Israel’s success -How did Israel create its ecosystem

Orna Berry, Ph.D.Corporate Vice President and General Manager forIsrael Center of Excellence

October 2013

Start-up nation

• Israel is cited as the country with the highest density of startups in the world..

• Attracting VC investment per capita at 2.5 times greater than the US

• Having more companies listed on NASDAQ than the entire continent of Europe combined

In 2010, Israel invested 4.3% of GDP in R&D, compared with 3.9% by Finland, 3.6% by South Korea, and over 3% by Sweden, Japan, Denmark, and Switzerland.

• Science and technology is one of Israel’s most developed sectors.

• The percentage of Israelis engaged in scientific and technological inquiry, and the amount spent on research and development (R&D) in relation to gross domestic product (GDP), is the highest in the world.

• Israel's percentage of the total number of scientific articles published worldwide is almost 10 times higher than its percentage of the world's population.

• Israel boasts the highest number of scientists, technicians, and engineers per capita in the world with 140 scientists, technicians, and engineers per 10,000 employees (In comparison, the same is 85 per 10,000 in the United States and 83 per 10,000 in Japan).

• Israeli scientists have contributed to the advancement of agriculture, computer sciences, electronics, genetics, health care, optics, solar energy and various fields of engineering.

The Israeli ecosystem model

Academia

VentureIndustry

MoD

MoD culture and professional role

• MOD (military of defense) - Culture of service is mandatory for most young Israelis the Israel Defense Forces– Exerting responsibility in a relatively unhierarchical environment

where creativity and intelligence are highly valued– Minimal guidance from the top, and are expected to improvise,

even if this means breaking some rules

.. Creates unique technological environment

• Every year hundreds of technology soldiers of technology divisions go through unique training programs focusing mainly on advanced security areas.

• These graduates later join the academia and continue to the industry as founders, junior and senior executives.

• Their alumni spreads across academia and the industry.

• Tight connections between the army, industry and the academia lead to a constant cycle of innovation.

• Due to the country’s small size, Israeli start-ups target their market globally rather than focus on one area or challenge of a specific market.

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Government role is to establish the policies to enable and support the ecosystem

In the late 1960s, the notions of high-tech and the “knowledge economy” were not part of the lexicon.

The Israeli government made a crucial strategic decision: - It would jump start and breed a science-based sector by providing broad financial support for commercial R&D - This policy would make up for market failures

The first manifestation of the new strategy was the creation of the Office of the Chief Scientist in 1969

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The Office of the Chief Scientist (OCS)

The key instrument is the Matching Grants Program - This is administered by the Office of the Chief Scientist (OCS) at the Ministry of Industry, Trade & Labor, the main government body in charge of innovation policy

Firms submit proposals for R&D projectsThe OCS reviews the applications according to set criteria These include: - The technological and commercial feasibility and merit - The risks - The potential of these projects for generating expertise

Government Initiatives

From the early 1990s, a series of novel programs were set up

The most important were: -The Technological Incubators Program

-The Yozma Program for jump-starting the venture capital sector -The Magnet Program for creating consortia of industry and

academia

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The Venture Capital SceneForeign VC investments, increase the opportunity for more multinationals M&As of local companies

The venture capital industry was born in the mid-1980s and has rapidly developed since.

In 2012, 70 active venture capital funds, of which 14 are international VCs with Israeli offices

From 1993-2008, local VC raised almost $14B Actual VC-backed investments reached a high of 2.7% of GDP in 2000

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Claiming SuccessGovernment policies as well as the deep connection between Government-MoD-Industry- Academy have managed to unleash the potential embedded in Israel’s abundant human capital

For example:- Trained young cadres of ICT specialists in the defense sector- The immigration from the former Soviet Union and technologists’ massive recruiting into the high-tech industry