Exclusive Interview with Dr Harry Yuklea,Technion- Comparing the Israeli and the Indian Startup Ecosystem

The startup ecosystem is buzzing all over the world. We have seen Indian startups go to international incubators, and we have seen international accelerators/incubators/investors setting up in India. An interesting topic is of the startup ecosystem brewing up in obscure nations such as Israel. In an exclusive interview with Dr Harry Yuklea, YourStory got some amazing insights into the Israeli startup ecosystem.

Edited Excerpts:

YS: What is your perspective on the startup ecosystem in India?

HY: Entrepreneurial ecosystems are very dynamic by construction therefore by the time we speak there is a good chance that the system already changed. Anyway, judging on the information I have so far and the impression I received from people I met, it is clear that India is on the right track as concerning entrepreneurial capital formation. The challenge is to reach the critical mass in entrepreneurship fast enough to preserve momentum, which is not an easy task for such a large and diverse population. The second challenge is to preserve the fundamental cultural values and traditional habits despite the social changes associated with shifting to entrepreneurial based economies.

YS: How has the startup ecosystem in Israel evolved? 

HY: Well, the elegant way to understand this phenomenon is reading my friend Saul Singer’s book “The Start-up Nation”. A quicker option is to understand the Israeli environment specifics and their impact on the entrepreneurship development. Lack of natural resources and adverse natural conditions for example – is there a better reason to invent drop irrigation than the fact that water is scarce in our region? Today Israeli water management technologies are used everywhere in the word but it all started from a very pragmatic local problem that people had to solve.

There is obviously a combination of elements such as good education, cultural background and efficient government intervention that set the entrepreneurial foundations in Israel but also a series of specific factors like needing to absorb a large amount of scientists and top class engineers from former Soviet Union in the 90’s that drove these results. When learning from the Israeli experience one shall be aware that not everything is replicable. The Israeli experience in developing an effective entrepreneurial ecosystem is indeed huge but must be adapted to the local environment to be effective.

YS: If you were to compare the two, what would you say?

HY: There is an evident difference in scale, growth rate and social attitude between the two. There are however many common characteristics too, starting with awareness and the quality of technology education. Israeli ecosystem benefits from faster response and closer networking distance, which is advantageous in early stages while India benefits from local market size and economy of scale which are important in late stages of the firm.

YS: What are the characteristics of the startups in Israel that are different from the startup of other nations?

HY: The foundations are the same everywhere. Israeli start-ups are more efficient than others in the early stages of the firm (faster development, cost effectiveness, originality and quality) but as firms mature and require more structured management style they failing their relative performance rank. Maybe one unique characteristic indeed is the adaptability of the Israeli entrepreneur. By designing from the beginning his start-up to operate globally (due to the small local market, this is mandatory strategy to any Israeli business), the Israeli entrepreneur takes into account that he will need to operate in multicultural environment, contingent to exogenous changes and adverse conditions.

YS: What are the key challenges that the startups in Israel are facing?

HY: Entrepreneurship is always a challenge, doesn't matter how mature the system is. Twenty years ago the Israeli GDP per-capita was $6,000 - today is $30,000; IT industry was in its early acceptance stage, today is already a consumables driven segment; life expectancy at birth was 76 compared to today’s 81; private capital raised by high-tech segment in Israel was ~$200M – today is ~$2B. It is obvious that twenty years later Israeli entrepreneurial landscape will be different. In addition we face fundamental structural changes of global nature: the role and operational behavior of VCs, labour force migration, emerging economies, etc. will all impact the way entrepreneurship will evolve over the next twenty years. The emerging technology growth sectors in Israel are alternative energy, agro-tech and nanotechnology based medicine. These are of global importance and India could play on first league in these fields. That’s another opportunity for cross border cooperation between entrepreneurs, industrialists and investors. I am sure practitioners in the two countries will find their way to work together in these areas.

YS: How much is the Government of Israel involved in fostering entrepreneurship?

HY: Entrepreneurship capital formation is an important component of Israel economic development strategy. We have a “R&D Support Law” that regulates the role of various governmental agencies, tax and financial incentives allowances and the public spending in this field. The law was reviewed and adapted recently to accommodate the newest developments but preserves its basic principles. However, in terms of financial burdens public money contribution counts for less than 7% of total start-ups funding but covers the most risky phases of investment. This is a very efficient use of public money considering that the high-tech sector counts for more than 50% of Israel industrial export.

