Lessons from Israel - the State-up Nation
November 11 through 17, I joined a delegation from South Carolina industry, hospitals, and entrepreneurial companies from the South Carolina-Israel Collaboration on a trip to visit Israeli peers. With more start-up companies than any other country on earth, Israel is the “Start-up Nation.” The question I explored on the trip is, “Why does the Israeli culture so consistently breed successful entrepreneurs?"
Israel as a nation is a start-up. Tel Aviv, the country's financial capital and major performing arts and business center, was founded in 1909. The population rose dramatically when the Nazis came to power in German and Jews fled Europe. With the end of the British Mandate in Palestine, David Ben Gurion announced the creation of the State of Israel on 14 May 1948 in Tel Aviv.
The circumstances of Israel’s birth run deep in the Israeli psyche. At the end-of-the-day, there is a fierce independence in Israeli’s that they have to take care of themselves. Most successful entrepreneurs also have a fierce independence streak.
Military service in Israel is compulsory for all Jews. The competition to enter the most elite military units is intense. Once you make the cut, you receive not only world-class training but build relationships with others in the country’s elite that last a lifetime. The US military is designed for a very different mission and therefore has a very different structure. The top heavy US military can manage the logistics of delivering overwhelming force half way round the world to the deserts of Iraq or the mountain tops of Afghanistan. Soldiers in the Israeli military live on a trip wire and are taught to be intuitive leaders. After a young tank commander learns to makes decisions on which the fate of the nation depends, starting a company seems much less intimidating than it does in other parts of the world.
Israel has an inevitable culture of education. The Israeli population is about the same as North Carolina, which has three strong research universities in UNC Chapel Hill, Duke and NC State. Israel has three research universities of that quality, and five more to go along with them. My question about what accounts for this culture of education was answered with another question, “What Jewish mother doesn’t want her son to go to college, and most likely to medical school?”
The most tangible thing I saw which we can implement in South Carolina is an incredible technology company incubator. In the 1990s after the fall of the Soviet Union, 750,000 Russian Jews emmigrated to Israel. In the US, we endlessly debate immigration policy and make it difficult for educated people to build their career here. Israel is the place of last resort for Jews, and if you are Jewish you become an Israeli citizen when your feet hit the ground.
The country didn’t have jobs for hundreds of thousands of new citizens, so the government created a system of 24 incubators to teach them to start companies. These incubators are supervised by the Office of the Chief Scientist, which is an economic development agency. The incubators have become an essential part of the infrastructure supporting the “Start-up Nation.”
We visited the Misgav incubator which is managed by a private company, The Trendlines Group. The company licenses Misgav and one other incubator from Office of the Chief Scientist. Trendlines doesn’t sit back and only invest in the deal flow of companies in Israel, rather it proactively creates companies that become the deal flow in Israel. Initially the Office the Chief Scientist provides $550,000 working capital loans to start-up companies that pass muster, much like the $200,000 SC Launch loans in SC.
Trendlines co-invests $100,000 of equity in the company along with the government loan. Trendlines has a deep and experienced management team itself, and over three years will deliver start-up services to portfolio companies that may be 2 ½ times the initial $650,000 capital in the company. These services, especially focused on business development, position portfolio companies well to attract later rounds of capital. To provide the working capital to support its extensive team, Trendlines itself raised $17 million of its own capital, and is currently in the middle of a $20 million investment round.
As is usually true with these types of trips, what I learned on the bus talking to folks at home is as important as what I learned in in the community visited. Several people on the bus were endowed chairs in the SmartState program. I had several conversations about how we could work with these preeminent scholars to create companies around their research. There are 35 SmartState endowed chairs in South Carolina, and we have only begun to tap the potential to create high-impact companies with them.
I came home from Israel inspired by The Trendlines Group and the incubators they manage, and even more important by the depth of world-class we can build around in South Carolina. Perhaps the time has arrived to create a similar company in South Carolina to create high-impact companies with the SmartState endowed chairs and other world-class people in the state. I can think of nothing more valuable and exciting to do with the next stage of my career, so I’m going to give it my best shot. Compared to defending your country from an enemy who wants to drive you into the sea, starting companies successfully is a piece of cake. Stay tuned.