Despite COVID-19: Israeli Technological Innovation Sets New Capital Rounds Record

There are palm trees, lots of 20-something stalking into their AirPods, and everywhere you look, a familiar logo: Apple, Amazon, Intel, Yahoo, Microsoft, Google. All within a few blocks of each other. Where are you? Your first guess might be San Jose, maybe Palo Alto, or Mountain View. That is unless you noticed the lack of Teslas, or smell of Hummus, or, the title of this article. This is Silicon Wadi, a cluster of cities in Israel with one of the highest concentrations of tech companies and startups on Earth.

It’s home to Waze, Wix, SodaStream, and Fiverr files more patents per capita than all but 4 countries, and is ranked the 4thmost startup-friendly nation overall, behind only Canada, the UK, and the U.S. The difference is those countries aren’tnext door to the Syrian Civil War. 30 members of the UN still don’t recognize the existence of Israel, including most of its neighbors. In fact, any evidence of traveling there, on any passport, prevents you from visiting eight of those countries.

Israeli customs stamps, not your passport but a separate piece of paper. But despite all of this, despite the constant threat of terrorism, despite being only slightly bigger than Fiji and having just two and a half percent of the population of the U.S., Israel creates some of the most successful tech companies and entrepreneurs in the world. Why? As one of the very important world leaders who consult my channel for advice, you want to know how to start your very own SiliconValley.

The recipe is actually quite simple: First, buy some ping-pong tables, throw down a couple of bean bags, and, within minutes, a cavalcade of Soylent-drinking, smartwatch-wearing-grads will assemble at your door. Even better, why not build some apartments, a grocery store, and, while you’re at it, a pharmacy. Then they’ll never leave! Work-life what? Just kidding! Mostly. More than a few countries and cities have tried charming tech companies with tax breaks, grants, free 21-foot cacti, and other totally normal things, but almost as many have failed.

On the other side of the Arabian Peninsula, Dubai built what it calls “Free Zones”, areas with special incentives to attract certain types of companies, like Biotech firms, movie studios, and tech companies. At first glance, Dubai Internet City looks like a great success. And, to some degree, that’s true. It convinced Microsoft, Cisco, IBM, HP, and canon to invest millions of dollars in the middle of the desert, at a time when the future of Dubai was much more uncertain. But having beautiful buildings with famous logos on them is not the same as creating an environment of innovation.

You’ll find plenty of the former in the Caymen Islands, but it’s not exactly the first place that comes to mind when you think“cutting-edge research”. Meanwhile, Silicon Valley is, despite its very high cost of doing business. In other words, tax breaks may bring companies, but not necessarily innovation. Corporations come to Dubai largely for its promise of no income or corporate tax for 50-years, but often only for marketing, support, and sales while hiring most of their engineers in the U.S., India, and Israel.

What do those countries have that others don’t? There are three basic ingredients to a successful tech scene. The first is the Talent. One of the best predictors of which is, unsurprisingly, education. In the words of Scott Galloway, “Find the universities that are gaining the most traction in engineering or STEM and you’re going to find an ecosystem that can produce a unicorn.” Basically, put a bunch of smart, ambitious people in a small, contained space, sprinkle-in some idealism, ideas will collide and good things will happen.

At the level of a nation, universities care about proximity, and hey, if you also learn something along the way, that’s a bonus! Which is great news for Israel, one of the most educated countries in the world. About 47% of those over 25 have a college diploma. The Hebrew University of Jerusalem, Tel-Aviv University, and the Israel Institute of Technology are all globally competitive schools. And because the country is just so small, and its population so highly-concentrated in just a few regions, it has the same fertile ground for entrepreneurship as a college campus, at a much larger scale.

About 92% of Israelis live in urban areas, almost entirely in the Northern half of the country. Startups, therefore, are surrounded by their customers, business partners, and competitors. The other aspect of Talent that’s often overlooked, but just as important, is demographics. Not just how big a population is, but also what it’s like. For example, it’s misleading to say only that Japan has 126 million people and Ethiopia, 98. What those raw numbers hide are their age and background, which can either act as a free economic multiplier or a bleak and costly undoing.

Japan’s population may be large, but it takes an unfortunate shape – far too many old people for not enough young. Unless millions of Japanese suddenly change their mind and start having children tomorrow, the land of the rising sun will slowly set, as Africa grows into the next major consumer market. Now, Israel’s growth is not quite so dramatic, but it is growing, which is more than you can say about the future of most developed countries, including all of Europe, the U.S., Canada, Australia, and China. The problem is not that Japan doesn’t have working-aged people.

Even as its population shrinks, there will long be millions and millions of workers. But they’ll be busy caring for their parents, not inventing the next big thing. Israel, meanwhile, has enough people to care for the old and young, with plenty of leftovers. It also has some extra help: immigration. The Law of Return allows any Jew, their spouse, children, grandchildren, and even their non-Jewish spouse to come to Israel and receive citizenship. There are even scholarships to cover your expenses while you learn Hebrew.

Today, 4.5% of its total GDP is spent on Research& Development, which is just barely less than first place South Korea. Now, producing lots of smart, young graduates and giving them bundles of cash is cool and all unless they take those skills and that capital to California, giving Americans the jobs and tax dollars. The third ingredient is, therefore, a high standard of Living. Israelis have to want to stay in the country. It’s a fun fact for South Africa that ElonMusk grew up there, but not much use because Tesla and SpaceX are American companies.

This is harder than it sounds. On one hand, entrepreneurs and employees care about healthcare, crime, public transit, and so on. But, it’s a balance. Because, as salaries rise, companies are less drawn to the lower cost of hiring an Israeli engineer – currently thousand over, say, a Californian – 114 thousand. Salaries are so high in the San Francisco Bay Area, for example, that, if you’re feeling particularly cheap, you might just buy a million private jet to save money, so you can hire employees in less-expensive Houston and fly them over for the workday.

Israel has to be attractive enough for people but not so expensive that businesses look elsewhere. Together, these three ingredients go a long way towards making Israel one of the tech capitals of the world. But there’s also another, harder to measure, but, no less real, factor to consider: culture. If you graduate from Stanford with a degree in Computer Science on Friday, there’s a very real chance you could walk into a Facebook or a Microsoft on Monday and start making thousand dollars a year.

Or you could spend your days begging for money with the possibility of losing a lot only to end up back at square one. When the vast majority of new companies fail, starting one is a huge risk, especially considering how lucrative the alternative. It takes a certain kind of personality that swilling to fail – and do so very publicly. In many Asian countries, the culture of saving face makes entrepreneurship unthinkable for many. The reputational damage of failure is simply too great. In Israel, however, a spirit of Chutzpah – roughly, audacity or bravery – has just the opposite effect.

Countries can hand out money left and right, but innovation occurs at the level of the individual – his or her ability to take risks, start new projects, and learn new things.  This one is taught by Guy Kawasaki, the guy responsible for marketing Apple’s revolutionary 1984 Macintosh.  he answers business questions like How to ask for money from investors, how to pitch your idea, and why you should network.

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