Tuesday, October 24, 2006

Why startups condense in Israel?

This post is in response to Paul Graham's: why startups condense in America. In there he gives 10 reasons why America is a great place for startups and even generously gives a few hints to the "rest of the world" on how to beat the US on a few points.
Incidentally, Paul Graham specifically mentions Israel and says: "... it might be a lost cause to try to establish a silicon valley in Israel. Instead of no Jews moving there, only Jews would move there, and I don't think you could build a silicon valley out of just Jews ..." -

I find this remark (in footnote 4) so strikingly wrong that I felt compelled to post my own entry on this. I know that there's been a number of threads on Reddit or Digg and I don't really want to revive them but I just felt like adding my own 5 shekels on this topic.

First things first, startups do condense in Israel. In fact, Israel is probably right after the Silicon valley in terms of sheer density and number of startups, probably fighting for a second place with the Boston area. This is so strikingly statistically abnormal considering the size, location and GDP of Israel that Mr. Paul Graham was not only off the mark but he could have chosen any other country in his footnote but Israel.

Let me just throw a few more points here:

  • Israel's population is about 6 million whereas California's is about 33 million. So there's a proportion of 1 to 5 here. If I use these sources Israel VC Funding and Silicon Valley VC funding we see that in 2004, there were a total of around 400 Israeli startups who raised VC funds for a total of around $1.4 billion; whereas in the Valley there were a total of 773 startups who raised VC funds for a total of around $8.2 billion. There is about a ratio of 6 in total funding and a ratio of 1.75 in terms of number of deals. If you factor in the GDP of Israel I believe that this is not bad at all for such a small country and at worse it is very comparable to the Silicon Valley.
  • Israel has a large number of companies listed on NASDAQ and NYSE. Probably more than most European or Asian countries. In fact Israel is number 3 after the US and Canada.

Now, just to keep the spirit of Paul Graham's original article, I also have my own explanation of why Israel is a great place for startups. Here's my list:

Israel IS a startup as far as countries go. Here's why:
  • Israel is young. Israel will turn 49 this year, it is one of the youngest countries in the world. The vast majority of Israelis come from somewhere else within a few generations. This is pretty much like all the startups I know.
  • Israel is not sure of its future. The recent Hizbollah's attacks and the declaration of Iran's Ahmadinajad just show you how incertain is Israel's future. Again very much like a startup and very different from IBM or France :-)
  • Israel is changing rapidly. Today's Israel is so different than it was some 20 or 10 years ago. Cities grow fast, people's lifes change fast, habits change, etc. In comparison, most places in the US or in Europe have not changed at all. This is again very much like comparing a 2 year old startup to a very established company like say GM or Microsoft.
  • Israel politics is very unstable, what is right today was left yesterday, extreme right politicians go into a coalition with labor party, etc. This is exactly like a startup trying to re-invent itself and changing marketing strategy and CEO.
  • Many people in Israel are multicultural. In fact, besides NYC this is probably one of the places in which people come from so many different horizons. It is true that the bias is still towards Jews but the cultures and languages are very different. I think this brings a lot to the overall culture.
  • Israel knows that it is small and young; therefore Israel is not afraid to copy big countries. By copying other places Israel is able to improve rapidly instead of being stuck in "doing things their own way."
  • Israel is not afraid to challenge big countries. Again this is what makes startups successful, when you think of Google 8 years ago trying to do a better Internet search engines for example.
In addition, Israelis have a few personality disorders that make them good entrepreneurs:
  • Israelis have a thick skin. You can shout at an Israeli or push him around in the street or cut the line in front of them and this is not going to unphase them. They will probably return the push or scream but that's about all; nobody will lose sleep on this. Just looking at the latest events this August when several thousand katyusha rockets kept falling on the north of Israel and people were just going to shelters and kept on working as usual. I don't think this could have happened in the same way in most places in the word.
    "למה מה קרה?"
  • Israelis are risk takers. Not taking risks is often not high in the priority list of the average Israeli. "נחייה וניראה"
  • Israelis believe things will improve. "יהיה בסדר"
  • Israelis are impatient: "נו?"
  • Israelis do not feel compelled to follow the rules. For example, it would not bother anybody to smoke just under a "no smoking" sign. "אז מה?"
That's all I had to say, but I had to say it. I feel much better now, thanks.

For those of you who want to read more on the Israeli high tech front here are a few Blogs, news and sites to check out more:Fixed:
  • Israel turns 59 not 49. (Thanks to Jeremy Fain)
  • See also Ouriel Ohayon's blog for some more on the Israeli startups landscape. See for example his entry on Israeli Web startups here.

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