Government agencies are also actively assisting new firms reaching foreign markets and encourage international cooperation.

YS: What is the investment scenario (VC, Angel investors, seed funds) in Israel?

HY: Israel has a seasoned mix of financing mechanisms, combining grants, incubators, angels, VCs and private equity funds. The major source of funding in terms of absolute volume is the VC sector, which invests mostly in growth and late stage firms while accelerators, incubators and angels invest smaller amounts per round at higher risk premium. VC investments in the first half of 2012 were around $1B, suggesting for the full year a level of activity similar or higher than previous periods. Around 60% of Israeli high-tech funding is supplied by foreign investors.

YS: How can India and Israel set up a channel that can lead to a mutual benefit?

HY: Both these nations have been rapidly growing, and Israel has been ahead on the curve.

There are strong chances of symbiosis and keeping this in mind, the iCreate - Technion partnership has been designed. Cooperation platforms between our countries are already in place but we focus on entrepreneurship and innovation ecosystems joint development and this is something new. The Israeli side is very receptive to the idea and so seems to be the Indian side too. The series of seminars, public events and closed meetings with the Technion team organized by iCreate starting October 12 are just a modest beginning of what we plan for the future. So far looks great and we are all pleased with the results. If things continue this way we will see significant developments over the next two years.

YS: There are many Tech Startups coming out of India. How far has Israel evolved on that front? How is Technion assisting the growth?

HY: On IT and communications sectors there is already a significant Israeli involvement in the Indian high tech sector. Firms like Amdocs, Gilat, Waves, etc. have R&D centres in India. Several VCs started operating in India too. There are continuous contacts between governmental agencies in charge with these issues. I believe that this trend will continue and even accelerate over the next few years. I carry with me an open invitation from the Alternative Fuel Administration in Israel to Indian entrepreneurs to join the international cooperation program just launched by Israel. There are similar initiatives in the Agrotech sector where I see huge synergies. I believe we shall increase the academic cooperation too. Academic delegations visit Israel quite frequently, there are seminars and workshops given by scholars in peer universities but we can do more in this area. Technion just launched a set of specialized programs in entrepreneurship intended for foreign students that can spend short mini-semesters in Israel as part of their programs in the home country. I will discuss this with my peers in leading Indian Universities and if they like the idea we could allocate every year a pre-agreed number of registrations to Indian students. If possible, I would like to see joint courses and workshops, more student interactions, maybe a specialized conference taking place alternatively in Haifa and Ahmedabad.

YS: What is your perspective on the startup ecosystem as a whole? Which markets do you think will emerge as the biggest drivers of entrepreneurship in the coming years?

HY: Entrepreneurship is largely recognized as the main economic growth engine in modern economies. As result, there is a clear shift in macroeconomic terms from managed economies to entrepreneurial based economies. This trend induces further on structural changes in the flow of ideas, intellectual propriety monetisation mechanisms and globalization of innovation. Entrepreneurial finance and economics shall be adapted to the new paradigms, knowledge mobility increases and idea processing methods become more sophisticated. As you can see, it’s fun to be entrepreneur nowadays…

As far as the most entrepreneurial intensive industry segments is concerned, the next 5-8 years will still be dominated by mobile communications and the related applications but this place will gradually be taken by the major social challenges of the next decade: energy, food and healthcare. Israel is taking steps to remain a leading player in these new conditions and I am sure India does the same.

YS: How do you foresee the iCreate-Technion relationship impact the Indian entrepreneurial ecosystem?

HY: Well, it is still early to say – we are just exploring the potential of these relations and discover every day new avenues for value creation. I believe we will see quite quickly practical moves in education and research domains, just because the infrastructure is in place. I hope the Indian private businesses will realize the potential and affiliate with iCreate in this vision. If this happens fast, the India-Israel Entrepreneurial Corridor that we created will become a major vehicle for entrepreneurial capital formation in India.

Dr Harry Yuklea is attending a series of events, organized by iCreate, across India. Check out the details here.