Lessons from the Israeli start-up ecosystem3 min read . Updated: 14 Nov 2013, 01:14 AM IST
Experts say Israel is more conducive for a vibrant entrepreneurial ecosystem, given favourable govt policies and a strong military-backed platform for research
Bangalore: Israelis find India very similar to their country—in demographics and the love for science and technology. The only thing striking different is the number of start-up successes in the two countries.
India’s entrepreneurial culture pales in comparison to that of Israel, where men and women in their teens are compulsorily required to serve in the army—a key catalyst. Israel, despite having a significantly lower population than India, generates a much higher number of start-ups per capita than India.
According to The Startup Ecosystem 2012 report compiled by the Startup Genome project, which tracked start-up ecosystems in 141 countries and some 83,040 new ventures last year, Israel’s capital Tel Aviv was ranked second, whereas Bangalore was at 19 and the only Indian city that found mention in the report.
So what does India need to pick up from Israel? What is strikingly different in Israel that needs to be replicated in India?
Experts say Israel is more conducive for a vibrant entrepreneurial ecosystem, given favourable government policies and a strong military-backed platform for research. “India can take back a lot from Israel," says Orna Berry, corporate vice-president and general manager at EMC Israel Center of Excellence. “India is also an agricultural country, so is Israel. When agriculture failed, the government decided to make accelerated investments in research and development."
“There is a mindset in Israel and that is we love taking high risks. That is something that has changed the start-up scene to a large level," Barry adds. “The knowledge economy was that Israel was stuck in technological isolation during the late 90s, so they did everything they could so they could get out. You need to stick to something you want to change."
There are two factors that set Israel apart from India, according to Hanan Lavy, director of Microsoft Ventures Accelerator in Israel. First, the fact that from the very beginning, entrepreneurs from Israel start targeting a global market. “Israel is a very, very small country, which gives it two advantages," says Lavy. “Firstly, the local market is quite small and doesn’t offer much incentive for companies to go after. Therefore, from day one, entrepreneurs here are forced to look at larger global markets, especially the US."
Second, a number of Israeli entrepreneurs who get jobs at top tech firms in the Silicon Valley such as Microsoft Corp., Google Inc. and Facebook Inc. often return to Israel to start their own ventures, armed with connections and the knowledge required to start a venture successfully. Lavy says Israel’s policy of compulsory military service for the youth has helped spawn generations of entrepreneurs. “Military service has made a lot of young entrepreneurs in Israel independent and fearless. Because of the stint in the army, they become more responsible and they’re also not afraid of taking risks," he adds.
Lavy cites the example of the Israeli start-up of the early 1990s, Check Point Software Technologies Ltd, whose founder Gil Shwed did military service in the late 1980s and decided to become an entrepreneur. Today, Check Point is listed on the Nasdaq, generates more than a billion dollars in revenue every year and has offices all over the US.
Also, new Israeli technology firms are more likely to get acquired by Silicon Valley tech behemoths (the most recent example being Facebook’s acquisition of mobile applications start-up Onavo and Google’s recent acquisition of Waze) than an Indian start-up—something entrepreneurs and investors in India feel needs to change to kick-start visibility for the local ecosystem. The total amount generated by technology start-up exits in Israel touched $5.5 billion in 2012, according PricewaterhouseCoopers. The report didn’t cover India.
“India is behind for another reason—lack of M&A," says Indus Khaitan, co-founder of enterprise mobility start-up Bitzer Mobile Inc. “The reason the local system has not grown is because there are no buyers of the products globally and no aspirers of the company globally as well. So, if an entrepreneur takes money from an investor, he could struggle for four-five years and take his time to settle. But if that money is not getting returned to the investor in five-seven years, then it is not recycled value. Not just for the investor, but the entrepreneur does not make enough money to make an angel investment."