It may seem impressive that Israel boasts nearly 50 times the number of unicorns than the European Union, despite having a smaller population. Although it may seem strange to suggest that this gap could grow, It is true, however.
The tech ecosystem functions like a flywheel. Funds flood into the ecosystem when founders sell their companies or go public. First, liquidity is injected by investors.
The second effect is the formation of new investors. The idea that newly wealthy founders and employees first purchase a home before investing in startups is true. Third, those with a track record of innovation are more likely to receive venture capital. This is a halo effect as well as a positive impact on the economy.
These are the same things that happened to early employees at companies such as Google, Uber, and Twitter who went on to become founders or investors. It is also happening in Israel where employees are often more convinced than their founders that they can achieve greater success.
Being employee No. Being employee No. 10 at an Israeli success story such as Monday.com or SentinelOne can be akin to being employee no. 15 at Uber and Instagram: These companies might offer a smaller halo, but not less. These employees-turned-founders have skills and backgrounds sought by investors. Sometimes, Israeli chutzpah is enough to do the rest.
Israel has 100 privately owned unicorn companies, almost all in technology, that are valued at $1 billion or more. Compare this to Europe which has a larger population and only 125 unicorns. It's a remarkable success story that begs for explanation.
Because of its past successes, Europe's business culture is more cautious than Israel's. It is possible to make a living in many parts of the EU. In Israel, however, where there are less established economies, it was easier to venture into tech entrepreneurship.
This paradigm was perfect for a scrappy society, which has never experienced true peace and is largely made up of immigrants and their children. This is an origin story that breeds adventure, as well as its cousins innovation and entrepreneurship. You can add to this the technological advancements of the military and security industry, both a result from wars, as well as mass emigrations from the post-arms race Soviet Union.
Add the COVID factor to make it even more interesting. Israel emerged from the pandemic stronger than expected due to its early investment in vaccines and the fact it had a well-suited outside tech sector, which accounts for about a tenth the workforce. During this period, Israel also gathered significant VC funds.
It is happening at the right moment. Israeli companies are already proving to be a major player in cyber, fintech, SaaS and cyber. They also have great potential in verticals such as food tech, space tech, and vaccines.
Here's the bad news: Israel may face a major roadblock to realizing its potential.
It would seem that Israel has the necessary infrastructure to supply workers for its industry. This data shows Israel has 135 engineers and scientists for every 10,000 people, which is more than any other country. However, it's not enough to meet the growing demands of the tech sector.
According to the 2020 High-Tech Human Capital Report by the Israel Innovation Authority, and Start-Up Nation Central, 60% of tech companies were struggling to find workers. There were also 13,000 open tech jobs in the country. Recent studies have shown that there is a chronic shortage of engineers. September saw 14,000 vacancies.
This shortage of labor is making Israeli engineers more expensive than their counterparts from most other countries. This trend is not good for Startup Nation's special sauce, which is why many employers are outsourcing work to countries such as Ukraine and Romania.
Others are also moving in the wrong directions. International test scores for Israeli students in science, math and reading are falling compared to other countries. This is mainly due to massive political dysfunction. Successive governments have allowed the growth of ultra-religious schools, which often don't even teach math.
This is related to the larger issue of the extraordinary expansion of ultra-Orthodox, where half of the men study religion full-time (and most of them toil in a vast religious services bureaucracy), and half of the women dedicate their lives to raising seven or more children. The Israeli Arab sector, which is historically underprivileged and poorly funded, does not take part in the tech economy. It lives with high rates of crime and is another example.
An obvious solution would be to encourage ultraorthodox Jews and Israeli Arabs integration into Israel. The underfunding of Israeli Arab schools and towns must stop (a process that began with baby steps this past year with an Arab party joining a new coalition), and the government should order police to clamp down on the rampant criminality within the sector. Schools that don't teach science or math should not be funded. This is one of the many steps required to integrate ultra-Orthodox.
The Israeli government should take the initiative by forming public-private partnerships. This is the same approach that has in the past allowed for promising startups to be incubated and funded. It would also help improve the education system. Accelerating the economy is the goal. Israel must approach education with the same enthusiasm it used to deal with its enemies or the Iron Dome.
There are many possibilities, including improving STEM education, particularly in the peripheral; improving teacher pay; limiting how aggressively can parents intervene; encouraging outside programs such as Fullstack Academy or other coding academies in Israel to open schools; and working with tech giants Wix to further develop Silicon Valley-style campus that nurture local talent.
Teaching programming and coding to students could be a way to get them started earlier. This would allow units of the military to recruit from new populations and create new tech workers.
This is not an easy task, but it will be difficult. However, complacency can lead to high costs. It is better to do nothing than hope for the best. It would waste a tremendous gift that inscrutable fates have somehow bestowed on the Jewish state.
