Susana de la Puente: “Collaboration between universities, industry, the army, and the government is key in Israel’s start-up ecosystem.”
Currently residing in London, she is focused on identifying and financing “new economy” projects. In this interview, she discusses one of the most thriving ecosystems in the world.
How do you currently view the Israeli model?
This model is experiencing a moment of great strength and expansion. Despite the economic and health challenges posed by the COVID-19 pandemic, Israeli start-ups have continued to thrive, expand, and attract large international investors.
Furthermore, the government has maintained its strong commitment to promoting and supporting start-ups. A series of measures have been taken to incentivize innovation and development of new technologies in all sectors, especially defense and communication.
From the government’s perspective, there is a strong emphasis on promoting an entrepreneurial culture through early and lifelong education.
All of this has fostered a very favorable environment for entrepreneurial success in various disciplines, which has attracted significant capital from both the government and the private sector.
Its ecosystem is one of the most powerful and dynamic in the world. They are very well positioned to remain a leading and innovative player on the global technology scene.
Do you consider Israel an attractive market for investors?
Absolutely. It has always been and continues to be. Several unicorn companies (with a stock market valuation of over one billion dollars) have emerged from Israel, the country with the highest concentration of technological entrepreneurs in the world.
Many projects that are successful in other countries today were born thanks to Israeli technology. The same applies with Israel’s innovation and leadership in agricultural technology.
The number of new technology-based companies created annually in Israel is one of the highest in the world, a significant achievement considering the country’s small size.
Additionally, experienced Israeli companies are among the most successful and generate enormous profits. Their entrepreneurial culture and government support foster creativity and risk-taking, which is of great interest to investors seeking opportunities with high growth potential and higher risk (what we know as “growth investors”).
What do you believe is the key factor for Israeli start-ups’ success?
It is due to a combination of several factors. One of them is both public and private investment in research and development. It is worth noting that the government created its own venture capital firm, Yozma Group, to attract foreign investors and promote competition among the country’s technological start-ups.
Another fundamental aspect is their culture based on discipline, entrepreneurship, and lack of fear of failure.
Lastly, the identification and development of young talent play a very important role. In this regard, mandatory military service plays a crucial role because the training is not only military but also in other disciplines.
They have elite units that have direct contact with cutting-edge technologies and face real and complex problems.
How does the start-up funding model in Israel work?
Their business model relies on different sources of financing. One of the main sources are private investors, known as business angels, who contribute their own capital in exchange for equity participation in start-ups.
Israel also has a strong venture capital industry, where firms invest in the early development stages , providing funding and expertise to entrepreneurs.
Finally, the government has established programs for financial support and resources to promote their development. Additionally, strategic collaborations with established companies also play a key role, allowing start-ups to access additional capital, complementary resources, and growth opportunities.
What advantages and disadvantages do you think this financing model has?
On one hand, their vibrant ecosystem attracts innovators, creators, and entrepreneurs, generating a constant flow of “opportunities” for venture capital investors. On the other hand, incentives increase the availability of capital to finance different stages of the ecosystem.
Likewise, the almost religious focus on technology and innovation drives risk-taking and, as a result, the development of start-ups in key sectors for Israel.
It is a small country, but with great power and leadership in almost every field. As for challenges, we can mention the limited size of the local market, which forces companies to expand abroad. This poses a series of risks and challenges different from those of a purely domestic company.
There is also strong competition, which creates dynamism and better business practices but also increases the chances of individual failure and the consequent loss of motivation and capital.
However, it is part of the investment scheme: financing multiple projects knowing that only a few will be successful while the others will disappear. Furthermore, Israeli companies and entrepreneurs are highly sought after for strategic collaborations with established companies seeking innovation, new product development, adoption of new technologies, and expansion into new markets.
How has the Israeli government influenced the development of the start-up ecosystem?
It has contributed significantly through the formulation and implementation of policies and programs aimed at fostering entrepreneurship and creativity. For example, they established the Israel Innovation Authority, which provides economic resources and support to early-stage start-ups.
They have also promoted collaboration between the academic sector, industry, and the government to strengthen research and technological development. They have created tax incentives and favorable regulations to facilitate the creation and growth of innovative companies.
In summary, Israel has recognized the importance of the start-up sector as an engine of economic growth and has taken significant measures to enhance its proliferation.
What do you think other countries could learn from Israel’s start-up model?
A great deal. Firstly, investment in R&D, which has proven to be fundamental in the development of disruptive technologies. Then, strategic collaboration between the academic sector, industry, the military, and the government.
The synergy and good communication between these areas foster knowledge transfer, capital mobilization, and joint financing through support plans. Finally, the promotion of an environment that values entrepreneurship, creativity, and a willingness to take risks.
In addition to Israel, are there any other countries you would highlight for their start-up market?
Yes, certainly. The United States, for example, is globally recognized for its prominent role in the start-up field. Along with India, it is among the leading countries in the number of start-ups.
However, the United States stands out significantly in terms of capital flow into this sector. It has a large number of private equity management companies that raise trillions of dollars to invest in start-ups, in addition to having the largest capital market in the world.
There are also European countries such as the United Kingdom and Germany that have established themselves as important start-up hubs on the continent. China, Japan, and Singapore also have a strong presence in the sector.
In Latin America, Chile and Mexico are at the forefront. Ultimately, the success of start-ups is not limited to a single nation or geographical area but transcends borders, establishing a global exchange and flow of business and capital. Talent and innovation, timeless in their essence, know no boundaries, and we will continue to witness constant evolution and accelerated growth in this field.