Being bold and take risks: A lesson from the Startup Nation
Updated: Mar 31, 2020
I’ve been asked to give a short talk about Israel tech success story, and while that could have easily taken a whole day, my goal in the next few minutes is to demonstrate through the Israeli story why bold government policies involving risk-taking and investments are necessary for Australia’s future growth. And although I’m talking about government actions, I can assure you that there will be some valuable lessons to take into your boardrooms.
Israel is truly The Startup Nation. It is a Startup nation not only because it exists for 72 years against all odds, but because it became a truly tech ecosystem unicorn. This overnight success took some 30 years, but the result is that the Israeli economy has been transformed to become a true Knowledge economy. An economy where Human Resources and Human Capital are the most important factors.
The Israeli economy has been transformed to become a true Knowledge economy. An economy where Human Resources and Human Capital are the most important factors.
Not too long ago, in the 80s the Israeli Economy was still heavily dependent on agriculture and manufacturing. As China started to open up and other countries like Turkey were offering cheap labour, it became clear that depending on these sectors would not provide for the country future prosperity. And although Israeli Jaffa oranges were well known globally, agriculture in a country a ⅓ of the size of Tasmania covered by 70% of a desert, would not cut it either. Luckily, back then people in Israel realised that when you use raw materials and energy you have less of it … but when you use knowledge, you have more of it.
When you use raw materials and energy you have less of it … but when you use knowledge, you have more of it.
Today Israel has truly mastered the knowledge economy. So much that last year alone it sold over 22B USD of it. This was, in fact, the total exits of Israeli startups during 2019. Technology has a short time span and even though Moore’s law from 1965 still holds, most technology-based products and applications get replaced faster than ever. Israel today is ranked number one in the world in Tech startups per capita but even more important, it is number one in the spend on R&D as a percentage of the GDP. It is also number one in venture capital investment per capita.
Israel is ranked number two as the most innovative country by the World Economic Forum and is 3rd after the US and China, in the number of companies listed on NASDAQ. But the most important indicator in my opinion and the one I talk often about is the fact that today there are over 530 multinational companies innovation centres in Israel. This did not happen by a coincidence. It required a bi-partisan approach to transform Israel into a knowledge economy. And for people who are familiar with Israeli politics, reaching a consensus on anything is never easy.
But the most important indicator in my opinion and the one I talk often about is the fact that today there are over 530 multinational companies innovation centres in Israel.
However, since the 80s no matter which party is in power, there were consistent policies in regards to supporting innovation. In the core of these policies are the principles that the Government job is to take the RISKS that no one else COULD and to INVEST the money that no one else WOULD. Now that might sounds scary to some of you but rest assured, there are ways to do it smartly by leveraging government money with the private sector and foreign investors. Only about 20% of investments in R&D in Israel come from the public sector and only 20% of venture capital money invested in startups come from Israel.
The Government job is to take the RISKS that no one else COULD and to INVEST the money that no one else WOULD.
As I already mentioned, I believe that the presence of the multinationals in Israel today is the best success indicator and the reason Israel is likely to maintain its global position as a top innovative nation. So the question then is: what are they looking for in Israel? The multinationals today are in Israel for two main reasons. One is to benefit from acquiring Israeli startups and turning them in some cases into R&D centres. The other reason is to be exposed to new and disruptive technologies earlier if not at the same time than their competitors that are likely to be already there.
In recent years Israel became a mobility centre of excellence and a global hub for the automotive industry. This is despite the fact that Israel never had a car industry (though we did try in the 60s and 70s). Similarly to Uber who doesn’t own cars and Airbnb who doesn’t own hotels, Israel doesn’t make cars but rather enables the future of the automotive industry.
A contributing factor to Israel becoming a global mobility centre is Intel corporation acquisition of a company called Mobileye. In 2017 Intel wrote a check of 15.3B USD to buy Mobileye, an Israeli startup specialising in autonomous vehicle technologies originally developed in the Hebrew University. The proceeds were split between the government and the founders which both keep investing in new risky ventures. And this leads me to my main example which I am intimately familiar with from my own experience and that is the story of Intel Israel.
In 2017 Intel wrote a check of 15.3B USD to buy Mobileye, an Israeli startup specialising in autonomous vehicle technologies originally developed in the Hebrew University.
In 1996 The Government of Israel through the Chief Scientist Office, now called the Innovation Authority, took a Bold decision to provide Intel with a $600M grant to open up a new semiconductor manufacturing facility called FAB18. This represented a ⅓ of the total $1.8B required investment. The decision was highly controversial at the time as many people felt that the money should have been spread over a large number of small Israeli companies. I believe that today there is little doubt that this investment has been paid back in many multipliers.
In 1996 The Government of Israel through the Chief Scientist Office, now called the Innovation Authority, took a Bold decision to provide Intel with a $600M grant to open up a new semiconductor manufacturing facility called FAB18.
Today Intel Israel is the largest private employer in the country with some 15,000 direct employees and another 53,000 indirect. It’s 2019 export was 6.6B USD and it invested well over $10B in expending its Israeli operation over the years. It pays taxes, it introduces best practices and most of all it produces knowledge. The knowledge that turns the economy and makes Israel The Startup Nation it is today. Just before last Christmas Intel paid another $2B to buy an AI company called Habana Labs. I have no doubt that Intel would not have spent over $20B in M&A and Venture capital money over the years if not for its major presence in Israel.
In summary, I’m convinced that the government main role is to do what no one else would: Be bold, take Risk and invest money in enabling the innovation ecosystem to create Australia’s knowledge economy and guarantee our future prosperity.
The government main role is to do what no one else would: Be bold, take Risk and invest money in enabling the innovation ecosystem to create Australia’s knowledge economy and guarantee our future prosperity.
And lastly, Tachbench is a VC As-a-Service. We specialise in startup discovery helping corporates & investors partner and invest in world-leading tech companies from Israel and Australia. We advise corporations and government organisations on open innovation and provide educational programs in innovation and entrepreneurship to corporate executives and university students.
Thank you very much.
Presented by Eitan Bienstock at the Australian Institute of Company Directors Australian's Governance Summit on the 2 March 2020.