the Technion focuses on concrete technological applications. Both universities have their own units to assist their graduates with the establishment and search for financing. In Israel’s entire educational system, early attention is paid to the promotion of knowledge in the mathematical and scientific fields.

What are the benefits of working with Israeli start-ups?

Compared to other large startup hubs in the USA or China, Israel has the advantage of being relatively close to Europe. Only about 4 flight hours have to be planned for a journey and the time difference is only one hour. In this way, cooperation with teams is far less complicated. Israeli start-ups are looking for market access. The ZFHN has already made good experiences with the interlocking of innovative technological developments from Israel with the established middle class in Southern Germany.

The Startup Inspekto (www.inspekto.com)  is a good example of this close integration of innovative technology with fields of application in German industry. Inspekto offers ultra-fast workpiece recognition based on artificial intelligence and machine learning. For production companies, this means that set-up times for new products can be reduced from several weeks to just a few hours. Through the contacts of the ZFHN, a direct cooperation between industrial companies from southern Germany and Inspekto was made possible. And Heilbronn also profits from this, because the future European sales office of Inspekto will be established here.