Tel Aviv – Where Start-Up Culture Has Its Time Machine

In Tel Aviv, the start-ups are not confined to a street or a neighbourhood. Forget monikers like ‘Silicon Valley” or London’s “Silicon Roundabout”. Israel‘s second most populous city is one big hub of entrepreneurial activity, with offices full of young talent scattered across its narrow streets.

Israel has a long history of innovative thinking: technology invented in the country ranges from digital printing and VoIP to the infrared scanners used in Xbox Kinect, as well as WiMAX and the technique of capsule endoscopy, popularly known as ‘PillCam’. Outbrain, the content marketing platform which you can see implemented on our website, also hails from Israel.

TechWeekEurope traveled to the sunny city on the shores of the Mediterranean sea, to see first-hand how the government and venture capitalists work together to keep the country’s technology sector relevant.

You’re in the army now

The Israel Export and International Cooperation Institute (IEI) is a non-profit organisation established in 1958 to help attract foreign investment into the newly founded state. At first, the exports were limited to essentials like agricultural products. However these days, the IEI mostly deals with technology companies – those in lucrative fields of new media, software and telecommunications.

The organisation is linked to 42 attaches in embassies around the world that act as promoters for Israel’s technology sector. The IEI is the first to advise entrepreneurs that want to expand their business abroad. It also serves as a one-stop-shop for investors on the lookout for promising start-ups.

Israel spends a whopping 4.5 percent of its GDP on research and development, and as a result of such government support, around half of its exports are hi-tech products. The financial crisis of 2008 had little impact on the industry, and the average state investment into an early-stage company currently stands at around 500,000 NIS (£85,000). This grant is only paid back through profits – if the start-up folds, the funding is written off.

Innovation is more than a buzzword here, it is “a way of thinking”, says Michael Admon, the director of the High-Tech department at IEI. The advancement of the IT sector is helped by the fact that Israel itself is an “early adopter market”, and any new product or service is first tested domestically.

According to Lee Aviram-Shoshany from IEI, the main secret behind Israel’s entrepreneurial spirit (described in a 2009 book Start-Up Nation) is its mandatory military service. In the army, young Israelis learn how to co-operate, improvise and do a lot with limited resources.

The second secret is education. Traditionally, attending a university in Israel is a costly, stressful and time-consuming endeavour. Nevertheless, over a fifth of young people go into higher education after leaving the army, and the social value of a degree is immense. Local universities forge close links with the industry, and it is not uncommon for first-year students to already seek out internships.

The final piece of the puzzle is the “helpful and supportive community”, in the words of Roy Latke, editor of the technology section at NewsGeek, Israel’s biggest tech website. According to Latke, locals are “less formal” than their Silicon Valley counterparts, which makes them a lot more approachable.

These three factors made Israel a place where Intel employs an army of 1500 engineers working for its local R&D and manufacturing centres, Microsoft pumps out start-ups every four months through its Azure accelerator, and Apple operates its only development lab outside the US.

This year, IEI will take over 100 companies to the Mobile World Congress in Barcelona, where some of them could become ‘the next big thing’.

The Time Incubator

But it’s not just the government that wants to boost the economy through start-ups. The Time (Telecoms, Internet, Media, Entertainment) incubator is a private company focused on seed and early stage development that aims to build 5-7 global brands in seven years. It was voted Israel’s best start-up incubator for the past two years, and is run by experienced investors.

True, The Time still relies on a portion of state funding. But it also provides office space, training, and access to venture capital – something the public sector cannot do.

The Time develops 7-10 companies every year, and has spent $25 million since 2009. After receiving a combination of public and private support, start-ups have three years to make their idea work. “Pressure is not good for young companies,” says Ziv Min-Dieli, incubator’s director of finance.

On the inside, The Time looks like a stereotypical incubator – factory aesthetics, dozens of offices, open plan meeting rooms and a canteen at its centre.

Some of the more interesting companies currently being developed at The Time include Storee – a Point-Of-Sale engine for SMBs that combines order processing with helpful analytics, and Elenxos – an online marketplace that sells access to specialised education. Look out for our upcoming reports on TotalBooX and Tawkon – two start-ups that are built on truly original ideas.

Not all of these companies will be around next year. Some of them might disappear in a few weeks. But it only takes one successful project to make it all worthwhile.

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