Introduction & Setting

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• Silicon Wadi described as Israeli tech cluster with highest concentration of startups/tech companies on earth
• Major companies present: Apple, Amazon, Intel, Yahoo, Microsoft, Google within few blocks
• Home to: Waze, Wix, SodaStream, Fiverr
• More patents per capita than all but 4 countries
• Ranked 4th most startup-friendly nation (behind Canada, UK, US)

Geographic & Political Challenges

• Located next to Syrian civil war
• 30 UN members don't recognize Israel's existence
• Evidence of travel to Israel prevents visiting 8 neighboring countries
• Israeli customs stamps separate paper (not passport) to avoid travel restrictions
• Constant terrorism threat
• Only slightly bigger than Fiji
• 2.5% population of US

Failed Attempts at Tech Hubs

• Many countries tried attracting tech companies with tax breaks, grants, free amenities
• Dubai Internet City example:
  • Built "free zones" with special incentives
  • Attracted Microsoft, Cisco, IBM, HP, Canon investments
  • Beautiful buildings with famous logos ≠ innovation environment
  • Companies come for 50-year tax breaks (no income/corporate tax)
  • Mostly marketing/sales operations, engineers hired in US/India/Israel

Three Core Ingredients for Tech Success

1. Talent

Education Foundation:

• Quote from Scott Galloway: "Find universities gaining traction in engineering/STEM = ecosystem that can produce unicorns"
• 47% of Israelis over 25 have college diploma
• Hebrew University of Jerusalem, Tel Aviv University, Israel Institute of Technology = globally competitive
• Small country size + concentrated population = fertile entrepreneurship ground
• 92% of Israelis live in urban areas (northern half)
• Startups surrounded by customers, business partners, competitors

Demographics:

• Growing population (unlike most developed countries)
• Contrast with Japan: large population but unfavorable age distribution
• Israel has enough people to care for old/young with plenty left over
• Law of Return: any Jew + spouse/children/grandchildren + non-Jewish spouse can get citizenship
• Scholarships available for Hebrew learning
• Result: 100 scientists/technicians/engineers per 10,000 Israeli employees vs 85 in US

2. Capital

• Starting business expensive, someone needs to write checks
• Silicon Valley investors fear missing opportunities
• Once Israel's reputation for high-value startups established, finding investors became exponentially easier
• Government incentives in 1990s for investors
• 4.5% of GDP spent on R&D (barely less than South Korea's 1st place)

3. High Standard of Living

• Need to retain talent (prevent brain drain to California)
• Balance required: attractive enough for people but not so expensive businesses leave
• Israeli engineer salary: $73,000 vs Californian $114,000
• San Francisco Bay Area salaries so high, companies buy $20M private jets to fly Houston employees for workdays

Cultural Factors

• Stanford CS graduate can walk into Facebook/Microsoft Monday making $100K+ vs risky startup path
• Many new companies fail, starting one = huge risk
• Asian countries: "saving face" culture makes entrepreneurship unthinkable, reputational damage of failure too great
• Israel: "hutzpah" spirit (audacity/bravery) has opposite effect
• Military service requirement: 3 years men, 2 years women
  • Learn workplace skills
  • Make lifelong friends/business partners
  • Reminded country can't be complacent

Key Lessons

• No single factor determines economic success
• Israel has high education, government investment, impressive standard of living but not #1 in any category
• Combination of factors + American foreign aid allows prosperity
• Top-down government policies only so effective
• Innovation occurs at individual level
• Individual ability to take risks, start projects, learn new things most important