In the beginning, in 1948, there were fewer resources to deal with it, but now Israel is firmly on the map. Those who have read the book Start-Up Nation (by Dan Senor and Saul Singer, 2011) know why.
This is how Amazon puts it: Start-Up Nation addresses the trillion-dollar question: How is it that Israel, a country... surrounded by enemies, in a constant state of war since its founding, and with no natural resources, produces more start-up companies than large, peaceful, and stable nations like Japan, China, India, Korea, Canada, and the UK?
The cover explains: “While Americans emphasize decorum and exhaustive preparation, Israelis put chutzpah first.” The book goes on to explain that the innovative Israeli spirit is tied to the IDF, which teaches Israelis to improvise and get things done.
However, the results do not happen immediately, and around 90% of start-ups do not succeed at all. But in Israel, as long as you learn from your failures, you can bounce back.
R&D spending
Israel ranks number one in gross domestic spending on R&D according to the OECD.
The following is the latest OECD league table, showing R&D spending as a percentage of GDP in 2021: Israel 5.8%, Korea 4.6%, USA 3.5%, Sweden and Belgium 3.4%, Switzerland, Japan, and Austria 3.3%, Germany 3.1%, Finland 3%, UK 2.9%, Denmark 2.7%, the OECD average: 2.6%, France and Netherlands 2.2%, Canada 1.9%, Estonia 1.8%, Australia 1.7%, Ireland 1.1%.
(See https://www.oecd.org/en/data/indicators/gross-domestic-spending-on-r-d.html).
What is the typical investment size for start-ups in Israel?
Angel investors typically invest between $50,000 and $1 million for early-stage start-ups. Venture capital (VC) funds typically invest in Series A to Series C rounds, between $1m. and $100m.
There are also R&D funding programs (typically 50%) from the Israel Innovation Authority (IIA) and various international arrangements Israel is party to.
Israel is also home to more than 500 R&D centers of some of the world’s largest multinational corporations, such as Microsoft, Apple, and Google.
VC funds, business incubators, and business accelerators have brought a high degree of financial discipline to start-up technicians fresh out of the IDF.
Tax breaks also help preferred tech enterprises, angel investors, and employees in approved share/option plans (ESOPs).
Success stories
Here is a list of some of the biggest acquisitions of local start-ups in Israeli history (thanks to Brian Blum and Yulia Karra of Israel21c, https://www.israel21c.org/the-15-biggest-acquisitions-in-israeli-history/:
1. Wiz: $32 billion; purchased by Google in 2025; provides cloud security;
2. Mobileye: $15.3b.; purchased by Intel in 201; develops sophisticated technology to power tomorrow’s autonomous vehicles.
3. Frutarom: $7b.; purchased by International Flavors & Fragrances (IFF) in 2018; food flavorings maker.
4. NDS: $5b., purchased in 2012; software and hardware (such as secure set-top boxes) for pay-TV providers.
5. Chromatis: $4.7b.; purchased by Lucent in 2000. It supplied products that alleviated bottlenecks in the “last mile” of networks connecting telephone exchanges and customers.
6. Mercury Interactive: $4.5b.; purchased by HP in 2006. Makes software for application delivery and management, change and configuration services, quality assurance, and IT governance.
7. Playtika: $4.4b.; purchased by Interactive Entertainment in 2011. Makes online casino games.
8. Orbotech: $3.4b.; purchased by KLA-Tencor in 2018. Helps build printed circuit boards, flat panel displays, and electro-mechanical systems.
9. SodaStream: $3.2b.; purchased by PepsiCo in 2018; carbonated beverage manufacturer.
10. Imperva: $2.1b.; purchased by private equity firm Thomas Bravo in 2018. It makes a suite of products to help organizations protect customers from cyberattacks.
11. Mazor Robotics: $1.64b.; purchased by Medtronic in 2018. It supplies a robotic guidance system that improves outcomes in spine and brain surgery.
12. M-Systems: $1.5b.; purchased by Sandisk in 2006. It invented the concept of a small, portable memory (USB) stick (DiskOnKey).
13. Waze: $1.1b.; purchased by Google in 2013; real-time updated traffic maps and turn-by-turn directions.
14. Neuroderm: $1.1b.; purchased by pharmaceutical giant Mitsubishi Tanabe Pharma in 2017; treatment for Parkinson’s disease.
15. Trusteer: $1b.; acquired by IBM in 2013. It makes products that block online threats from malware and phishing attacks.
16. Bonus-Mirabilis $287m.; purchased by AOL in 1998. The company behind ICQ, in many ways, kick-started the Start-Up Nation. Long before WhatsApp and Facebook Messenger came to dominate the messaging scene, Mirabilis developed one of the first Internet chat products.
Also, Warren Buffett’s Berkshire Hathaway purchased 80% of Iscar, a maker of cutting tools, for $4b. in 2006 and the remaining 20% in 2013.
Wishing readers a happy Independence Day!
As always, consult experienced professional advisers in each country at an early stage in specific cases.
leon@hcat.co
The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.