Israel Technology Generations - IVA

A few weeks ago I was asked to give a keynote at a venture capitalists conference in Israel. Given I was never funded by any Israeli VC I thought the honor was worth the afternoon . For the sake of full disclosure, one of the best local VCs – Yaffa formerly from Star Ventures - did want to invest and we just couldn’t get it done due to some technicality (She did introduce me to her brother in law, Leo Apotheker, and years later we ended up being co-presidents at SAP for a great couple of years). In any case, I wanted to share with you this presentation, as a broader vision for what I believe the next wave of Israeli technology and investments should become.

For those who are not familiar with Israel, the country is now entering its 60th year, which I divide into three generations, roughly 20 years in length each. If you add to these 60 years the generation that preceded the formation of an independent state in 1948 as “Generation 0” we get four very different set of periods, different drivers and, interestingly enough, very different technology industry in each.

Generation 0 was all focused on the creation of an independent state – and so the technologically minded folks (most educated at the Technion and Weizman Instititute) were all working on establishing the primary tools a state would need. The best evidence as to the importance of science on the this generation was the selection of a scientist, Chaim Weizman, as the first president of Israel (Einstein rejected an offer to become president later).

As the state achieved independence and was thrown into a battle for life, Generation I focused most of their efforts on survival of the state. A single galvanizing vision of survival sent every tech savvy youngster into science. The defense forces together with the universities served to assimilate the waves of immigrants into society and acquired knowledge became the equalizer in this nascent society.

My father, who immigrated from Iraq after the state achieved independence, became a communication officer in the army (where he met my mother, an immigrant from Morocco who served as a wireless communicator, for which I am thankful to this day). The army paid for him to get a bachelor’s degree, and he signed up to become a career officer – that was the deal, we educate you, and you serve the state for life (well for 16 years…). His first job out of college in 1972– build a wireless network across the Sinai peninsula. The same network served to defend the state and lasted the entire war in 1973. I was born as he started his university years in the Technion and returned to the same school a few years later to get my own bachelors degree in the same house my parents rented.

Somewhere after the six day war, or at the 1973 war, a new generation of Israeli technology emerged. The new companies took a lot of the knowledge the military developed for defense purposes and started exporting it to other countries through 10 or so large hi-tech companies. Generation II was asked to grow an export economy, and improve the Israeli economy. As the state started feeling more secure about survival, growth was the top requirement for a country that found its way into the global economy, at first with military oriented companies like Tadiran and Elbit, who branched out to civilian technologies as well, but later on with purely civilian giants like Scitex, and Daisy. Generation II had very few business leaders, some of them coming from Gen I companies (lik Uzia Galil) others representing the new Israeli Entrepreneur – like Efi Arazi.

My father, who retired from military service in 1981, transitioned just like the state from communication officer to exporting communication equipment in south America, first for Tadiran later for Elbit. I watched him go from military service into business and got exposed to the American culture and to my first Apple II computer in the American high school of buenos Aires.

Generation III started to emerge somewhere in the late 80s, and took shape in the happy days of the 90s internet bubble. It was a generation of individual risk takers, young, aggressive, techno-geeks. Some of the more successful members of the club are the Checkpoint founders - Gil Shwed, Shlomo Kramer (we both went to the same elementary school, he was one year ahead of me), The Chromatis guys, Mercury’s Arie Feingold (of Daisy fame) and Amnon Landan, Yossi Vardi and the ICQ boys, and so many others.

In my own family journey, after being part of a less than stellar startup in educational software, I decide to start a new company, and convince my dad to do the unthinkable – leave the security of a technology giant to the uncharted water of a 1989 startup - Quicksoft. That company spawned 3 more startups we both shared, two of those sold later to SAP, and one still runs to this day as Adobe’s distributor in Israel. That small startup  we started in my parents basement, grew after many acquisitions and changes to be SAP lab in Israel which hosts almost 1,000 engineers who write software for companies around the world.

Generation III was catalyzed by two actions taken by the Israeli government – in particular one person in the public Sector – Yigal Erlich – at first the chief scientist of Israel, who granted many startups, including Quicksoft the funds that made the difference between closing the doors and exporting software. Yigal then started "Yozma" a fund of funds – where he co-invested the state together with 7 international VC funds, and created the VC industry in Israel investing well over $2B a year in the state - making Israel the second most exciting region for high tech innovation after the silicon valley, my adopted home for the last 12 years. As an observer in both worlds, with the luxury to travel back and forth (well, most of the years, I traveled without luxury in coach…) I can see how Israel evolved along the same patterns as the bay area, with a very slight phase delay between the two centers of technological gravity.

