Israel graduating from startups to tech giant

Experts disagree as to whether the tech world in Israel is capable of maturing to the level where a tech giant such as Google can exist.

Raphael Poch,

Startups at DLD Tel Aviv Digital Conference (file)
Startups at DLD Tel Aviv Digital Conference (file)
Miriam Alster/Flash 90

Israel has gained notoriety in recent years as being the Start-Up Nation, but not having a "tech giant", according to some experts. This in part has worked to Israel’s favor, creating a more stable economy that is not dependent on any one business giant to provide the economic influx of profit for the country. Should that business giant fail or flounder as did Nokia in Finland, the result could be devastating to the economy, whereas an economy based upon thousands of startups will stay afloat should one or even a number of them fail.

Gal Nahum, in his recent article that appeared on the Tech Crunch website, illustrates very eloquently why Israel never developed a “tech giant”. He lists the over-competitiveness of the startup nation as one of the reasons, and another due to the desire for Israeli startups to think only short term and accept low or mid-size buyouts ranging in price from 10 million to 100 million dollars. These buyouts, he claims, appease the Venture Capital sector and thereby allow innovators to relinquish the reins once the job demands more of a business management style of leadership, rather than an innovative style of leadership.

“For many years, Israelis used to lament that the local tech scene, while considered second only to Silicon Valley and generating many successful startups, has never been able to grow a world tech leader,” said Nahum.

Nahum argues that Israel, being a small economy, would become more fragile if a real tech giant were to emerge, and, hence, is better off with a more diverse ecosystem without any giants.

“Israeli entrepreneurs are often accused of being sprinters, as opposed to marathon runners. Which is to say, they aim at a quick exit, usually after 3-5 years, and a deal size in the range of tens of millions up to low hundreds of millions. They are scolded for not having the skill or the stamina to build a billion-dollar venture.”

Nahum however admits that “the Israeli tech scene has matured significantly in recent years. This is a slow and gradual learning process, which is slowed even further by the distance from the major markets.”

Nahum warns that the startup mentality often leads to the cannibalization of companies at the hands of their competitors, themselves startups in the same fields.

“Outbrain and Taboola, both Israeli, are competing with each other in the content recommendation market. NICE and Verint, both Israeli, are each other’s main competitor in multiple domains. SundaySky and Idomoo, you guessed it, are both Israeli, and are competing with each other in the video personalization domain. A competitive environment is obviously not a bad thing, and there’s a fine line between being competitive and being over-competitive. There’s also a difference between what’s best for an individual and what’s best for an entire ecosystem or economy. For small economies like Israel, there is a lot to gain by being more aware of these trade-offs.”

The hypothesis that Nahum bases himself on is not  unfounded, and other experts in the field agree with his line of thinking. 

Jon Medved, CEO of OurCrowd, says that "I like the argument, that because Israel has a broad range of smaller companies this model is more sustainable and stable than total dependence on one or more giants. However, thank God we also already have a huge tech giant worth $100B and its name is Teva.”

Medved went even further and agreed that while a company like Apple, or Google don’t exist yet in Israel, there is no reason to think that such a thing is not possible based upon the recent success of startups that have broken through to the international markets in a big way like Checkpoint (market cap $15Bilion).

“In the last three years there have been over 12 Israeli exits, both IPOS and trade sales, of approximately $1B each in value. The granddaddy of them all is Jerusalem's hometown favorite Mobileye, which is now valued at $9B. Maybe this is not a giant relative to Apple or Google, but it is still a pretty hefty and healthy offspring for a little country like Israel."

The question as to whether or not Israel can develop a company with the business savvy as well as the innovation to become the next Google or Apple remains to be seen. But for now, Israel appears to be on the way and with a little luck and a lot of hard work, perhaps our little country can indeed succeed to build both a tech giant and maintain diversity in the field so as to assure economic stability for the long term.




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