With one startup for every 1,844 inhabitants, Israel has the highest concentration of innovation and entrepreneurship in the world. And not only more startups, but also the largest venture capital investment in the world: 2,000 million euros for a population of 7.1 million inhabitants. What can we learn from the Israeli entrepreneurial model?
Do you know that Google function that predicts search queries in real time? Well, it turns out that it was the idea of Israeli engineers from Google Israel: it occurred to them ten years ago. Do you know that little thing that makes your PC work: the Intel reprogrammable memory chip? It occurred to Dov Frohman, co-founder of Intel. Yes, also Israeli.
Do you know who investigates you and decides if you are an active or potential delinquent in Paypal or an inoffensive and solvent geek who only wants to buy a doll from The Watchers of the Beach on eBay? Well, a team of Israeli engineers from Fraud Sciences, a company for which Paypal paid 169 million dollars four years ago, and they work from Tel Aviv.
Do you know who invented Interferon, which has been used in the treatment of cancer, first, and hepatitis C, afterwards? Israel.
The first foreign company that Warren Buffet bought - he did it in 2006 - was Israeli (Iscar, manufacturer of high-tech parts for the aeronautical sector) and paid for it 4,500 million dollars. Cisco has acquired nine Israeli companies in the last decade. Israel is the third country - behind the United States and China - with more companies on the Nasdaq. Oh, and it has the safest long-term stock market: the Tel Aviv TA-25 Index, which has performed better in the last 10 years than the Hang Seng Index in Hong Kong, which was supposed to be the best index results You say brand-country ...
Innovation by necessity
In the end, the real difference from the Israeli innovation model is not found in those four initial paragraphs of overwhelming data. The difference is that 52% of investment in Israeli high technology comes from companies of foreign origin and that Israel's technology exports exceed 9,000 million euros annually since 2011. Spain exports 1,800 million euros in high technology, According to UN data, only in the wind sector, and instead of SMEs, multinationals did.
Why do we, who invest 6,400 million euros in R & D & I programs, not achieve the same results? Why does not that investment translate into a similar proportion of innovative technology-based companies? How can it be that the World Economic Forum places Israel in the 7th position and Spain in the 46th in innovation capacity?
It is true that in Spain, this year, public investment in R & D + i has been reduced by 25%, but has remained at 6,397 million euros. In Israel, 400 million euros are invested. How can there be 3,000 startups out of scientific research and 160 annual spinoffs? What can we learn from the Israeli innovation model?
Experts have told us about risky innovation, of SMEs with an international vision from the first day - since their local market is practically non-existent, although like any neighbor's SME, they sell first locally -, from an institutional support that offers money, but also tax advantages (see breakdown) and greater access to private investment-above 1,000 million dollars a year-in the initial phases of a startup, which is where it is more difficult to get money. Well, they have told us about that, and that they have been working on this model for 20 years and that it is now when the results are seen.
Come on, what a miracle, nothing.
International from day-minus-one
In Israel, when an entrepreneur thinks of a new product or service he does it in an international key, not in the local Israeli market, which is very small. That is a big difference with Spain. They are multinational SMEs from the moment they are born. This occurs from day one minus one. You do not think about this when you already have a product in a national market. This is thought from the moment in which the product is designed. And this gives them a competitive advantage. In high technology, when products or services are designed, the focus is already on the US, European and Asian markets. In addition, they have a network of contacts that allow them to access them more easily.
"Israeli entrepreneurs know how to take advantage of their networks, and many young entrepreneurs from all over the world want to do business angels, and in Spain, and in most European countries, they want to reach anyone." Israeli entrepreneurs are much more strategic They are very clear about who wants them to open their doors or invest in their projects in the exit or growth of the business.As an anecdote, I met some entrepreneurs who said they wanted Eric Schmidt to be their first business angel. contacts how to get to this person, for us it's crazy, but that's the vision they have, "says the business creation program expert Liz Fleming.
"All this creates something unique in the Israeli entrepreneur, the biggest difference I see with Spanish entrepreneurs is that ambition from the first day, since the day one is thinking about global markets, everybody, of course, launches in Israel and try there, but think in global markets, and especially in the US In Spain, there are good entrepreneurs, who are mounting global solutions, but thinking of Spain: we set it up in Spain and see what happens ... It's a way to think, an attitude, but it is absolutely key ", summarizes Fleming.
