Outside of the U.S., Israel leads the world in the extent to which its companies have attracted venture capital, and it has made good on these investments. Reuven Brenner, reviewing a recent book on the history of venture capital in America, argues that, in both countries, the factors behind this success are almost impossible to replicate elsewhere:
Between 1991 and 2000, Israel’s annual venture-capital outlays rose from $58 million to $3.3 billion; the number of companies launched went from 100 to 800; and revenues of the new technology sector rose from $1.6 billion to $12.5 billion. Migration played an important role. Among the one million Russian immigrants in the early 1990s (a 20-percent increase in the nation’s population), more than 55 percent had post-secondary education; 15 percent were engineers and architects; 7 percent were physicians; 18 percent were technicians and other professionals. By 1998, Israel had 140 scientists and engineers per 10,000 in its labor force, becoming the world leader in these terms, followed by the United States with 80, and Germany with 55.
Israel’s culture was, furthermore, like that of Silicon Valley—due to virtues and habits associated with military service, which is compulsory in the country. It added crucial components of “education,” namely, discipline and loyalty. A characteristic feature of many (perhaps most) of the successful Israeli companies is that their founders served together in the Israeli army. A unit within the intelligence corps, responsible for collecting signal intelligence decrypting codes, is one example. The founders of Nice, Comverse, Stylit, and Outbrain all emerged from this unit.
The big problem for start-ups and funders of venture-capital firms is finding the team that can bring ideas to life. Team members must trust one another. They must know how the skills of each complement those of the rest. Who has leadership skills? Who is the techie “nerd”? Who has managerial, negotiating skills? Who is good at dealing with stress? Who is the better listener?
In Israel, the military happens to be the best training ground to answer these questions. Also, soldiers higher in the military hierarchy have been subordinates outside it, and, when serving in the reserves, higher-ranked employees were under the command of lower-ranked ones in the business. The result is a casual fluidity in communication within teams that helps an enterprise succeed.
Read more on Law and Liberty: https://www.lawliberty.org/2019/12/13/what-is-the-venture-capital-secret-sauce/