Tel Aviv is an incredible city – perched on the edge of a beautiful strip of the Mediterranean Sea. When you look down the sea front you could be forgiven for thinking that you are in Copa Cabana or Miami Beach. All the major hotel chains are here, cheek to jowl along the sand. Look inland and the skyline is dotted with high rise buildings, adorned with logos from Microsoft, Google, Hewlett Packard and others. To the North, there’s the modernity of the Technion University campus dotted with ‘future buildings’ and green spaces. This is a true modern high-tech city in nearly every sense of the word.
Yet all of this is perched on some of the most contested and war-torn land on the planet. Israel is a young country, formally created as a nation state in 1948. Plunged straight into war the day after declaration – conflict has continued to the current day. On the face of it, it’s not clear why: the land is arid, there’s little in the way of water or natural resources. There’s certainly no oil and neither is the land in a particularly strategic location. This territory, claimed, reclaimed and divided has been the home of the Jewish people for the last 100 years. Embattled and embittered, they have arrived from across the world, bringing together a diaspora that has known nothing but challenge and persecution.
To this day, every youngster, whether male or female must perform compulsory national service in the Israeli Defence Force. And it is here that the innovation story begins. The brightest scientists, engineers and mathematicians are singled out during schooling at the age of 16 for inclusion in the ‘8200’ unit of the army. This unit is Israel’s equivalent of the NSA or GCHQ and trains its new recruits in Cyber warfare and intelligence gathering. They foster a culture within the unit of questioning the status quo, trying new ideas and trying to outwit Israel’s enemies in an attempt to protect their tiny strip of land and stack the odds in their favour.
When these youngsters leave the unit 3 to 5 years later – they’ve been trained as some of the best cyber and technical minds in the country if not the world. In addition, they’ve been given a crash course in entrepreneurism and how to look at existing problems and solve them with novel new methods. Unsurprisingly they emerge, not seeking a nice steady job with a big technology firm, but with the self-belief that they can take what they have learned to create a new business from the spark of an idea.
I was lucky to recently visit the city on a fact-finding mission to meet some of these fledgling technology companies. Thrown into a hectic schedule, we taxied back and forth across the city, visiting both high-tech offices and ageing tenement buildings, each filled with small teams of engineers and whiteboards. It quickly became apparent that there’s some great ideas here, backed with an strong belief that any business had the potential to be huge. We met the head of PayPal’s Israel headquarters, Matan Bar, a young guy in skinny jeans whose business had been acquired. He had an idea around group-payments and started a tiny business to service that need. When approached by PayPal, he was asked if his three-man firm could handle 20 million users per day. His response was ‘sure…why not!’ and deliver it he did. Their solution is now part of the global PayPal platform.
It was that self-belief we encountered time and again throughout the visit. Attending a technology fair one evening, we met a small company manufacturing city-bikes from cardboard. Cheap to make and fully functional – the owner’s belief was that he could sell them to every city in the world and then with the addition of some interesting new materials, he would be manufacturing cars from paper within the near future.
Looking beyond the start-ups, an entire ecosystem has formed around this hotbed of activity. American and Israeli money has poured into the capital looking to invest or acquire. There’s a whole group of venture-capital and private equity firms supporting portfolios of entrepreneurs: One estimate suggests that there are over 400 funded cyber-security startups in Tel Aviv alone. As our visit to PayPal showed, the big American technology firms are here too – looking to acquire into the market. From this base they are now building Research and Development centres. Some of them, such as CocaCola are creating incubators where they support startups to grow, getting a six month exclusive head start on any new product or service, but not taking an equity stake in the business.
What’s less clear is how sustainable this model is long-term. Success in the Tel Aviv market is currently defined by how quickly your startup can be acquired by one of the big tech firms. There are a few, but not many, really big Israeli tech businesses and the current model could potentially drain Tel Aviv of a lot of its talent, taking it and the technology overseas. During our visit, at a discussion with Israel’s former Chief Science Officer, Yehoshua Gleitman, a question was posed from an audience member: ‘How do you feel about the big American technology firms hiring many of the Israeli professors involved with artificial intelligence and deep learning – thus preventing them from nurturing new talent?’. He admitted that it was a big concern.
So it remains to be seen whether this current environment is sustainable in the long term and whether the foreign money that is so heavily invested into the startup scene will eventually kill the golden goose. Having said that, I was hugely impressed by the energy, positivity and enthusiasm by all who I met. It’s hard not to be both impressed and inspired by the level of talent and commitment. In a country that has been so troubled in the past, these green shoots of something genuinely new and exciting seem to be just what Israel needs.