At Tel Aviv University’s Entrepreneurship Program kick off, we had the pleasure of being introduced to Andy David, the Israeli Ministério das Relações Exteriores de Israel Director of Innovation, Entrepreneurship and Technology. He has been working in the agency for more than 20 years and shared wonderful insights on how Israel’s economy went from being based in orange exports to building billion dollar startups in the past few years. As the only Brazilian in an American-crowded room, I felt it was my responsibility to share some optimistic insights to fellow entrepreneurs that, like me, still endeavor in agricultural based economies.
1. Innovation is not a miracle, but a systemic, organized and intentional effort that may take only a few decades to flourish.
Last June, India promoted the international Yoga day with events all over the world, filled with thousands of mindful practitioners. Everyone connected yoga to India, but only recently did the country decide to take ownership of the millenarian practice and speak of it in other countries. This is exactly what Israel is trying to do with innovation.
When you think of Israel, however, this probably isn’t the first thing that pops into your mind. When friends find out that I am here, I get the few reactions:
a) Why Tel Aviv? What about the bombs and terrorists and Gaza and ISIS?
b) Are you Jewish?
c) Can I give you a note to put in the [insert religious site] for me?
And now that I have been living here for a few months, most people still don’t understand when I say I am here to learn about entrepreneurship and innovation. The pursuit of peace, quality of life, a welcoming community and divine connection are still the most goals of tourists and immigrants coming to this sacred land. Nonetheless, the beautiful Tel Aviv promenade and the more than breathtaking spirit of Jerusalem are only the surface of the groundbreaking Israeli spirit. The nation didn’t have a choice. They had to innovate. And I’m not only talking about weaponry. They even had to figure out how to give their growing population what to eat and drink amongst the dry and desert lands of the Middle East. Prayer and hope for a better world can only take you so far . Impact oriented entrepreneurship fills this important shared dream with a method to put thought into action.
Nothing could be taken for granted. You had to find a solution. There was no room for “maybe”s or “I’ll do it later”.
And with this mindset, now just a few months before the country’s 70th anniversary, as polemic as Israel may be, it created new international standards for innovation public policies and jaw dropping startups. For those interested in a detailed explanation of Israel’s economic “miracle”, I recommend reading Startup Nation, by Saul Singer, who I had the pleasure to chat with this past summer, and Dan Senor. Here’s just is a little taste of how they did it.
Israel is the country that most invests it’s GDP in R&D – for the past 20 years
R&D investment as % of GDP – OECD, 2018 | Check the full ranking here
In 1990, the country would spend just slightly above the OECD average, but a dramatic policy change more than doubled the percentage. Why does this matter? Doing the same things expecting different results is the definition of insanity. I am pretty sure every generation in Brazil (at least from my grandparents onwards) heard that Brazil will be country of the future, and we’re still waiting for this day. Instead of talking about the weather in a São Paulo elevator, the common chitchat is the latest political scandal. Guess what, Brazil and Israeli governments can both get Nobel prizes for scandals, so let’s stop fearing the work ahead and learn from our Israeli friends who surf our beaches after their army service. Most of us are so depressed that it is hard to believe in politics or any related matter. Let alone that it will change. I believe, though, that what we need are better, realistic, benchmarks and clear examples to follow.
Just like us, Israel was lead by state capitalism and a distinctly corporatist approach. After 1973 Yom Kippur War public debt surpassed 300% of GDP. And it would take at least another 15 years and a heavy Economic stabilisation programme to control their hyperinflation and breach its path to innovation. Today Israel is still a country with a head of state facing serious charges and corruption scandals covering the news, which isn’t ideal, of course, but gives us hope that you don’t have to be a city in Silicon Valley or a Northern European country to make it happen.
In their case specifically what is driving the R&D investment is not governmental direct investments nor expenditure in higher education institutions. It’s made by the private sector. Yes, companies like mine and yours are investing in the new, even before they know exactly what that will become. Israeli companies understand that there is no point in just sending their folks to conferences, watching TED talks or taking futurism courses if you don’t commit seriously to R&D too. Changes in these proportions require time and consistency.
Brazil’s GDP is around 1,7 trillion USD – the 7th largest in the world = 1,15% of this is 20,38 billion dollars
Israel’s is 318,7 billion USD – 50ths largest in the world = 4,27% of this is 13,61 billion dollars
So yes, Brazil invests more than Israel in R&D. Why does this mini country have so many patents, companies listed in NASDAQ and Nobel prizes? What’s the catch?
2. HOW institutions invest matters more than HOW MUCH they put in.
From the first moment Israel started there already was talent density (Einstein, Freud.. to name a few). But then, it was a semi-socialist nation – filled with lots of governmental control, and no incentive to see this flourish. In the past 20 years, however, there was a serious change in the local policy to accelerate business interests. Even though its seen as Startup Nation, one of Israel’s greatest deeds, for example, is encouraging multinational companies to open branches in Israel – normally R&D posts. 9% of employment in Israel is in multinationals, 15% of production and 28% of exports.
Israel admits that the government doesn’t know what will be better for businesses, so it creates infrastructure for these entities to drive innovation according to their own interests. A leap of faith that is paying off. Even though government has to be responsible with taxpayer money, it doesn’t have to be conservative in doing so. The Israeli state chooses to be responsible by removing risk from their citizens, stimulating them to make better decisions and leveraging their potential.
A common fact is that your first startup probably will fail. But the odds of your second one closing shop, are smaller. If you think that Mobileye, acquired for $15.3 bilion dollars, was founded by first time entrepreneurs you are wrong. Practice doesn’t make perfect, but it does make traction. So my entrepreneur family, don’t be afraid to fail, because failure is the only way to grow entrepreneurial muscle. Instead of sharing inspirational books and trusting online advice, like this one, the government makes their citizens be able to financially afford to fail, via investment mechanisms that will not compromise so heavily the entrepreneurs life and personal assets in case of bankruptcy.
Also, Israel created a huge incentive for private money to be risked in Venture Capital. How?
The government has programs that offer to match private investments in companies. So if you’re want to fund a 1 million dollar program you probably will only need to invest 500k – and the rest could be matched by public grants (repayable only in case of success, via royalties). Good for the companies? Yes. And even better for the government, that is almost sure that what they are investing in will be marketable and will be aligned with the business interests – therefore generating future royalties. The criterias of eligibility considers projects in any sector, as long as its marketable and has a significant tech level.
Investing with chains, in specific sectors, generate more frustration than gain. Brazilians in venture capital can observe this by comparing the rate of public funded innovation that gets to the market and the low success rate of government backed venture capital funds.
Main Tech Venture Capital players in Israel
CREDIT: Blue Future Partners
3. It’s really all about putting together different people that share the same purpose.
Needless to say, I am dealing daily with bizarre cultural shocks. Israeli’s have the annoyingly crude Chutzpah, that doesn’t really work well with my Brazilian (maybe even more obnoxious) way of avoiding confrontation and never saying no. Just like Brazil, however, Israel is a country of immigrants from the most different upbringings. But here they share a similar purpose and had no choice if not stick together to fight opposing agendas – literally. Israel had no choice if not to invest in their people. The country trusts its citizens, that continuously risk their lives to stand up for Israel.
I suggest that our economically segregated Brazilian society must open our hearts and minds to the strength of a shared purpose. Brazilians, more similar than different, can also embrace the need for education and capacity building as our own weapon against the social conflicts we endure. We don’t have to be the same, and gladly we aren’t, we just have to exercise empathy in a higher level, to bring us together, if we have the hopes of changing our own violent and unforgiving security issues.