Why Corporates Should Target Israel for their Innovation Strategy

J Rosner and Jennifer Elias Phot by Eduardo Feldman ADayInTheLife photography

Global corporates are aware of how valuable innovation is to any organization: from creating ongoing value for customers to staying ahead of the competition, from building on technological capacities and productivity while, simultaneously, improving their sustainability, its importance is hard to measure. The problem is not of recognition, however, but of how to foster such innovation? This is something that people can find out by looking at the example set by Israel?

With more than 7,000 startups currently listed in this country of only 9 million people, Israel has the highest density of startups per capita in the world. And, as it is true that having a lot of something is not synonymous with quality or success, the reason why Israel has so many is that its startups do succeed.

2021 was a record year for Israeli tech. Israel’s high-tech companies saw exits surge 520%, with a remarkable $82.4 billion in overall valuations. There were a total of 171 mergers & acquisition deals and IPOs, smashing previous funding records. This is compared to $15.4 billion in 2020 for 60 deals. The average deal over the past year reached $482 million – this was a 190% growth over 2020.

There is definitely no other tech ecosystem in the world with such a high rate of success.

So, the question people should as – why is Israel such a success in this field that it has been dubbed Startup Nation? The answers are too many to review now, so here are the ones that top the list:

1. Israeli entrepreneurs are practical, goal oriented and resilient.
One thing that typifies Israeli entrepreneurs is that they are risk takers. Israeli entrepreneurs view risk as a challenge to be met and conquered. As with investments, the greater the risk the greater the reward. And anyone on Wall Street will you that if you are risk averse, then just put your money in a savings account and some Treasury Bills.

Facing difficulty and challenges head on is the norm in Israel, a nation that has needed to so every day do – even today – over its brief history just to survive.

Growing up with mandatory army service, Israelis need to learn at quite a young age how to work in teams. Military service teaches them how to make do without and to make the best of bad situations by improvising and, of course, innovating.

This is evident in the success of Israel’s defense industry, which dates back to long before anyone ever talked about high-tech. For example, Israel has taken various American defense systems, tanks and even air force and upgraded them, incorporating them with new ideas that the Americans themselves have adopted into newer models of their own over the years.

And even before they turn 18, or serve in the military, young Israelis are trained to adapt and improvise strategically. This same mentality is then brought into the world of business. The everyday challenges of just living in Israel are a catalyst for innovation.

2. Israel has thought global from day one.
With a population of only 9 million people – smaller than some of the world’s largest cities – Israeli entrepreneurs are forced to think globally from day one and consider international markets in order to reach long-term growth. The small size of Israel’s domestic and regional market does not discourage founders. Instead it pushes and encourages them to build businesses that are scalable across borders. It also creates a desire to break through barriers and “make it big.”

For two years now, Israel’s global thinking ecosystem has taken it a step further. There has been a dramatic maturation of the Israeli tech ecosystem from Start-Up Nation to Scale-Up Nation as serial entrepreneurs have returned to found new companies with global ambitions. Globalism is part of Israel’s culture. Some cultures grow up on soccer, some on food, and in Israel, a society that’s growing up on international innovation.

3. World leaders in science – a land of early stage secret opportunities
Science and technology are some of Israel’s most developed sectors.
Today, Israel continues to maintain its leading position in R&D investments as a percentage of its GDP with 4.95% spending. In 2019, Israel was ranked the world’s fifth most innovative country by the Bloomberg Innovation Index[2] and ranks thirteenth in the world for scientific output as measured by the number of scientific publications per million citizens.

Israel has only 9 universities, but they are reinventing themselves as micro environments for innovation and entrepreneurship. Four were listed in PitchBook’s 2021 ranking of the world’s 50 leading undergraduate programs that produce the most VC-backed entrepreneurs.

Israeli Tech Transfer Offices (TTO) have a remarkable track record of generating more revenue from IP sales than any other country except the United States. Yissum is Israel’s biggest TTO in terms of patents (10,000-plus), licenses (900) and spinoff companies (125, including standouts such as Mobileye and BriefCam) in a wide variety of fields. In the global seed industry, the long-shelf-life cherry tomato developed at Hebrew University is a primary example of this.

For corporations, the scientific and academic landscape in Israel is a gold mine. Investing in an R&D stage project allows the company to gain an unequal and secretive competitive advantage as well as lower costs of a pre-seed technology.

4. In Israel, COVID is not, and never was, a barrier.
Following the outbreak of the global Covid pandemic, the Israeli tech ecosystem had to re-adjust the course of its operations and meet the changing demand and circumstances of this new reality.

The pandemic did not stop or even slow down Israeli innovation. On the contrary, it caused it to grow through remote channels. In a way, it has never been easier for investors and corporations around the world to meet and create new deals with Israeli startups. In the last two years alone, the pandemic spurred an unprecedented number of virtual scouting, pitching, deal making and POCs with international players all done remotely and with minimum traveling.

For example, the Brazilian cosmetic giant Natura, ran a fully-remote innovation scouting program in Israel during the Covid crisis. The programs goal was to scout technologies under the categories: diagnosis, personalized product recommendation, product customization and performance, multi-sensorial experiences, wellness, and sustainability and regenerative products. The successful scouting challenges resulted in over 100 startup applications, 10 selected startup pitches, and now running 5 POCs all remotely. Natura was able to keep engagement and easy communication with the startups without having met anyone physically throughout the course of the project.

The Israeli ecosystem demonstrated flexibility and out of the box thinking, allowing many high-tech companies and startups to adjust their technologies, developments and products to meet the new needs such as future of work, supply chain, retail, digital technologies, metaverse innovation.

How to join the party?

There are different ways companies can invest in Israel. Corporations can send their own scouts to the ground or open an innovation center. Others run strategic events such as startup competitions or corporate challenges with local partners in Israel.

Over 350 MNC have already established a presence in Israel’s exciting and ever growing startup ecosystem. Will you?

To consult about your corporate innovation opportunities in Israel, contact Tech It Forward.

Jennifer Elias and Jessica Rosner are the founders of Tech It Forward, an Israeli-based technology, scouting, and innovation consulting firm.

The writer Jennifer Elias was born and raised in France and graduated with a Double Masters’ Degree in Strategic Management and Business Law from EM Lyon Business School, in France. After working at Ernst and Young Paris she moved to Israel. She is the co-founder of Tech it Forward.