Israel’s Secret Sauce: How To Become A Startup Nation (2/4)

Today, Israel’s startup ecosystem consists of over 25 incubators some of which offer up to 85% in government funding for early-stage projects (Photo © Unsplash)

What secrets lie behind Israel’s startup success? This second article of a four-part series, suggests high R&D spending and generous accelerator schemes have something to do with it.

In the first part of this series, the government’s Project Yozma gets credit for kickstarting Israel’s startup ecosystem. However, Project Yozma is only of many ways the Israeli government helped the country become a Startup Nation.

Indeed, its Law of Return was instrumental in mobilising a skilled workforce. An essential piece of legislation, the Law of Return allowed Jews from all over the world to move to Israel and gain Israeli citizenship. This law become especially useful after the Fall of the Soviet Union, a large majority of Soviet Jews decided to emigrate to Israel.

The immigration rates were so high during time that nearly 15% of Israel’s population consisted of immigrants, many of whom had a scientific background and were more than happy to find a way to contribute to the local economy. As such, the timing of Yozma and the incoming waves of talented Jewish immigrants could not have been better.

“In one of its most generous incubator schemes, [the government] offers for every $1 of private money, a matching programme of almost six and a half dollars.”

Manuel Sussholz

An Entrepreneurial Government

Building on the success of Yozma, the Israeli government was keen to stay close in touch with the startup ecosystem. And what better way to do this than launch its own incubator programmes.

Today, Israel’s startup ecosystem consists of over 25 incubators some of which offer up to 85% in government funding for early-stage projects. To minimize investor risk, the incubator schemes focus on nurturing companies from seed to early stage. Extremely successful, this strategy has seen more than 1100 projects graduate so far.

“In one of its most generous incubator schemes, [the government] offers for every $1 of private money, a matching programme of almost six and a half dollars, which is pretty high leverage on kind of private financing. And this is not even structured in a way that the government is taking a stake and equity part in the company,” says Manuel Sussholz, co-founder and Managing Director and of Sweetwood Capital.

Leading R&D

Closely linked to favourable incubator schemes is Israel’s expansive and expensive R&D network. For the past two decades, Israel has consistently featured among the world’s highest spenders on R&D. In 2018, Israel was even the global leader, having spent 4.95% of its GDP on R&D, with most of the funding going towards computer systems, AI, cybersecurity and medical research (for comparison Luxembourg spent 1.21%, with the number steadily in decline).

Israeli is also big on cooperation. Many of its R&D programmes include bi-national funds (with counterparts such as China, USA and Canada) which are also entitled to financial assistance by Israel’s government.

Today, Israel counts nearly 400 multi-national R&D centres, has the highest percentage of engineers and scientists per capita and has one of the largest outputs of academic publications per capita. These factors have helped shape Israeli into the Startup Nation it is today.

While spending money sounds like a pretty straightforward way to transform your country into a startup nation, the next article in this special series will address a pillar that is harder to replicate.

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