A big spread on Israeli startups and Venture Capital by Tobias Buck was published in the FT this morning , showcases what made Israel the startup nation, and what are the challenges ahead.
The good news – the Israeli startup nation is strong and kicking. In the first half of 2011, over $1 billion of VC funding was raised in Israel (according to IVC). This reflects an increase of 82% compared to the first half of 2010. The number of companies receiving funding was the highest in five years. In addition, we’ve witnessed several large exits this year: MediaMind was sold to a US competitor for $517 million and Dotomi sold for $275 million to another US firm.
Yet not all is rosy. The big risk for the industry is the availability of funding, as Israeli VC funds dry up. Other tensions to the sustainability of the startup nation are the creaking education system and the macro economic concerns over European and American sovereign debt, which could further limit the foreign investment in Israel.
That said, the forces that made Israel the startup nation (as detailed in the article) are still going strong. I really liked the quote by Erel Margalit, the founding partner at Jerusalem Venture Partners (JVP):
“People misread Israel’s competitive advantage,” he says. “Israel’s competitive advantage is not technology, it is creativity.”