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Y. Hayo: Address to World Summit 2020
Written by Mr. Yigal Molad Hayo, Chair, Bio-Tech Entrepreneur and Investor, the International Section of the Israeli Council for Culture and Arts
Wednesday, February 5, 2020
Address to World Summit 2020, Seoul, Korea, February 3-8, 2020
Poor natural resources, agricultural and water scarcity, geographical isolation, poor transportation infrastructure, conflicting demographics, and, above all, the security threat and ongoing regional conflict—all of which are obvious disadvantages which must be dealt with and overcome—have become Israel's relative advantages as a start-up nation.
Israel is relatively young and small country: 71 years old with a population of less than 9 million. Its GDP per capita is close to U.S. $35,000—almost triple the world’s average. The ratio of research and development (R&D) to GDP is 4.3%—more than double the OECD average.
Israel is third in the world in terms of the number of NASDAQ-listed companies and first in the world for venture capital investments. With respect to the quality of scientific research institutions and capacity for innovation, it is ranked third, after the United States, Switzerland and the United Kingdom. Consequently, the availability of scientists and engineers is sixth in the world after the United States and Canada and before Japan and Germany.
The young country is found to be first and second in the world in R&D/GDP ratio and in R&D per capita, respectively.
The collaboration between the different foundation blocks created an environment that formed the basis of Israel’s high-tech industry. The unique combination of the age-old Jewish quest for knowledge, Israeli ingenuity, academic excellence, an innovative military, and a high developed sense of entrepreneurship has attracted multinational corporations and investors who have in turn contributed to this local ecosystem. The average Israeli entrepreneur (1) questions everything, (2) has a strong drive and must-win attitude, (3) knocks on every door, (4) adopts solution-driven approaches to real problems, (5) conducts cost-effective uses of limited resources, (6) goes global from inception, (7) learns from mistakes, and (8) tolerates failures.
In addition, Israel has a critical mass of ingredients for success. Among them are the following:
- An entrepreneurial culture as reflected in quality start-ups, serial entrepreneurs, technology clusters and one hub.
- Strong cooperation among academia, industry, defense and Silicon Valley.
- Outstanding academic institutions with excellent scientists and researchers, including several Nobel Prize winners.
- Smart foreign capital, which includes venture capital funds, incubators, angels and R&D centers.
- Government support in the form of special programs of the Office of the Chief Scientist, grants, human resources, and favorable tax incentives.
According to the Global Innovation Index, the strength of the Israeli high-tech industry is reflected in the comparison of the business enterprise expenditure on R&D and gross domestic expenditure on R&D before and after the 2008 economic crisis. In both indexes Israel is ranked among the top countries in the world.
Academic education is one of the foundation stones of the Israeli high-tech industry. Academic institutions are releasing high-level graduates to the market as well as to innovative applicable research. Three Israeli universities rank among Reuters 100 Most Innovative Universities in the world.
The Israeli incubator structure is an important foundation stone of the local high-tech ecosystem. In the last decade, the acceleration model approached and complemented the privatized, though governmentally supported, incubators. There are 250 active incubators and accelerators in Israel, of which 19 of them are incubators. Both are responsible for nurturing the youngest preseed innovative tech companies.
One of the more important indicators of a flourishing high-tech industry is the ratio between established and ceased companies. Since 2007 this ratio in Israel is quite constant and stand on 2:1 in favor of established companies, which practically means an addition of hundreds of stable companies annually.
Israeli high-tech companies are raising billions of dollars every year from local and foreign investors. Fintech, Cyber Security and IoT companies are at the lead, with almost 60% of this amount.
Three hundred sixty-five foreign R&D centers are operating in Israel, out of which one third hire more than 100 employees. The largest center belongs to Intel and employs around 10,000 workers. Almost two-thirds of the centers are from the IT/software and life sciences sectors.
The ability to attract capital is an additional indicator for a healthy and innovative high-tech industry. Analysis of the largest total amount raised by Israeli companies reveals that 51 active companies raised total amounts larger than $100 million each. Eight Israeli companies raised total amounts larger than $200 million each. The CleanTech company Brightsource is at the top, having raised $627 million.
The total capital raised by Israeli high-tech companies has been growing since 2013. In 2017 the total amount raised by Israeli tech companies reached $5.24 billion in 620 different deals (averaging around $8 million per deal).
Israeli high-tech exit activity peaked in the last decade at $90.7 billion from a total of 1,216 deals. Although the number of deals hasn’t changed much, the exit volume has increased each year since 2015. The exceptional exit volume is due to several mega-exits, although even excluding the mega-deals, the total amount is rising year by year.
Top deals in recent years were mainly from the automotive and Internet clusters, with Mobileye at the very top, being sold to Intel for over $15 billion.
In summary, Israel's unique society and culture, large-scale and advanced “military incubator,” strong economy, government support, and "global-first" market approach are just a few of the factors that make Israel's innovation ecosystem one of the most successful in the world. Additional attributes of the Israeli ecosystem include highly innovative approach, strong R&D capabilities, an educated and skilled workforce, increasing government assistance, significant tax benefits, a flourishing venture capital market, and a flexible, adaptable, and creative economy.
All these, together with the lack of natural resources, the necessity of self-reliance, a culture of diversity and an immigrant society, create a great infrastructure for success, despite the complicated political and security situation in the Middle East.
On a personal note, and in a direct context to the World Summit, it seems that innovative initiatives and advanced technologies can make a significant contribution to instilling and consolidating moral and humanistic values, which will contribute to human brotherhood, social/historical justice and world peace. Energetic entrepreneurs should turn their efforts in these directions as well, even if they do not bring maximum profits.
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