‘Israel has more start-ups than anywhere else outside Silicon Valley’

Geopolitical experts Dan Senor and Saul Singer’s Start-Up Nation addresses the billion dollar question, how is it that Israel — a country of 7.1 million people, only 60 years old, surrounded by enemies, in a constant state of war since its founding, with no natural resources — produces more start-up companies than large, peaceful, and stable nations like Japan, China, India, Korea, Canada and United Kingdom!

Singer is in town to speak at various forums and also use the occasion to promote the book, Start-up Nation, which describes how Israel’s adversity-driven culture fosters a unique combination of innovative and entrepreneurial intensity.

DNA caught up with Saul Singer, who’s here for the second time. The first time, about two decades ago, was as a young backpacker. Excerpts from the interview.

What made you write this book and how did two of you get together for this venture?
I’ve lived in Israel for most of the time. I’ve been an editor and writer with Jerusalem Post. I took time off to write Start-Up Nation, with Dan Senor, who’s actually my brother-in-law (wife’s brother). We wrote it together. The book is essentially about what makes Israel so innovative and trying to understand why Israel has so many start-ups. In the sense that Israel has more start-ups than anywhere else outside Silicon Valley. In absolute terms and more certainly in per-capita terms. And those start-ups have been able to get more than two-and-a-half times venture capital per capita than the US, 30 times as much as Europe on an average. Israel spends twice as much as per GDP ratio on civilian R&D than any other country. It is about 4.8% of its GDP, which is way higher than half of the world. Israel is able to do this not because the government decided to disperse funds on R&D, but because it (Israel) is actually a start-up. So the R&D spends are a measure of the technology scene rather than sources of the technology scene.

Is the book about innovation in Israel?
The most of the book is about the nature of innovation. We basically found by looking at the start-ups that Israel is not what people think. People think innovation is ideas. If you look at the number of patents in the world, Israel is way ahead of countries. The one is drive and determination and the second factor is the willingness to take risks. People with ideas will normally be found working for big companies. Where did Israel get those characteristics? It is the military. Actually speaking, Israel itself is a start-up. Israel has had to face all kinds of adversities in the last 60 years of its existence.

So the essential thing is the cultural impact that made it possible for Israel to be a nation of start-ups or innovators?
The main thing is the cultural impact. Young people get something that they don’t get by team work, by leadership, by sacrificing for something larger than work. The thing that the army tried to change the most is to train young Israelis. What is a mission — something that you have to get done, something that your life depended on, your country depended on it. So you have to get the mission done and you have to improvise to get it done. Being mission oriented is very important in a start-up. Another thing is many Israelis come from different backgrounds, they themselves have migrated from somewhere else or their parents have migrated from somewhere else. And we know that immigrants are naturally-driven people. You can see that even in Silicon Valley. More than half the start-ups in Silicon Valley are started by immigrants. And of course you see how Indians abroad are this way. Venture capitalists come in when they know they are going to make money. They are hard-nosed and non-sentimental.

If that is the case and if there is so much venture capital coming in, then why does Israel still depend so much on financial aid from the US?
The last grant Israel received was about $30 billion to be given over 10 years. Out of this, only $3 billion is primarily for military equipment and that is about 1.5-2% of the GDP of Israel. More importantly, most of that money by law has to be spent on American weaponry systems. So it actually goes back to America. So we are not dependent on it. If that aid were to be cut overnight, the impact would be more political rather than economical.

One of the things that must have helped Israel is the strong Jewish diaspora in the US, especially wealthy Jewish venture capitalists?
There is no doubt that having a diaspora helps. And Israel is not the only nation with a diaspora. It is a factor, but that is not the only factor. Actually, it is more of a cause and effect thing. There is a strong link between the Jews in America and Israel. But historically that is more philanthropic or charitable in nature, such as giving money to plant trees or something of that sort. More like helping their poor cousins in Israel. But when it comes to business, for a long time they wouldn’t touch Israel with the longest barge pole. The perception of Israel was that it was not good for business. Until just recently. The whole start-up nation phenomenon happened in the last 20 years or so. And it took a lot of convincing. But now people actually come to Israel to do business. Of course, there are exceptions. But the venture capitalists are going to be Israel only if they can make money, not because they are Jewish or not Jewish. Same with Intel or Microsoft or Google.

Does the government offer any subsidies or help in any other way to encourage entrepreneurs?
Yes, I would argue that there are two big things that the government did right. There is this one initiative called Yozma (Jewish word for initiative), which sort of jump-started the venture capital wave. Basically, in the early to mid-90s, there was a start-up that was waiting to break out that did not have any finance. They did no have any venture capital or international funding. The government recognised this and kicked in some money by partnering with private venture capitalists. That was very important and there are several other countries looking to copy this model. The other thing is a general understanding within the political system that we must be nice to hi-tech (businesses), that we must not abuse them. They understood that it is the engine of the economy and that if we abuse them, then we will be in trouble. It meant not having too many regulations or not doing much taxation. I don’t think the political system feels the same way about the rest of the economy. Sometimes, the attitude is let’s abuse the hell out of them and it doesn’t matter. But at least with hi-tech there has been a general consensus about being nice. So the effect is that it is easier to start a hi-tech start-up than a restaurant in Israel.

Will the next batch of start-ups primarily be in the renewables space and not in the ICT space?
There is an interesting debate on that. I don’t think we should be so quick to write off ICT. The date and computing needs of the world are exploding tremendously. And there is a lot of need for innovation in that sector. These innovations may not be in personal computers and things like that. The next story which Israel is playing catching up is in the solar space. There are all kinds of niche things that are coming up in Israel. It is not only in solar, but also in wind and geothermal.

Are there any major innovations in Israel that would change the way world looks?
One of the things in coming January is a mass-produced 100% electric car. Israel is going to be the first country to replace the gasoline car with an electric car. It is improvising. You don’t even need charge stations as you get two points which you can fit in the office and one at your home.

How many cars will they make?
50,000 cars is what they have planned initially. It will go up to 100,000. It is not a small country alone that can make this concept successful. It is interesting to witness how a tiny country (Israel) can solve a global problem. Israel tried to solve its own problem but by doing that it offer a solution to other countries too. The key to the model would be that consumers would own the cars, but Shai Agassi’s start-up, called Better Place, would own the batteries. The start-up would work like a cellular provider, where a customer would sign up for a plan based on miles instead of minutes, and get an electric car. The start-up will spread the cost of the battery and the car too over four or more years. Since Israel is a small nation, it would be implemented there first. Car 2.0 will be later rolled out in Denmark and Australia.