Innovation in Israel is admired the world over, because it is one of the countries that invests the most in R&D and has a large number of technology companies. What are the secrets to their success?
One of the key factors to the success of innovation in Israel is its openness to the rest of the world. Its companies, far from stagnating, have been able to internationalize themselves and create business models that are attractive to investors outside its borders. Israel is undoubtedly a pioneer in the knowledge-based economy. But what are the pillars of its success?
In the first place, Israel has invested significantly in research and development. Aware that innovation does not follow a linear model, but rather depends on multiple factors, this country hasn’t stopped focusing on and believing in its economic growth. In 2009, investment in civilian research and development exceeded 4% of its GDP, far ahead of the annual spending in industrialized countries like the UK, Germany, France, or the US.
The country’s location has also played an important role, because it is at the crossroads between the more industrialized western regions and some of the more well-known emerging territories (like China and India). In other words, innovation in Israel has depended not only on its own public investment, but has also encouraged private investment and, in particular, it has been able to attract foreign investors to the country.
Attracting venture capital
In 1993, the Israeli government created its own venture capital firm, called Yozma Group, with initial funding of 100 million dollars. Following this, the government launched into a search for other venture capital firms, with the goal being for the government itself to hold a small stake (through Yozma) in the companies, which would compete against each other for the best technological startups in the country.
The playing field was very attractive for investors. This was possible because the government made it possible, if they put their efforts behind successful companies, to recover the initial investment. Reducing this risk, which is one of the biggest question marks when attracting foreign capital, was crucial to the success of innovation in Israel.
Don’t stigmatize failure
It’s often said that the United States is the “Mecca” of entrepreneurs because above all, failure is not stigmatized. This characteristic is also notable in Israel, because failing in a previous business means that you can learn from your mistakes. Trying again and trying to evolve with the business opportunity are fundamental.
It may be for this reason that Israel is also at the top of the tech sector. Large companies like IBM, Microsoft, and Intel have R&D&I centres in Israel. In fact, more than 50% of Israel’s exports are related to technological advances. The idea isn’t to fail, but rather to try again, and most importantly, do better. These are perhaps the lessons we should keep in mind if we want to learn from Israel’s innovation model.