Israel, the startup nation
CIONET & Deloitte CIO Inspiration Journey
In October 2017, a delegation of 20 Belgian CIOs and Deloitte and CIONET representatives visited Israel for the CIO Inspiration Journey. During their four-day trip, they had the opportunity to experience the Israeli ecosystem and learn more about what turned Israel into a startup nation. The programme covered visits to Tel Aviv and Haifa for meetings with academic institutions, multinational corporations, innovation centres and startup accelerators, as well as a number of exciting startups and companies that are focused on mobility, fintech and cyber innovation. By bringing together the innovation sensing capabilities, the deep relationships in the Israeli hi-tech ecosystem and the interaction with peers, the group had the opportunity to learn about the technologies that will protect and grow their businesses.
The Israeli ecosystem
Israel’s unique innovation ecosystem makes it the first port of call for organisations looking to innovate outside of the US. As a result, Israel ranks high in the world innovation rankings. It has the highest venture capital per capital1, the highest number of startups per capita1, the world’s highest R&D as percentage of GDP (4,2%)2, it is ranked number three in the NASDAQ-listed tech companies (after US and China)3 and it is the world’s second most innovative nation4.
All of this turns into very impressive startup statistics:
- Israel boasts more than 6,000 startups; 25% of the startups were founded in the last year
- There were over 1,100 exits of Israeli technology companies from 2006–2016 equaling over $75B in capital
- $4.6B in total capital was raised by Israeli startups1 in 2016
- The total value of 104 hi-tech deals, including 93 mergers and acquisitions in 2016, was $10B1
 Source: IVC
 Source: Economic Times
 Source: Deloitte Research
 Source: World Economic Forum’s Global Competitiveness Report 2016-2017
Failure is an equally valuable option
All of the innovation in Israel is being fostered by its very specific culture. The population is mostly comprised of second or third generation immigrants, who are not afraid to take risks and for whom failure is an equally valuable option.
The mandatory military service - three years for men, two years for women - provides technical training and creates a sense of responsibility, urgency and success orientation. The military develops technical innovations for defence and military purposes, which in five to 10 years find their way to the civilian world.
The government heavily subsidises large R&D investments (up to 85% in startup accelerators) and the relatively cheap education fee ($3000/year) means the Israeli population is highly educated.
Due to the emphasis on technology, hi-tech comprises 45% of exports, while 8 to 10% of the Israeli workforce works in hi-tech, mostly for multi-national companies. The majority of startups fundamentally focus on “disruptive innovation” instead of “better mousetraps”.
The latest trends show that corporate venture capitalists are rapidly growing and competing with traditional VCs. The most active industries are fintech, insurtech, mobility, IoT, water & energy, but first and foremost cyber technology.
Startup accelerators & innovation centres
Many multi-national companies have set up their accelerators and R&D centres in Israel. Google, Microsoft, IBM, Intel, GE, Apple, HP, SanDisk are only a few of the examples. The startup accelerators provide money, advice and physical working space for a specific duration of time, while the innovation centres scout the market to see what semi-mature starting companies could bring technology to the multi-national company in order to further co-foster the product or technology.
International companies often employ 50% of their innovation and R&D staff in Israel. This results in many notable innovations originating in Israel, such as Intel’s advanced mobile processors, SanDisk’s flash memory, Google and Waze’s social based traffic, Microsoft XP and future OSs, the first ingestible pill cam by Given & Medtronic, safer driving by Mobil Eye and Intel, etc.
Many notable innovations originate in Israel such as Intel’s advanced mobile processors, SanDisk’s flash memory and Google & Waze’s social based traffic
Large banks offer events, co-working space, R&D, advice and access to anchor men and senior stakeholders in the bank to established companies with an idea, to collaborate. The three-month programmes foster long-term mutually beneficial relationships, designed to scale early prototypes and new business models into live products and services.
The GE Healthcare Innovation centre has been in Haifa since 1977 investing in startups and new technologies. GE has set up an innovation cluster, collaborating with incubators, multi-national companies, startups, academia, the government, accelerators, entrepreneurs and VCs to leverage Israeli innovation. One of the examples is the development of the GE Industrial Internet of Things platform, Predix, to foster innovation, to optimise asset performance and to plan for the future. Another example is ContinUse Biometrics, developing a single-sensor platform that detects nanoscale movements in fully dressed people at any angle from a distance in order to monitor blood pressure, heart rate, etc.
Startup accelerators are designed to scale early prototypes and new business models into live products and services
Team 8, a prestigious cybersecurity think tank, employs a very interesting modus operandi, starting from a specific domain, identifying a problem first. This problem is presented to a syndicate where people from the private, public and academic sector are represented. The next phase is the solution and ideation phase, followed by the validation phase, where again at both phases the syndicate comes in. All these phases take nine to 12 months together with intermediate validation gates where the process can be discontinued.
The Technion – Israel Institute of Technology was founded in 1912 in Haifa and is the oldest university in Israel and the Middle East. The university offers degrees in science and engineering, and related fields such as architecture, medicine, industrial management and education.
Technion is noted as a global pioneer in multidisciplinary research into fields including energy, nanotechnology and life science. It has 18 academic departments and 52 research centres and over 13,000 students. Since its founding, it has awarded over 95,000 degrees and its graduates are cited to have brought the unique skills and penchant for innovation which helped conceive and consolidate the modern State of Israel. Technion’s over 610 faculty members include three Nobel Laureates.
Twenty-three percent of Technion graduates have founded a startup, a high number that is supported by and due to the tools and opportunities offered by Technion’s entrepreneurship department. Hackathons, entrepreneurship and innovation courses, international programmes, research and commercial support, and non-equity funding are all part of the startup programme at Technion.
23% of Technion graduates have founded a startup
Some of the startups that pitched to the CIONET and Deloitte group showcased some very nice ideas and solutions, ranging from
- identity management and verification to close non-face-2-face deals (SEEGNATURE and SCANNOVATE),
- the interaction between legacy systems and the digital ecosystem (OPENLEGACY), investigating machine issues by using the “Shazam of machines” (3DSingnals),
- making passengers of cars safer by using a single sensor that measures the inside of the car (Guardian optical technologies) and
- measuring the security posture of organisations, vendors, suppliers to limit third party security breach (PANORAYS).
Conclusion / Takeaways
Visiting Israel highlighted how it fosters the foundation of start-ups, and how we can learn from their mentality and acceptance of failure, their energy, the societal influence and the government support for startups and corporate investments.
The group was very impressed by the outside-in innovation focus and the process around technology innovation, well endorsed by both multi-national corporations and startups. Some of the participants will take this back to their organisations and take concrete actions, and have shown genuine interest in some of the presented ideas and companies such as OpenLegacy, Scannovate and 3DSignals.
The Israeli history and society influence the mentality to quickly test out new things and learn from failure, and they affect how corporations foster and embrace innovation from outside their organisation and integrate it afterwards.
The government consistently supports innovation through investment in education, resulting in a high level of education and talent, and through investments in startup accelerators and R&D together with big multi-national corporations for them to embrace the startups and their technologies.
All of this results in a surprisingly large amount of technologies, already used today, that were developed in Israel, a willingness and mindset towards innovation, and foremost an impressive speed of change and innovation.