The low-down Hide
The Global Startup Ecosystem Index ranks the power, value, and success of startup scenes across the world. It’s the most comprehensive of its kind, indexing 1000 cities across 100 countries.
The 2022 report is out, and it’s not hard to take a guess at the winner.
It’s America, and home to 267 out of the top 1000 cities indexed, it boasts almost 30% of the most successful startup cities in the world.
The UK has sat comfortably at number 2 for four years. Again… no surprises there.
If you were hoping Australia might be a contender for the number 3 spot, you’re in for a bit of a disappointment. 2021 saw Australia slide down the Global Startup Ecosystem Index from 5th place to 7th place to 9th, over 3 years. This year it’s sitting at 8th, so a slight recovery. Around us, the Asia Pacific region is nipping at our heels, with New Zealand jumping from 33rd to 30th this year and Indonesia from 45th to 38th.
In 2021, the outlook for our cities was grim. Brisbane and Perth took a nosedive of 34 and 39 places respectively, down to 112th and 175th. Maybe now it can be an uphill road ahead, with Brisbane climbing back up to 101st place and Perth 165th. The same fate might not be certain for Melbourne, bumping down from 39th to 42nd.
On the plus side, Sydney only slipped from 36th to 38th. Every cloud…?
The 3rd best place in the world for startups
So we know the runner up to the formidable US and UK innovation systems is not us. It’s not China, Japan, Germany, or Canada either (although Canada sits contentedly at 4th place). It’s a tiny Middle Eastern country of 9 million people and just 8,000 square miles of domestic land: Israel.
The US is fuelled by the capital pumping engines of Wall Street, San Francisco, and Silicon Valley. London led the world in the industrial revolution. But what is Israel, with a capital city population of less than 500,000 people, doing that Australia can’t?
Israel has another coveted bronze medal in its cabinet: it’s in 3rd place globally for number of companies in the NASDAQ (following the United States and China). But in terms of startups per capita, it wins the gold. Israel is the most prolific in the world relative to its population, churning out approximately 1 startup per 1400 people.
Israel’s astonishing rate of innovation starts to make more sense when you delve into the environmental factors that have slowly yet suddenly positioned it on the world stage.
1. Everyone has to complete national service
All able-bodied Jewish Israeli citizens, both men and women, must enter the Israeli Defense Forces (IDF) when they are 18 for between two and three years. The grounding in both leadership and operation of advanced technologies has been cited by more than one Israeli CEO as the backing behind their success.
2. Israel has no natural resources
Australia has long been propped up by the backbone of our mining industry. Without this to fall back on, Israel had to use its brains rather than its brawn. And innovative intelligence is infinite… unlike the natural materials the Australian economy relies on
3. Tech education is world-class
Each year, 500 exceptional teenage Israeli coders and hackers hone their skills in the Magshimim (meaning ‘foundation’) after-school program. Unlike many of the world’s exclusionary first-rate educators, Magshimim is state-funded, and actively targets gifted kids from poor regions. They don’t need perfect grades across irrelevant subjects – they need to show out-of-the-box thinking. As a result, the nation’s most talented potential innovators are not spurned, lost, or wasted through a lack of wealth, privilege, or connection.
The three-year programme lines them up as candidates for the country’s elite cyber-intelligence agency, Unit 8200. But not all go on to become cyber spies. Unit 8200 alumni include the founders of NICE Systems, Waze, Wix, and Cyber Ark.
For those who do graduate to Unit 8200, the training provided is said to be “the equivalent of Harvard, Princeton and Yale”. But perhaps even more importantly…
4. Tech transfer is on point
Military, academia, and commerciality are uniquely blended in Israeli institutions rather than siloed, giving Israel a huge knowledge commercialisation edge.
This could not be more crucial than in the global cybersecurity space, in which the mixing of inventive genius with business brilliance is indispensable. Unperturbed (and in fact bolstered) by the COVID-19 pandemic and the work-from-home revolution, the industry is offering lucrative opportunities to those capable of addressing it, having risen from USD $71 billion in 2014 to USD $126 billion in 2020, with predictions to hit USD $207 billion by 2024.
5. Companies benefit from government coffers
The Israel Innovation Authority exists to fund broad R&D, support programs for entrepreneurs, and 22 tech incubators across the country which allocate up to USD $2.47 million for each startup. Many other funds, grants, wage subsidies, corporate and IP-related tax incentives, and accelerator/incubator programs are available through the Israeli Ministry of Economy and Industry, and the Israel Export Institute.
The government dedicates hundreds of millions to new enterprise each year – 4.95% of GDP, in fact, giving it yet another world-best status.
In 2016, the government reduced corporation tax for tech companies from 25% to a maximum of 12%.
Australia puts very little effort into considering startups when doling out public sector contracts. We spend around $60 billion dollars on procurement, and most of it ends up in the pockets of multinational contractors.