Outside the comfort zone
This attitude also leads them to leave the comfort zone in which the great multinationals innovate. Israeli start-ups innovate in more disruptive areas, in areas that do not include many large companies that can not afford to investigate without short-term results. The big ones find it easier for others to risk for them, and if they discover something, they buy them. There are also those who believe that large companies also investigate in these fields. What happens is that the small ones have the possibility of being more disruptive. They have the obligation to be competitive. The big company will do something within the same less disruptive sector, because they follow a strategy that is marked.
The development costs of an Israeli company are much tighter. In drugs, for example, which is what I know best, the projects that come to me so that we raise money are always half of what a Spanish company asks for: they are more austere projects.
American and European innovation models are very expensive. The Israeli is cheaper, more austere. The founders do not charge, they have ownership over what they create. This attracts investors. With less investment, they go further. Beware, the model has things that have not worked and that have been changing - at first everything was public funding and today it is private; before they were more expensive structures and now cheaper.
With the exit plan under the arm
And all this, in addition, with an exit plan (exit plan) under the arm. Because, in addition to being austere, Israeli start-ups are born thinking of selling when they reach an interesting size. In Israel it is valued that after innovating, setting up the company and having a reasonable volume of clients, bandages. Israeli investors understand it. In Spain, no. Good financing of innovation does not work without a clear exit scheme. In Israel maybe it is too evolved.
Xenia is an Israeli incubator listed on the Tel Aviv Stock Exchange. Yes, you read correctly: what-quotes-on-the-bag. Four years ago he sold $ 26 million one of his subsidiaries, Arcos, in which he invested 600,000 dollars seven years ago and of which he had a 35.18%. This exit assumes that you have multiplied your investment by 15. Oh, and in addition, the $ 1.7 million invested in 2005 was returned to the Office of the Chief Scientist [the office coordinating the financing of innovation in Israel, a kind of ENISA + Cdti + ICO]. give an example ...
Today there is talk of having less exit, of creating bigger companies and more jobs. And yes there are Israeli companies that are growing and that are not being sold to multinationals. Like Check Point or Bezeq or Celicom or ECI Telecom.
Constructive failure
This ecosystem that encourages the creation of companies is also explained by the Israeli character. "I have done a lot of personnel selection both in Spain and in Israel. I opened the Accenture office in Israel. In Spain, we always took the first Teleco class. In Israel we did not get it. We went there with very good offers of money, with a career in a multinational, with a technological career ... I sat with them and asked them: Why are you not interested in the offer? And they told me: What we want is to start a startup, we do not want to work for a multinational company. It's a chip very different from the Spanish one: here 80% of Spaniards want to be an official, "says a head of the Israel-Spain Chamber.
The way to see business failure also has to do with another way of understanding entrepreneurship. In Israel, if you receive money from the State - through the office of the Chief Scientist - and the company fails, you do not go into debt for a lifetime: it is a lost money. Of course, if you earn money, you have to return it. This also helps companies. If you receive $ 700,000 and you have to pay it back, it's enough to put your work and your know-how ... We are talking about experimental sciences and not everything always goes well.
A seed model
Incubators that are listed on the Stock Market; private and public accelerators that finance not only outputs, but also startups growths; 85% state co-financing in projects; confidence of local and foreign investors in the seed phase of the projects, where the level of risk that the proposed innovative process does not end up being very high (in this phase the innovative companies are not in a position to offer the type of guarantees that the financial entities demand - they do not generate the positive net cash flows necessary to serve the debt) ...
All this comes from the Yozma program that was launched 25 years ago. 24 incubators were created and the Government promoted co-financing in startups with foreign venture capital companies and created what can be summarized as a fund of funds. That explains a part. Being a smaller country, everything is more centralized: investments for innovation are channeled through the office of the Chief Scientist Officer, a kind of CSIC + CDTi + Enisa.
Military service
"In Israel, in job interviews they always ask you in which unit you were in the army," says Gil Kerbs, an alumnus of an intelligence unit, in the book 'Startup natio'n, by Saul Singer and Dan Senor.
"There are job offers that specify Only for alumni of the 8200." You can not understand the Israeli entrepreneurial ecosystem without talking about compulsory military service - three years for men and two for women.
Training is not only military, but also technological. There a company - like Check Point - emerges in a bonfire on a night of guard.