It is common to ask in Israel, “ how come there is not one Nokia in all these startups?”. Israel did not grow a Microsoft, a Google, or an SAP out of all these great startups. The most successful got acquired early, and the ones who stood on their on, like CheckPoint remained leaders in their market, but the market did not become a giant market like cell phones or search. The two biggest technology companies in Israel are Teva and Iscar – one leads the world in generic drugs, the other makes carbide cutters that serve every metal cutting industry in the world. Both of these are considered giants in Israeli terms, both need lots of technology, but none of them is as sexy as Nokia, or Google. I keep asking myself whether Israel needs a Nokia?

 
So, if Gen 0 was about getting a state, Gen I was all about survival, Gen II was the organized export era, and Gen III is the generation of individual stars...

• What will make Generation IV, the one starting roughly arond now, a better one than previous generations?
• What are the challenges and where is the path to growth, and dare I say greatness for Israel?
• With the emergence of two Asian giants in China and India, with their infinite talent pool, and equally infinite markets, what is Israel to do to stay relevant, virant and growing?
• Which technology will fuel this growth?

More in the next few posts.

Comments

[Padmanabha Rao]

Ordinarily the next move ought to be Training/Consultancy...to those very two giants on the horizon who between them have scores of socio, econo, techno problems.

Israel doesn't need alternative energy sci/tech right now but China and India do. They need also better financial systems.

I think Israel should engage heavily with the the Non-America world, especially those countries that offer ripe opportunities for action/knowledge that Israel can readily deliver.

Engaging with China and/or India could also yield security benefits to Israel, I think.

If Gen-III was of the Individual, it follows that the next generation would be the missionaries, diplomats and globetrotters.

Regards,
an Indian

[Miriam Schwab]

Very interesting overview of the progression of the generations. I have one problem with your final questions - you ask how the upcoming generation can be better than previous generations. I'm not sure how you can ask that - the previous generations were self-sacrificing and built up this country against all odds and made it what it is today. It is on the foundations of what they built that we can even think of success and "individual stardom."

Anyways, a generation built on the essence of "me" rather than "us" is less likely to succeed on a grand scale. They may be able to build cute little start ups in Tel Aviv, but could they build a whole country? Or, from a purely business perspective, could they build corporations like Iscar and Teva? Does the current generation have the strength, resolve and most importantly, sense of community that pushed the founders to succeed?

I think that maybe the question should be instead: How can this generation match the accomplishments of the previous generations?

[Gadi Shamia]

Loved your recent post- great analysis of Israel over the years. In my humble opinion, most of the success of the previous generations' start ups was based on very healthy intuition, endless creativity and the ability to turn on a dime- all common traits of the Israeli high tech culture. Generation IV must rely on all these traits but add a programmatic approach to the way markets and products are analyzed, moving away from the "build first, find winning scenario later" to a deep knowledge of the relevant markets, constant market research and customer validation. By developing the arts of product management and product marketing in Israel, the high tech industry can gain a competitive advantage over many of the emerging powers that are mainly used as outsourcing sites, hence developing their technical skills but not the product marketing skills.

[Eric Snyder]

Dear Sir,

How interested are you in alternative energy. I know a man who can solve the emission problem and all the auto part companies now it.

[Eric SNyder]

Cannot believe I used now instead of Know. My apologies.

[Oudi Antebi]

Very interesting post. Looking at what is going on in Israel, it seems as if instead of moving to a whole new concept for Gen IV we actually might realize that Gen II is coming back. In many ways it feels as if Israel and Israelis are somewhat in a Déjà-vu feeling of “survival mode”. Most of it is due to the instability in the region with the recent Lebanon war, the potential nuclear threat from Iran and the Palestinian issues. So in many ways Israel is currently in a “Mini Gen I”.So the survival mode feeling might have a deep impact on the evolution and shape out of Gen IV. If the natural evolution in the Tech industry is influenced by other factors in the country,such as "survival mode", we will be seeing once again a move similar to the one from Gen I to Gen II -which means Gen IV will be all about an organized and orchestrated mode where you will see big initiatives driven around big ideas as opposed to individual stars.

[Rick Bullotta]

An interesting question to study would also be whether there were substantially more factors at work in the "big break" startups than just technology, and whether or not there are cultural affinities or behaviors that nurture and encourage different thinking on the "business" side of the fence, not just the technology...I think that in the end, there needs to be confluence of these and other factors (consumerism, great timing, real value) to empower the "next big thing".

Rick

[Eric Snyder]

The next big thing is zero emissions. I have seen the product. It also increases MPG 40% across the board.

It works simply. All of the "bad stuff" that comes out of an exhaust pipe is broken down into their original elemental form and therefore no longer toxic.

There is much to the story.