The government also funds…
6. State of the art innovation parks
Including CyberSpark, a flagship project for cybersecurity-related collaboration. Oracle, IBM, Dell, and Lockheed Martin have a presence here.
Sosa in Tel Aviv houses HP, Zurich, and Swiss Re and runs 4 uniquely structured innovation programs. The ACT food hub offers “a lab for chefs” as well as space for testing, pop-up restaurants, and events. Startup Nation Central provides office space and links new companies with investors.
7. The charm of ‘chutzpah’
Coming to perhaps the most unique and intriguing aspect of Israeli business that is lacking in so many world-leading Western innovators, the Hebrew word chutzpah roughly translates to ‘positive rudeness’. Alternatives include balls, backbone, gall, and boldness.
Essentially, Israeli culture permits the direct asking of favours. It empowers founders to approach investors and ask peers for introductions. It allows plain speaking. When points are made, they are taken at face value, rather than as insults or challenges.
This is especially beneficial in collaboration between old and young companies, where bureaucracy and resistance to new ways often leads to conflict and stagnation. In the words of Tel Aviv-based Cockpit Innovation’s marketing director Amit Nevo, “both organisational cultures have to inch closer to one another”.
This spirit of openness is served with an interesting side effect: sharing, not shielding. Conversations are collaborative, not cagey or competitive. Being only 9 miles wide at certain points, it’s just as well. Secrecy just doesn’t function in a small world.
Unicorns with Israeli passports
Monday, eToro, Payoneer, Sisense, Avant Houzz and Wix were all built by Israeli founders.
That Monday’s founder Roy Mann was working for Wix in Tel Aviv is a classic example of just how tight knit the ecosystem is. In looking for better ways to project manage, he teamed up with cofounder Eran Zinman to launch ‘Dapulse’ in February 2014. The platform spread by word of mouth around said tight-knit ecosystem, but the name was openly mocked by users (maybe an example of that ‘chutzpah’ we were talking about).
Interestingly, in Israel, Sunday is the first day of the working week. But Mann chose to rebrand to ‘Monday’ because he had a bigger target in his sights: the West. It showed a willingness to adapt to the customer without pride or stubborn-mindedness. The company is now worth USD $1.9 billion.
eToro was founded with a vision of innovation, enjoyment, and openness. The product was designed to foster easy, free, and democratic access to trading and investing. eToro places huge focus on hiring Israeli citizens and keeping talent and jobs within the local ecosystem.
Although it crashed and burned under the bright lights of its short American life, WeWork founder Adam Neumann was born, raised, and completed national service in Israel. His spectacular ambition is typical of Israeli entrepreneurs, but the traps of decadent New York entrepreneurial society led to his downfall. Perhaps he should’ve HQ’d in Tel Aviv.
What can Australia learn from Israeli success?
Creating devoted government departments and appointing innovation leaders is one way Australia could compete with Israel’s astonishing rate of innovation. But this requires money, changes to funding policy, and a major shift in the status quo.
Commercial/industrial space is expensive in Australia, and grants for creating them are limited. Encouraging and empowering global tech firms to conduct their research and development here in Australia would pay dividends in cultivating talent pools and keeping opportunities local. Pouring investment into creating attractive R&D hubs for global organisations (rather than remaining a country of abundant sales and marketing offices) would be the first step.
The Tech Council Of Australia is making good in-roads. Prodigal Aussie unicorns like Afterpay, Atlassian, and Canva have banded together to make Australia “the head office” for global tech companies, creating 1 million jobs and hitting an economic output reach of AUD $250 billion within ten years along the way.
But it speaks volumes that private companies are having to step up. Co-founder Alex McCauley (former government advisor, StartupAus CEO, and coincidentally diplomat in Tel Aviv) spent years advocating for policy change before taking matters into his own hands.
Local Microsoft and Google offices are involved with the Tech Council of Australia and eligible to sit on the board. Some criticism has been levelled at the firms’ involvement given they’re not technically Australian, although the local subsidiaries involved are. But even as the debate on the monolithic power of Big Tech rages, it’s hard to criticise Big Four companies for stepping up to the tasks the government is neglecting.
Another example is Atlassian’s AUD $250 million 40-storey skyscraper HQ, due to be completed in Sydney’s CBD by 2025. Now-ex NSW Premier Gladys Berejiklian said somewhat vaguely of the project: “Tech Central will be the Silicon Valley of Australia”. No thanks to government backing.
The government does run councils on the subject. The National Science and Technology Council works to bridge the gaps between academia, business, and government, advocate for the funding of new Australian technologies, prepare for shifts to AI and the IoT, and advocate for gender equality in STEM. The mixture of ministers, professors, and ambassadors is positive for knowledge commercialisation.
But more attention needs to be paid to startups. Startups don’t get a single mention in the minutes from the past year, and considering their potentially huge and important impacts and their need for government support, this needs to change.