By John Jeffay, NoCamels -
Israel is celebrating its 75th birthday. It is no longer an infant nation fighting for survival against hostile neighbors.
Today (Wednesday, April 26) it marks a milestone in what has been a difficult development, punctuated all too often by wars, terror, economic crises and political turmoil.
A spirit of determination, enterprise and innovation has earned it the title Startup Nation in spite of – or maybe because of – its tough journey to adulthood.
Today the country relaxes. People light barbecues, enjoy time with friends and family at the beach, watch the Air Force fly past, hike through the countryside, and sit for hours in traffic jams.
As we celebrate Yom Ha’atzmaut (Israel Independence Day), NoCamels asks what the future holds for a country that can now claim – to some extent at least – to be old and wise.
We have problems at home (judicial reforms) and we have problems abroad (war, global economy in meltdown).
But the future remains bright, says Jon Medved, the man behind OurCrowd, the most active investor in Israel’s startups.
The country remains a powerhouse of innovation, he says, punching way above its weight, attracting investment that is hugely disproportionate to its size, and pushing the boundaries of “deep tech” – the game-changing developments that are re-shaping our world.
“I think that the future for Israel is bright, and the only people who can screw it up is ourselves,” Medved tells NoCamels, with his trademark frankness.
“The biggest threat to Israeli startups is the fact that we lose our confidence and our unique ability to take risk, and learn from failure.
“Israel has emerged as a startup power globally because of our culture. And our culture is based on an acceptance of risk.
“For thousands of years Jews have been dreamers, scientists, and great entrepreneurs. Our culture is about seeing things off in the distance that others don’t see, and then having the guts and the chutzpah to actually go and make them become real.”
We’ll be fine, he says, as long as we don’t lose our mojo and don’t stop believing in ourselves.
Israel’s confidence has undoubtedly taken a knock of late, and investment in its 6,000-plus startups (approximately one for every 1,400 people in the country) has been faltering.
“I am not worried by the current downturn in investment in venture capital in Israel, which has been quite significant,” says Medved. “The numbers in terms of invested dollars, quarter by quarter are down over 50 percent.
“But it turns out that these numbers are down throughout the world. Global numbers just released show a year-to-year drop of 53 percent (for Q1 2023). It’s actually 66 percent down in Europe, and down more than 80 percent-plus in Latin America.”
Israel’s domestic woes – the government’s proposed overhaul of the judiciary and the ensuing months of demonstrations – have prompted some investors to direct funding elsewhere.
But Medved remains optimistic. “We are hoping, rooting strongly and working behind the scenes to promote a settlement and a compromise,” he says, “which ends this internecine strife, and leads to all sides on the Israeli political equation getting back to real business, building investment, not talking about moving money abroad, or in any way slowing down, but only accelerating the great opportunity we share together as Israelis in the Startup Nation.”
Start-up Nation, the book that charts Israel’s economic miracle.
Israel’s path to becoming the Startup Nation began back in the 1990s. The economy was growing after years of paralyzing hyperinflation (a dizzying 450 percent in 1984).
The country had peace treaties with Egypt (1979) and Jordan (1994), ex-pat Israelis were returning from the US, and there was a flood of Jewish immigrants from the former Soviet Union.
Add into the mix a conscript army with a “challenge the chief” culture, an elite military intelligence unit (8200) nurturing outstanding talent, a recognition that the country’s greatest natural resource is its people, and a good measure of chutzpah, and you have the ingredients for an economic miracle that Dan Senor and Saul Singer described as Start-up Nation in their seminal 2009 book.
It’s hard to over-state Israel’s strength relative to its size. Today Israel is not just the Startup Nation, it’s also the Unicorn Nation. Unicorns – privately-held companies valued at over $1 billion – are a strong indication of a thriving economy.
There are around 1,000 unicorns globally and 100 of them – one in 10 – are in Israel. Mobileye (bought by Intel for over for a record $15 billion), Waze, M-Systems, Mellanox, Fiverr, Wix, and Believer Meats, to name but a few.
“If Israel operated like any normal country, we’d have one unicorn,” says Medved. “We have 100 instead, so I think that Unicorn Nation is here to stay.
“But the question is, really, can we build decacorns (privately-held firms valued at over $10 billion, such as SpaceX, Grammarly, Reddit, Discord and Revolut) or even centercorns, which are $100 billion.
“And more importantly, can we build centaurs, companies with $100 million of revenue (as opposed to valuation)? We have several of them who are approaching this, we’re excited about companies that reach that important milestone.”
Israel’s evolution into Unicorn Nation will require a new approach from business leaders. “I think that challenge of growing Israeli unicorns is going to lie not just in continuing to fund them as they grow,” says Medved.
“But in particular, their ability to recruit international management teams and to develop strategies, which allow them to become truly multinational corporations, albeit startup multinationals that can leverage the unique skills and talents and capacity found in many countries around the world.”
Israel’s many startups are exploring all areas of tech innovation – food, financial, energy, agriculture, water, health, security and aviation to name just a few – but the biggest opportunities, says Medved, are in “deep tech”.
Shallow tech turns a taxi service like Gett or Uber into a digital enterprise. Deep tech makes more fundamental changes to the world – blockchain, virtual reality, AI, nanotechnology and quantum computing for example – and requires vast investment for research and development.
“The biggest opportunities in the Israeli startup scene are going to be in the deep technology arena,” says Medved, “whether it’s semiconductors, or inventing new kinds of food technology.”
Today the city of Tel Aviv (and its environs) ranks third in the Europe-Middle East-Africa (EMEA) region for venture capital investment – $6.9 billion in 2022, behind only London and Paris.
The combined valuation of its tech companies last year was $393 billion, putting it ahead of San Diego ($297 billion) and Toronto ($279 billion), according to Dealroom.co.
“We are very much believers that the innovation economy and the startup scene will be even bigger and even better at the end of the coming decade than it is today,” says Medved.
“The last decade, when you look at it historically, has been very good to Israel. Back in 2013, the numbers for investment in startups was $2.2 billion and peaked in 2021 at about $26 billion or over 10 times growth in the decade.
“They’ve come down considerably since that, but even in the first quarter of 2023, we’re near $2 billion for the quarter. So that’s still very healthy growth. Indeed, over the last decade, I think that the next decade will be even better.
“The future is bright for the Startup Nation, based on the fact that today, it’s hard to find a place quite like Israel other than Silicon Valley.
“The sheer extraordinary number of startups who are, in particular focused on deep technology challenges means that Israel will continue to play a major role in the global innovation market.
“But if you’re looking for breakthroughs in a broad range of areas, including quantum computing, space, digital health, and climate, Israel is going to emerge as an even more important source of much-needed innovation in these crucial new arenas.”
Medved, a serial entrepreneur and venture capitalist, launched OurCrowd in 2013, allowing individuals to make minimum investments of $10,000 in early-stage startups, many of them in Israel.
It has 220,000 members, has invested over $2.1 billion, and is recognized as the most active venture investor in Israel.
Is Israel still a good investment? The dot-com bubble burst in 2000 when a slew of startups attracted big investment but failed to turn a profit. But Medved says the aftermath proved to be the best time ever to invest.
“The returns of those who were investing on the back end of that crisis in 2001 to 2003 had absolutely epic kinds of IRR, internal rate of return and were very, very fortunate to be investing at that point,” he says
“I urge investors today to keep their eyes open to look at when it’s time to go back into the venture market – I personally think it’s now – and start making those investments because in the coming decade, you’re going to see that this was a very, very opportune time to invest.”
