Did you know that Israel had more companies on the NASDAQ than Europe, Japan or Singapore? “Israel till very recently had more than 65 companies on the stock exchange in New York, which was more than any other country outside the US. Since then, China has passed Israel in absolute terms with about 100 companies on NASDAQ. This is another measure of Israel’s strength in hi-tech,” explain Dan Senor and Saul Singer authors of Start-Up Nation: The Story of Israel’s Economic Miracle. Israel has long polarised global opinion, and the latest incident over the Gaza aid flotilla has only acerbated matters. Senor and Singer tell Sarika Malhotra in an email interview how Israel’s adversity-driven culture fosters a unique combination of innovation and entrepreneurial intensity.

Over the years there has been an enigma around Israel — its policies, discreetness. What accounts for this and is it deliberate on the part of the state?

Perhaps this sense about Israel comes from different military operations. In business as well, Israeli companies have had to operate discreetly because of the Arab boycott against companies that trade with Israel. This boycott has lost its force outside the Arab world and even in the Arab world there are companies discreetly doing business with Israel.

You refer to the creative energy that made Israel outstanding in the field of innovation and entrepreneurship. What defines this creative energy ?

The short answer is that many forms of adversity have forced Israelis to improvise and innovate. The same drive that was necessary to build and defend the state has been reinforced by a culture that accepts taking risks and encourages entrepreneurs to try, fail, and try again.

What are the key economic matrices that demonstrate Israel’s innovative approach?

Israel has more high-tech start-ups per capita than any country and is second only to the US in absolute terms. In per capita terms, Israel receives 2.5 times the amount of venture capital investment as the US and 30 times that of Europe. Israel’s economy has been growing faster than any other developed country for the past few years, and leads the world in medical device patents and in civilian research and development as a percentage of GDP.

What strategic techniques have been adopted by Israel to put it on the economic map in such a short span of time?

Israel is especially good at starting small companies based on innovative technologies. Israelis are not particularly good at turning start-ups into big companies. While many other countries are good at building big companies, very few have been able to produce large numbers of hi-tech start-ups.

You mention that in the 1980s, Israel was very good at developing technology, Israelis didn’t know how to manage companies or market places. How did the transformation happen?

A key missing element in the 1980s was venture capital. In the 1990s, the Israeli government jump started the venture capital industry by creating funds in partnership with private Israeli and American venture capital funds. This effort was very successful and became the catalyst for rapid growth of the Israeli high-tech sector.

What makes for Israel’s success secret—the talent of individuals or something unique?

The difference is that the talented people in other countries tend to join large companies rather than taking the risk of starting their own company at a young age. In Israel, the combination of drive and an entrepreneurial culture have encouraged more talented people to start their companies.

EXTRACT

“While Israel’s economy was not exposed to bad lending practices or complex credit products, it may be overexposed to venture finance, which could soon be in scarce supply. Venture capital firms are funded largely by institutional investors such as pension funds, endowments and sovereign wealth funds. The investors set aside a specific allocation for what are called alternative investments (venture capital, private equity, hedge funds), typically in the range of 3% to 5% of their overall portfolios. But as the dollar value of their public equity (stock market) allocations has shrunk—due in large measure to crashing markets globally—it has shrunk the absolute dollar amount available for alternative investments. The overall pie has been downsized, reducing available funds for venture capital investments.”