Mumbai: Yossi Vardi, known as the godfather of Israel’s tech start-up community, has invested in and helped build some 80 Israeli start-ups, ranging from software firms to mobile phone and clean technology companies.
In an interview, Vardi said in addition to the level of education, government budget, availability of funding from angel investors, issues like culture, spirit, heritage and beauty of the people make Israel’s start-up ecosystem successful. Vardi further added that many business founders in Israel are indebted to their mothers for pushing them to excel from childhood.
“The true answer to why many entrepreneurs in Israel can be so successful today is they have their Jewish mother," said Vardi, dubbed the “father of ICQ", once the most popular online messaging tool in the world. Indian entrepreneurs already show such traits, said Vardi, who will be speaking at the TIE Global Summit in Mumbai on 21-22 February. Edited excerpts:
What essentially is the secret sauce of the Israel tech ecosystem?
Different people give different explanations to the phenomena. We hear things like level of education, level of technology, government budget, availability of funding from angel investors and the effect of the army. All of this is true, but this is not enough.
If you want to really understand why Israel is such a hotbed for start-ups, you have to look beyond these tangible things. You have to look at issues like culture, spirit, heritage and beauty of the people. The true answer to why many entrepreneurs in Israel can be so successful today is they have their Jewish mother and are being groomed from a young age by their parents to go, to attempt, to venture and to succeed. “Jewish mother" is neither an ethnic issue nor a gender issue, it’s the mindset. In some countries, what the family is cherishing is job security and financial security, which is very important. But for the Jewish people all over the generations, it was about venturing, attempting and creating your own business. This is part of the secret.
Another part of the secret is the implicit social contract that exists in the country, which means that while people are competing with each other, they behave as a community. There is an unspoken obligation to collaborate, to cooperate and to help each other. If you go to conferences, you will feel Israelis are aggregating together. There is an obligation to contribute to the general well-being. We are a very small country surrounded by ocean of people which don’t exactly like us and everyone has a feeling that well-being of the state is put on their shoulders.
Do you think the mindset in India is largely about financial security than necessarily going out and creating things?
From many Indian entrepreneurs that I have met, I think they also have “Jewish mother". I spoke with many Indian entrepreneurs, all of them emphasized they got the impetus to learn, to study and to get good education from the family.
Does it concern you that the tide can also turn in favour of India and China as the next technology hotspots?
India and China are like elephants, and Israel is like a mouse. We are very small with only 8 million people. If the population of a developed country is growing, then the elephant needs to be concerned. The mice should be concerned if the population of mice is increasing.
First of all, the growth of the technology sector in India and China is really mind-boggling. It’s not anymore the cheap outsourcing of hardware to China and the cheap outsourcing of software to India.
Sure, it’s still a big business, but what we see now more and more is the original developments coming from these two communities. Since Israel has good relations with both, it gives us more opportunities for collaboration and the market for exports. I see it as a very good thing.
There is too much capital chasing few good start-ups. There is a fear of heading into a bubble zone...
Sure, the amount of capital which is available around the world is at levels that didn’t exist before, but also you have to remember that the amount of both the start-ups and the developers is growing very fast.
My view is that for good ideas, you can find capital, but there is no shortage of ideas. I hate to say that this is a bubble because if you look at the net performance of a company like Netflix, which grew by around 200 times in value since 2003, and people said it’s a bubble. But it looks like it is very sustainable. They have kept the growth and they are coming up with new offerings. Something that can exist for 20 years, I am not sure you can call it bubble anymore.
The entrepreneurial mindset in India is often labelled as a copycat mindset, where you get an idea from the US and you make an Indian version of it. Some of these firms have also become billion-dollar firms. But the problem is that some of the global giants are also allowed to operate in India. So, there is a bit of a competition emerging between homegrown and global behemoths. How do you think will this play out?
I think India will have to find its own place in the global ecosystem.
China, for whatever reasons, did not allow the global giants to operate in China, so they had to develop their own version of companies like Google and Facebook. By this, they kind of protected the domestic markets for a number of years and enabled the development of companies like Tencent and Baidu.
India took another way. India created humongous outsourcing of very complicated-use software products which were the unique virtue for the first 20 years of getting into the world of technology worldwide. It has created other experienced parameters.
I think we are going to see India coming with their own developments of humongous enterprise software projects. I think the big outsourcing firms are coming with their own technologies and products. The challenge is that these huge projects have very high barriers to entry and the question is what you offer to the start-up industry.
The role of start-ups in India will be to create second-tier products to enhance the products of large companies. I hope an ecosystem will be built where the large companies will be able to go source from small companies like what happened between Israel and many American companies.
So, you need to develop healthy relationships between the large and small companies. India needs to understand that they have to co-exist, what I call is the “rainforest paradigm". In the rainforest, you have the elephant and also the mice, all of them have to live together side by side. This is the future of India but time will tell.
If you were to give me the next set of unicorns, which sectors or themes do you think are playing out?
First of all, since India is so huge, so diverse and so spread out, I think the main basic services which the internet is providing is a big opportunity. I don’t know to what level the market is being saturated vis-a-vis products like financial services, real estate, job seeking and other offerings over the internet. All these offerings which took place in US, maybe 10-15 years ago, are moving as many services as possible to become online. I think this is a huge opportunity for a country that has over a million villages.
Then there are other sets of opportunities that are not related. This is developing cutting-edge technologies just because of the smartness of people. In India, half a million of people are graduating from computer science departments in universities, whereas in US it is 100,000 and in Israel it is 8,000.
So, just by the sheer number of engineers, there is a capacity to create great products. Things like artificial intelligence, big data applications in health and others will consume huge amount of smart labour. I think this also can be an opportunity.
At the TIE Global Summit, what would be your key advice to entrepreneurs?
My advice is for all entrepreneurs around the globe. One is, the only way to know if your idea works or not, is to go and do it. Nobody will be able to tell you if your idea is good or bad.
Two, select very carefully the people you are working with, both your partners and your investors.
Third, listen very carefully to your customers and don’t hesitate to change things while you are developing.
Fourth is try to be lucky.