What next for the start-up nation?

Teva mechanical

The Economist published an article this week on the massive growth of start-ups in Israel. at the Start-Up conference DLD Tel Aviv, a two-day conference in November where 30 entrepreneurs have five minutes each to present their start-up companies to a panel of digital luminaries and an audience that includes potential investors.

Israel’s legions of young technology firms clamour for attention and money. Rapid-pitch events like this one, at DLD Tel Aviv, are common. More than 300 firms applied for a slot at DLD; 100 turned up; the lucky 30 were chosen by raffle. Yossi Vardi, a technology entrepreneur who has invested in 75 start-ups since 1996, says that he receives between three and eight approaches every day.

Dan Senor and Saul Singer called Israel “The Start-Up Nation” in a book of that name in 2009. The label has stuck because it fits. Everybody and his brother-in-law seems to be starting a company—with old schoolmates or army colleagues, in a spare room or the parental home. Starting a business is easier than ever, thanks to advances in information technology. Budding designers of smartphone apps can rent space when they need it on a remote server rather than buying huge amounts of computing power. “The internet has democratised the right to innovate,” says Mr Vardi.

Israelis innovate because they have to. The land is arid, so they excel at water and agricultural technology. They have little oil, so they furrow their brows to find alternatives. They are surrounded by enemies, so their military technology is superb and creates lucrative spin-offs, especially in communications. The relationships forged during military service foster frenetic networking in civilian life. A flood of immigrants in the 1990s gave national brainpower a mighty boost. The results are the envy of almost everyone outside Silicon Valley.

Very young firms have a good deal of support, which is getting stronger. Accelerators, in which entrepreneurs can shape their ideas and meet advisers and investors, are springing up: this week, for example, UpWest Labs, which intends to bring five to ten Israeli start-ups to Silicon Valley for ten-week stints, began its first programme. As well as meeting helpful people, the hopeful entrepreneurs receive $20,000 in seed money.

“There’s a plethora of opportunities at a very early stage to raise $20,000 or $100,000 to get a minimum viable product out there,” says Liat Aaronson, the executive director of the Zell Entrepreneurship Program, a scheme for final-year undergraduates at IDC Herzliya near Tel Aviv. The difficult bit is turning small firms into bigger ones.

One commonly cited problem is a lack of early-stage venture capital: sums of $1m-2m or so. Ms Aaronson agrees that this step is “trickier”, though some firms emerging from the Zell programme have attracted such amounts. People on the course founded the Gifts Project, acquired by eBay in September, which allows people to club together to buy presents online for their friends, and Wibiya, a web-design company that was bought by Conduit, a biggish Israeli firm, for $45m in July. Alumni set up LabPixies, a developer of web and smartphone apps that was spirited away by Google for $25m in April 2010.

Read the full article here