Israel, The Startup Nation

If you spent some time observing OCV internal discussions and calls, you’ll start to hear a foreign term with a positive ring used frequently.

Sababa!

Sa-ba-ba/: is Israeli slang meaning “great or cool, no problem” and expresses enthusiasm and satisfaction.

So how did a team composed of members with diverse roots hailing thousands of miles outside of Israel adopt this Israeli term out here in Los Angeles? The straightforward answer is our managing partner, Hemi Zucker*, brought it from Israel and introduced the term to our team over years of working together. The macro big picture view is that Israel is a technological and entrepreneurial powerhouse with worldwide diaspora, so relocation diffusion shouldn’t be any surprise.  

Parallels Between Israel, Silicon Valley, and VC

Silicon Valley has long reigned as the premier destination for startups, innovation, and venture investment. I lived there for 7 memorable and formative years, it’s easy to recognize all the attributes that everyone commonly touts:

• Access to top tier universities – Berkeley (Go Bears!) and Stanford as obvious standouts
• Entrepreneur ecosystem – VCs that can seed new endeavors and Corporates that act as training grounds for talent as well as partners and customers
• Dense geography – allows for new idea diffusion at high velocity, working hand in hand with the prior point
• Standard of living – areas like San Mateo and Santa Clara county used to largely be unpopulated agricultural land and considered affordable, although these areas aren’t considered affordable anymore, Silicon Valley is still a great location with easy access to amenities, mountains, ocean, parks, etc.  

Israel has these first 4 qualities by a comfortable margin. Great schools, supportive tech ecosystem, density, and great cities.

However, less frequently discussed are the next few points, which are arguably bigger drivers of tech industry success in Silicon Valley:

• Government investment – initiatives in the US like the Small Business Administration (SBA) and favorable capital gains tax reforms encouraged venture capital investment and allowed for more institutional dollars to flow into industry respectively
• Military catalyst – Silicon Valley’s early growth in the 1950s and ’60s came largely through Cold War defense spending, well before venture capital developed as an industry
• Culture of innovation – Silicon Valley has a generally positive view of entrepreneurial risk taking, idolization of founders, and “disruption” being cool

How does Israel compare?

Israel’s Government Investment

From 1993 to 1998, the Israeli government put in place a program called Yozma.

Yoz-ma/: is a Hebrew term meaning initiative

Yozma was in fact a government initiative to attract private investment in the tech sector, therefore encouraging domestic research and development. The government effectively offered to match 40 cents on the dollar for investments raised from private investors in venture. These VC funds would take that capital in turn and invest in dozens of startup companies. The Yozma initiative was a huge pull for foreign-based venture capital firms to setup shop in Israel. In fact, more than 30 firms took advantage of this government incentive. In less than a decade, Israel managed to seed and develop a self-sustaining VC ecosystem that has grown to the global force that it is today.

Israel’s Military Catalyst

In Israel, citizens are required to serve in the military, Israeli Defense Force (IDF), for at least two years starting at the age of 18. Military service is a rite of passage for most young Israelis — it builds character, patriotism, as well as life skills. The IDF is divided into different units that focus on specializations and training. For example, the famed Unit 8200 (part of the Israeli Intelligence force) focuses on code decryption, counterintelligence, cyberwarfare, and surveillance. This has served as a strong foundation for Unit 8200 alums who have launched several successful cybersecurity unicorns. The same is true for IDF alumnus broadly, who in the process of serving their country often develop critical startup skills and experience before they start working in the private sector.

Israel’s Culture of Innovation

There’s another term used in Israel called chutzpah

Huts-puh/: is a Hebrew term meaning supreme self-confidence, nerve, or gall – it’s also a special grit that is a frequent superpower we see all too often in top entrepreneurs

It definitely requires chutzpah to build a business for customers halfway across the globe in a different culture and language. That’s what we repeatedly saw in our tremendous portfolio companies founders at Orca AI, Ossio, Lexense, and SafeBreach.  

OCV’s Investment in Israel

We view Israel as a unique and talent rich geography. In our fund I, about a quarter of invested capital went to companies founded in Israel. We are able to identify and attract Israeli founders through our team’s prior operating experience in the country and proprietary sourcing network. Founders seek our ability to advise on entering the US market, find product / market fit with US customers, and ultimately support a global corporate vision. OCV will continue to invest in Israeli startups and we believe Israel will continue to have outsized impact in the industries of venture and technology going forward.

Sababa!

5 Israel Fun Facts – Did You Know?

1. Israel is a top 5 global tech ecosystem measured by capital investment dollars. 
2. Israel is roughly equivalent to the state of New Jersey in terms of land mass and population.**
3. In the public markets there are nearly 100 Israeli-founded companies that trade on U.S. stock exchanges (primarily NASDAQ) and the composition heavily skews towards Technology (followed by Healthcare) companies.
4. When ranking foreign universities by number of unicorn founders in alumni base – Israeli universities represent 3 out of the top 5
5. In 2021, Israel ranked comfortably as the country with the highest number of new unicorns per capita at 5.2 per one million residents – far ahead of Singapore (1.8), the U.S (1.0) and Canada (0.4).

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About the Author:

Andy is a Vice President at OCV focused on software and tech investments. Prior to joining OCV, Andy worked as an operator at startups like Addepar and also covered software clients as a technology investment banker at Morgan Stanley. Andy has never visited Israel, but is excited to go for his first trip later this year.

Footnotes:

*Hemi is a Managing Partner at OCV. Before joining OCV, Hemi was CEO & Co-founder of J2 Global (1996-2017), which he grew to a global conglomerate and took public in 1999. Hemi is a native Israeli who first immigrated to the US in 1994. Hemi served in the Israeli Intelligence during his 3 year army service, then studied at Tel-Aviv university (number 1 in producing Israeli Unicorns) and worked for Motorola in Israel and the US. He and his children are serial entrepreneurs 😊

**Our Partner, Chris, can confirm as a New Jersey native who also spent a month in Israel as a visiting scholar at the Weizmann Institute of Science!