1. The Babson Entrepreneurship Ecosystem Project
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February 1, 2011
Start-Up Notions: The Real Roots of Israel’s Entrepreneurship Miracle
Daniel Isenberg, Babson Entrepreneurship Ecosystem Project
February 2, 2011
The 1990s were a revolutionary time in the Israeli economy. The government created Yozma, the
innovative venture capital vehicle structured by the Israeli government, saw an inrush of venture capital,
a wave of NASDAQ IPOs, and benefited from a surge in corporate technology acquisitions. Recent
accounts1 represent the period as a case study for governments looking to foster entrepreneurship. But
that story is so incomplete as to mislead policy makers. In fact, developments in the 1990s were only the
fruits of a process that been building for the previous four decades.
The real timeline:
1. 1950s. The seeds of Israel’s entrepreneurial revolution were sown in the late 1940s and 1950s.
Israel’s first (Weizmann) and fourth (Katzir) presidents were scientists. Both believed strongly in
the role of science in national defense and societal prosperity; in and of itself unique in the
world and a strong message about national priorities.2 The first military technology transfers
took place then, half a century before Mirabilis created ICQ, the first instant messaging system.
2. 1960s. R&D got a huge boost in the 1960s, in part from the sudden 1967 French weapons
embargo: military self-reliance became defense policy, leading to massive investments in
military R&D and the seeding of what would become an entrepreneurial hothouse, the
Intelligence Signal Corp (Unit 8200). In 1968 the Katchalski Committee recommended the
establishment of the Office of the Chief Scientist (OCS) to help fix market failures in
commercializing R&D.
3. 1970s. The early 1970s saw Israel’s first NASDAQ IPO (1972; by medical imaging pioneer,
Elscint), the embryonic involvement of top-tier US-based venture capital, and very significantly,
the establishment in Israel in 1974 of Intel’s first international R&D center. In 1977 the
influential BIRD foundation was created to fund technology-based product development
between Israeli and US companies.
4. 1980s. By the early 1980s there were numerous
top-tier VC investments, and by 1984 the NASDAQ
value of the first wave of a dozen Israeli tech
ventures was $780 million.3 In 1984 the
government passed the milestone Law for the
Encouragement of R&D. In 1985 the first limited
partnership venture capital fund, Athena Venture
Partners, was established with $23 million. In 1987
the cancellation of the Lavi fighter-plane megaproject flooded the market with thousands of
1
See Start-Up Nation: The Story of Israel’s Economic Miracle, by Dan Senor and Saul Singer
See Innovation and the State: Political Choice and Strategies for Growth in Israel, Taiwan, and Ireland, by Dan
Breznitz, Yale University Press, 2007
3
http://www.ahavat-israel.com/eretz/venture.php accessed 12/29/2010.
2
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revolution@babson.edu
+1 (781) 239-6290

2. The Babson Entrepreneurship Ecosystem Project
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engineers who swelled the ranks of startups. By 1989 I even had enough material for my speech
in Berlin at the European Venture Capital Association conference, “The History of Israeli’
Technological Entrepreneurship.”
You can’t write American history without Jefferson and Washington, yet the authors of Start-Up Nation
have done exactly that, overlooking founding fathers like Uzia Galil and Dan Tolkowsky. They’ve even
neglected the founding sons—people like Zohar Zisapel (founder of 29 IT firms) and Efi Arazi (founder of
Scitex). There are consequences to this revisionism. For example, by focusing on the 90s, policymakers
have neglected the parallel entrepreneurship ecosystem that preceded—and enabled—initiatives like
Yozma.
But it was this ecosystem that, by 1990, made Israel’s entrepreneurial revolution a fait accompli; so
much so that by 1997 there had been 68 NASDAQ IPOs—all before Yozma’s investments started bearing
fruit.
And in truth the massive Russian immigration of scientists and engineers has had little direct impact on
Israel’s entrepreneurial revolution—in the 90s most had no choice but to accept K-12 teaching or lowlevel service jobs; Israel’s vast incubator program, admirably privatized, has bred a relatively low
number of successful ventures; and Israel’s culture and institutions were anti-entrepreneurial until the
mid-1990s, with labor and the government owning huge portions of the economy, wealth being
scorned, and marginal tax rates discouraging extra work.
Israel’s entrepreneurial accomplishments have indeed been nothing short of miraculous. Since 1972,
over 160 Israeli ventures have been listed on NASDAQ, more than any other country outside of the U.S.
and Canada, and hundreds of tech ventures have been acquired. Tens, if not hundreds, of billions of
dollars of value have been created. The world benefits from Israeli innovations, such as the USB memory
stick, instant messaging and new generation cardiac stents, to name a few. The entrepreneurs who
created such novel products have disproportionately contributed to Israel’s growth. So it is only natural
for policy makers around the world to want to learn from Israel’s remarkable experience. But they will
only reach the right conclusions if they first get the history right.
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Daniel Isenberg is the founding Executive Director of the Babson Entrepreneurship Ecosystem Project and Professor
of Management Practice at Babson Global. Professor Isenberg has taught at Harvard, Columbia, INSEAD, Technion,
and Reykjavik. From 1987-2004 he lived in Israel and contributed to the entrepreneurial revolution there as an
entrepreneur, venture capitalist, consultant, and educator. A frequent Harvard Business Review contributor, in
June, 2010 Harvard Business Review featured Professor Isenberg’s “How to Start an Entrepreneurial Revolution” as
the “Big Idea” lead article. His popular blogs have appeared in Forbes, Huffington Post, Economist, and Harvard
Business Review Online.
________________________________________________________________________
revolution@babson.edu
+1 (781) 239-6290