Israel: The Unicorn Nation

“If you’re going to the Middle East to look for oil, you can skip Israel. If you’re looking for brains, look no further. Israel has shown that it has a disproportionate amount of brains and energy.” — Warren Buffet

Waze, founded by Uri Levine, Ehud Shabtai and Amir Shinar in Israel in 2008, is a social traffic and navigation platform that disrupted the mobility sector globally, and in June 2013 the company announced its acquisition by Google for USD$1.3bn. Just as Google did with this transaction, there are many multinational corporations and technology companies that seek to acquire startups founded by Israelis with the purpose of integrating innovation and cutting-edge technology into their products and processes. For instance, among the companies that made the most acquisitions in Israel in the period from 2010 to 2019 are; Intel with 10 acquisitions for USD$17.7bn, Cisco with 4 for USD$6bn, Covidien-Medtronic with 8 for USD $3.4bn, Salesforce with 6 for USD$2.3bn, Google with 12 for USD$1.8bn, Palo Alto with 6 for USD$1.5bn, Microsoft with 9 for USD$950mm, IBM with 6 for USD$900mm, and Apple with 7 for USD$830mm.

It is undeniable that the top global companies within their respective industries have been looking at the Israeli ecosystem for a long time now. But how is it that a country of 8.7 million inhabitants has become a global innovation hub?

  • Population: Israel is the 3rd country in the world with the highest rate of university education per capita (equivalent to 50% of the population). Israel has also world-class educational institutions, has contributed to the formation of 12 Nobel Prizes, and is ranked #13 on the global innovation index by Cornell University, INSEAD and WIPO.

Similarly, in Israel military service is mandatory at the age of 18, men enlist for at least 32 months and women for 24 months. This preparation puts them in high pressure situations and leads to a higher degree of maturity. There are even special units within the Israeli army, such as the 8100 and 8200 units, where they specialize in cybersecurity, artificial intelligence, and cryptography. Upon completion of their military service, they use their acquired technical knowledge, tactical skills and experience to develop startups or get involved in the Venture Capital ecosystem.

These factors have transformed Israel’s economy over the past 25 years, turning it into an ecosystem of high technology and innovation. Some of the triggers for this success include the following:

  • Entrepreneurial culture: Due to their survival instinct, Israelis seek to transcend and are taught to solve problems from an early age. This, together with the limited potential for economic growth within their country due to the small territory and population size, has created an entrepreneurial culture within the country and a global vision that encourages them to grow their startups in other geographies through innovation. For this reason, Israel is characterized for having serial entrepreneurs, technology clusters and quality startups, with 1 startup created for every 1,400 inhabitants; and it is estimated that more than 10,800 high-tech startups have been founded.

It is no coincidence that Israel is among the first places in global innovation, with the largest number of startups and with the largest amount invested in Venture Capital. They have managed to create a unique, complementary, and continuously growing system. Today it is unthinkable to imagine an ecosystem of Venture Capital and innovation without considering Israel as one of the most important players. Global economies and especially emerging economies could follow Israel’s example, fostering innovation and disruptive technologies for the benefit of economic development.

Hector Shibata. Director of Investments & Portfolio at ACV a global Corporate Venture Capital (CVC) fund and Adjunct Professor for Entrepreneurial Finance.

Gonzalo Soriano. VC Investor at ACV.

ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.

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ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.