These locations pride themselves on their start-up ecosystems, networks consisting of many technology-based companies in the same area e.g. Silicon round-about in east London. Of course, the ecosystem extends further than just the tech companies themselves and includes the local universities, service provider organizations, funding & research organizations as well as all surrounding businesses that contribute to the environment. The goal of the ecosystem, in simple terms, is to create the ideal environment for companies to co-exist in order to fuel creativity and innovation.
It may come as a surprise to learn that it is Israel’s technology hub, based in Tel Aviv and often referred to as Silicon Wadi, that is fast becoming the go to example of a perfectly functioning start-up ecosystem. So, what exactly is it about Silicon Wadi’s ecosystem that has earned it this reputation and what can London learn from this coastal plain of Israel?
In 1996, a group of five friends created a cross-platform messenger and VoIP client named ICQ. Little did they know that the founding company, Mirabilis, would go on to be acquired by AOL for an initial $287 million just two years later. This deal can be looked upon as Silicon Wadi’s big bang or origin story. Suddenly, an entire generation of Israelis dreamt of start-up success and thanks to ICQ, there was more than enough of a reason to dream big and better still, a clear pathway to follow.
This moment transformed the fate of the Tel Aviv start-up scene and has ultimately led to the thriving start-up ecosystem we see today. Since then, Tel Aviv has witnessed Google acquire Waze, a navigation and traffic app, for $1.3 billion in 2013 and Intel buy out Mobileye, an autonomous-driving start-up, for $15.3 billion, amongst a host other landmark deals. The success of Israeli start-ups is reflected in the fact that Papaya Global, an automated global payroll system head-quartered in Tel Aviv, was able to raise $45 million dollars in its Series A funding round from partners and investors in 2019, far more than the majority of start-ups based in Europe do in a Series A.
There is a reason why the word ecosystem is used to in relation to an area that is home to so many start-ups. The word itself can be defined as a complex biological community of interacting organisms. Over time, these organisms become so interconnected that they each have a place and purpose. In essence, the perfect ecosystem is one which consists of a large number of things working symbiotically for the good of the system as a whole, because without this, it would be the individuals that ultimately suffer.
When it comes to Tel Aviv’s start-up scene, it is this particular element thy should be most proud of and what London can the learn the most from. While education, talent, capital, and overall standard of living are crucial to a start-up scene developing, there is always an additional factor that needs to exist. It is one which is harder to measure and equally as hard to produce, no matter how many cheques are signed or ping pong tables installed. Luckily, it is something which Tel Aviv has in abundance: a culture of innovation, an environment which fosters creativity, a network of people & their ideas naturally colliding as they make their way through the world on a daily basis. This is not something you can artificially create or manufacture and it is next to impossible to replicate by simply referring to the area as a hub or making sure to stock up on organic orange juice in the break room. Culture by its very nature, much like an ecosystem, is something that takes time to grow.
For those familiar with both the Tel-Aviv and London start-up scenes, one of the aspects of the former’s that the latter is envious of, is that it actually lives up to notion that a scene should be a close-knit community. Despite being competitors, the people within Silicon Wadi interact, they offer support to one another and more often than not, they collaborate. In a small country, with a relatively small commercial capital (Tel Aviv has a population of 1 million compared to London’s 9). At such close quarters, they can’t help but mingle, and have learnt early on that it is beneficially to all if this co-existence is of a co-operative nature. It is an ecosystem in which all parties have the ability to approach one another on a level playing field, whereas in London, there is an innate tendency to not reveal too much to those in competition with you, a natural divide or hierarchy that those at the top wish to remain.
Two possible explanations for this are the countries’ school and military systems. Israel ranks as the third most educated country in the world with over 50% of adults having received tertiary education. This means that a large proportion of people start work with the same level of education.
The standard of living and the fact that everything is already in place for University graduates to succeed means that the start-up scene does not lose its most prized talent to other countries. The community feel of the society has resulted in individuals seeing themselves as having a place within it and therefore wanting to stay in order to help it prosper.
In addition, the mandatory army service in Israel brings people from all backgrounds together in one location to learn how to work as a single unit. The skills learnt during this period, as well as the friendships forged, translate to society upon completion and when entering the workforce, further adding to an already egalitarian society. It is likely this feeling of unity and solidarity, developed in the army, that has helped shape their relationship with failure.
The military’s intelligence unit 8200 in particular has become a hothouse for cybersecurity with many graduates of this unit going on to form stellar cybertech start-ups upon their release.
In Israel, the approach to failure is much different than in London where it is often viewed as an entirely negative experience, even bordering on the taboo when it comes to starting a business. In Tel Aviv they have a more reflective take on failure, seeing it as an opportunity to learn from and improve upon rather than one to shy away from.
If a company or country wants to create a culture of innovation, the people within this culture need to feel like they can make mistakes without it meaning that their ventures will be instantly cut short. In order to create something new, you need to feel safe enough to take risks, all the while knowing that there is a support system in place if things don’t exactly go to plan.
This culture of innovation is the special ingredient and what the London scene will need to focus on if it wants to deliver more high quality start-ups, but don’t think that Israel has forgotten about the other important factors.
We have already seen how the level of education and ‘soft’ cultural factors have helped the start-up scene but what about when it comes to capital? Thanks to Tel Aviv’s hard-earned reputation for producing high value start-ups, attracting investors has not proved a difficult task. The Israeli government has also more than played their part, with 4.9528% of the country’s total GDP spent on research and development in 2018. The government has also led the introduction of an innovative VISA program, which allows foreign entrepreneurs to enter the ecosystem once sponsored by the company they are employed for.
So when it boils down to it, Tel Aviv has become the technology superpower it is today not because of a focus on one particular element, but through a combination of all the ingredients that are necessary for a successful start-up city to function at its optimal level. With the cornerstone factors of talent, capital and quality of life all in place, Silicon Wadi and the surrounding areas have all been able to develop naturally, with the Israeli entrepreneurial spirit the thirst for innovation that comes with it leading the way.
The location itself is one that continues to surprise visitors upon their arrival. It is of course a rare site to see a thriving tech hub, a bustling nightlife scene and incredible entertainment and sports complexes so close to the number golden beaches that the Tel Aviv coastline is home to. In addition, the local weather is generally ideal for sunbathing and swimming conditions meaning that you are never stuck for something to do either before or after work.
These three key elements, along with the other ‘soft’ cultural factors aforementioned in this article have helped create the innovative spirit or energy that encompasses the city, which has in turn attracted an incredible number of companies from global markets to settle in Silicon Wadi. So while London is in a position to create a similar environment, it is perhaps time for those at the top of their ecosystem to truly realise the importance of all of the elements that go into fuelling the creative process on a start-up city-wide scale.
If you’re going to put your product in beta – put your business model in beta with it.