Israeli high-tech strives for maturity

After a few down years, Israeli high-tech is thriving again, by some accounts comprising 40 percent of Israel’s exports.  With a powerful combination of military, medical and clean energy R and D, Israel’s “Silicon Wadi” is one of the world’s most vital centers for startups and mid-size tech companies.

But Israel’s instability injects a host of challenges into the industry, forcing an urgency unknown in more peaceful regions.  The result that most founders prefer to sell their brainchildren to big Western giants instead of growing them to maturity in Israel.

“Israelis act before they plan because you can never know what will happen tomorrow,” Ori Hadomi, CEO of Mazor Surgical Technologies, told the Wall Street Journal.

That’s harsh criticism for an industry that has recorded three multi-million dollar exits in the past few days.  Herzliya-based chipmaker Provigent agreed to a US$313-million buyout by Irvine, California-based Broadcom on Monday.

Last week, mobile app maker Snaptu, with operations in Tel Aviv, sold to Facebook for an amount rumoured between US$60 and US$70-million.

But these exits don’t change the fact that, as in tech markets around the world, Israel’s IPO numbers are way down over the past several years.  The logical move for Israeli founders is to do what Provigent and Snaptu did and sell to foreign buyers.

Koby Simana, CEO of IVC, said: “Since IPOs have become difficult to achieve for most Israeli high-tech companies, particularly in foreign markets, companies and their investors are left with acquisition as the most viable exit alternative. This results in a ‘buyer’s market’ which drives valuations down — as we can see by the decline in average deal size.”

Another criticism leveled at Israeli high-tech is its dependence on military contracts to drive the industry and the exclusivity that encourages.  Indeed, the marriage between the Israeli Defense Forces and Israeli high-tech is deeply ingrained, and has the consequence of excluding Israelis who don’t serve.

The vast majority of Jewish Israelis serve in the IDF before entering the workforce, where the tech-minded can learn fundamental skills and make contacts to ensure success after they finish their service.

“It is such and advantage they acquire. They get a free ride for three years, work on the cutting edge of technology, whatever they dream about,” said Hagar Lipkin of Tsofen, and Israeli non-profit that helps Arab Israelis break into high-tech.

“It’s dream training, and afterward they are they most qualified people in the industry,” Lipkin said.

Because almost no Arab Israelis serve in the IDF, they feel the lack of military training and contacts very acutely.

“Almost all the hardware and software companies do work for the military, and you can’t do this if you don’t have a security clearance,” said Yudit Ilany of the Jaffa Popular Committee.  “Of course, Arabs don’t serve in the military so they don’t have one.”

Tsofen works to provide training to Israeli Arabs, getting their programming and interviewing skills up to par so they can compete for the top high-tech jobs.

“We have many changes in the Arab society and this is one,” said Sami Saadi, one of Tsofen’s co-founders.  “Many see the opportunity to have a good job, a good salary and a good career.”

Israelis who work outside of high-tech have been greatly influenced by the industry nonetheless.  For example, the smartphone has taken over Israel in a big way, said Muna Abu Baker, a fundraiser at the I’lam Media Center in Nazareth.

The country has one of the highest mobile penetration rates in the world, and Abu Baker said that 80 percent of the population will have smartphones in the next few years.

“Everybody will have to have smartphones,” she said.  “It’s becoming a must or you will be left behind.”

In addition to emergent leadership in the mobile technology space, advances in electric automotive technology will have eyes around the world on Israel.  Better Place, the vision of entrepreneur Shai Agassi, is delivering on its plan to build the world’s first electric car network in Israel, complete with charging stations.

Better Place successfully demonstrated its first automated battery charging station Wednesday, announcing that 40 will be built throughout the country by year’s end.