Peaked or Paused – Israel, a Start-Up Nation at a Crossroads?
The third annual Credit Suisse High-Tech Forum was held in Tel Aviv on September 20, 2016. The mood at the forum ranged from optimism to alarm with respect to the key question of whether or not Israel has reached a crossroads.
High-tech goods and services account for around 12.5 percent of Israel's GDP and half of its industrial exports. Fifty some-odd years ago, Israel's exports were still primarily agricultural. Since then, the country's unique combination of rapid immigration from all corners of the globe, its highly educated workforce, lack of natural resources, and strong government investment in the technology industry have enabled it to become the famous "Start-Up Nation" that it is today, influencing a broad spectrum of disciplines from hydroculture and cyber security through to automotive software systems.
However, despite the resounding success of the start-up ecosystem in Israel over the past ten to 15 years, some suggest that signs of trouble are clearly emerging on the horizon. Few Israeli high-tech companies develop into global players, with many start-ups preferring to play it safe by entering into M&A deals much earlier than their counterparts in Europe or the US, instead of growing to become large public companies. While Research & Development activity remains strong, job creation in the high-tech sector has actually begun to fall, contracting 2 percent from 2013 to 2014, even as overall unemployment decreased.
Addressing the Paradigm Shifts
The theme of this year's Credit Suisse High-Tech Forum was "Start-Up Nation at a Crossroads? Maintaining Leadership in a High-Tech World," and was selected in the wake of these disquieting paradigm shifts. The turnout at this year's event was high, with over 200 participants from Israel, Russia, and Europe, a roster of thought leaders from the investment and entrepreneurial communities, Credit Suisse staff, and representatives from event sponsors OurCrowd First and Tadmor & Co. Yuval Levy & Co. Is Israel headed for a fall in its role as a global innovator? What evidence of this is there on the ground? And if this is indeed the case, Amit Ben Sira, Market Head of Israel and Central & Eastern Europe at Credit Suisse, set the course for the conference by asking: "What is needed to address the challenges facing the Start-Up Nation?"
Taking the Temperature of Israeli Start-Ups
A "temperature check" and prescription for the Israeli start-up scene was provided by Shmuel (Mooly) Eden, a high-tech consultant and leading figure in global technology. "Cherry tomatoes…solar energy systems…disk on key (USB) sticks…the Intel core processor…what do these things have in common?" Eden began his stimulating presentation with this question. And the answer? All these innovations originated in Israel. "They did not occur in a vacuum, though," said Eden. "Where barriers in communication, collaboration, and international trade once existed, they have largely disintegrated over the past 15 years."
The best way to predict the future is to invent it!
The Exponential Age
Eden also stressed that change and growth is now happening exponentially. "What you used to do in five years, you need to do in three. What you used to do in three years, you need to do in one. What you used to do in one year, you need to do in six months," he said. The rate of digital data creation has been growing at a rate of 60 times over the last ten years. According to Eden, this does not just relate to hardware. It is also impacting social communication and economic change. Banks are going to change radically because of blockchain and other new technologies and mode of businesses. Quoting Darwin, Eden suggested that: "It is not the strongest of the species that survives, not the most intelligent, but the one that is most responsive to change."
Innovation in Israel – at a Crossroads?
Finally, Eden shifted his focus to Israel's specific situation. He stated that prima facie, the Start-Up Nation is booming. The record USD 4.5 bn of capital raised by Israeli start-ups in 2015 is on track to be exceeded by nearly 20 percent in 2016. In the fintech space alone, there are 400 start-ups and the numbers are growing. According to Eden, the problem is that much of the innovation in Israel in recent years was the culmination of trends from years past, such as the 1990s post-Soviet brain gain. Today, 33 percent of Israeli students rank in the bottom third of global PISA math scores, and the country as a whole ranks 41st out of 65 countries.
Does this mean the end of the Start-Up Nation? While these challenges are real, Eden is optimistic. He says that Israel's culture allows individuals to challenge authority and question everything. "We need to do the right things to make sure there is a Start-Up Nation part 2, but as Alan Kay said: 'The best way to predict the future is to invent it!'"