Israel, the startup nation.
Known as Silicon Wadi, Israel's tech capital is the closest thing the world has to Silicon Valley outside the US. Over the last few decades, Israel has established itself as the world's startup nation. An Vo investigates why.
Plus, the talented migrant surplus and how more robots means more jobs in factories.
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Contributing today is TEN13 partner, An Vo.
An looks at the incredibly friendly environment Israel has created for startups and innovation that has allowed the nation to have more startups per capita than anywhere else. While Israel's unique path doesn't provide a playbook for other nations to follow completely, it does provide incredible insight into the power of fostering entrepreneurship.
Since 2017, StartupBlink, has published the Global Startup Ecosystem Index, which ranks countries and cities based broadly across three metrics, they describe as: Quantity, Quality, and Business environment.
In this year’s Global Startup Ecosystem Index, there were some movements across the top 10 most startup-friendly countries. Despite the rhetoric about the gradual decline of the US during COVID-19, it remains atop, comfortably besting out the UK, who trails behind at number 2.
For some, perhaps the most surprising finding is that Israel, a small nation with an approximate population of 10m, is ranked the 3rd best country for startups, comfortably ahead of much larger peer, Canada, currently ranked at number 4. No country has more startups per capita.
This is backed up by Israeli startups like Waze, Wix, Fiverr, and Viber who have generated lots of public buzz around the world, whilst other companies like Mobileye (sold to Intel for US$15 billion), have flown more under the radar.
What can we learn from Israel?
First, Israel demonstrates that countries can turn difficult geopolitical situations into an advantage. Tough circumstances make innovation a necessary imperative for survival. Many innovations were born out of existential necessity in Israel.
Second, recent decades highlight how startups can transform a low productivity, developing economy into a highly efficient, and developed economy. The Israeli nation benefits from a vibrant startup ecosystem through tax revenues and a more prosperous (and cashed up) population. While an active VC ecosystem relies on innovation existing in the first place, no country sees more VC dollar-volume per capita, with 70 funds active in the region.
Instead of universities or corporations, common growth catalysts in other countries, the Israeli army became one of the world’s top startup accelerators by accident, catalysing many innovative technological breakthroughs. Israel spends 4.1% of GDP on R&D, the second highest rate in the world.
However, whilst Israel’s sustained rise has created a vibrant startup destination, the Israeli ecosystem should serve as an inspiration and not a blueprint. The exact confluence of adverse and unique conditions that exist in Israel are unique to it. Countries and cities hoping to capture the hearts and minds of startups, the world over, will need to harness their own sources of comparative advantage.
Automation is good for workers in manufacturing industries. While this may sound like a contradiction, it’s well researched that more robots in factories mean for more jobs in factories. Despite countries like Korea, Singapore and Japan relying on automation more than any other economies, they also have a higher proportion of their population employed in the sector.
Why is this significant? Sometimes it’s argued that as emerging economies move forward from labour-intensive manufacturing, their employment rates will suffer. As my favourite Twitter economist, @Noahpinion points out, to keep employment high, robots need to take human jobs!
Just 14% of the US population were born abroad. Still, immigrants are massively over-represented in countless business success metrics from patents filed to Nobel Prizes to unicorns minted. While @AlecStapp’s thread makes a case for immigration as the USA’s superpower, he also points out how there is an oversupply of skilled migrants. This is good news for emerging markets. The US grants H1-B visas to 65,000 skilled migrants every year. While demand for the visas has surged (484,000 applications for next year’s cohort, up from 124,000 in 2014), the US’s 65,000 immigrant cap is unchanged. This indicates an oversupply of very talented engineers, designers, and salespeople who will instead focus on building within their local economy. Homegrown talent to stay and build.
Your author this week
An Vo - A former lawyer at Clayton Utz turned founder, An has been investing at TEN13 for over 4 years now.
Alex Barrat - New to the VC world, joining the TEN13 deal team, Alex spent his early career at VC-funded scale up Stake. As one of the first ten hires, he left the team of 130 almost 5 years later. All pitches welcome. Submit your deck here.