Mission (Almost) Impossible

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In this country, where everyone sees himself as a manager and is bent on making piles of money, there are few who haven’t thought about launching a startup.

It isn't so in most other countries. In Europe the typical mother had urged her offspring to find jobs at a big stable company or in public service. In less developed nations, parents are happy when their children find any kind of job, even in manufacturing ‏(this is now happening in Europe, too, in countries such as Spain, where joblessness among the young under 25 has reached 60%‏).

In Israel, for decades students were expected to choose between medicine and law. Now the road to social and financial success is thought to pass through high-tech.

Homegrown-success stories, widely publicized by the media, have painted the local startup entrepreneur as a hero, an independent man of the world blessed with a technological or consumer-oriented vision. He is the poster child of the brash, bold and quick-witted Israeli showing Silicon Valley how things are done. Obviously, he’s on his way to becoming rich and famous, without having to rely on corrupt bureaucrats, tycoons, public funding or even a well-connected relative.

But the dream is more difficult to fulfill than all these success stories would imply.

Nine out of 10 startups fail, quietly and invisibly, while others limp along painfully for many years. Indeed, just a few make it to the big headlines and the smiling post-exit photo ops. How many? There are more than 2,000 startups in Israel, and maybe a few dozen success stories a year at best. This doesn’t even include the thousands of entrepreneurs whose companies never get off the ground simply for lack of funds.

In fact, it turns out that it may be harder to raise cash for a startup than for many other types of business initiatives. Real estate ventures usually get financing from banks or eager investors looking for a safe bet. Those seeking to enter commerce or manufacturing do not need too much cash and can usually get some funding from government grants or individual investors familiar with the field.

In the tech world, things are much more difficult. The banks won’t go near them and the state isn’t interested since startups don’t generate jobs in the periphery. Private investors generally aren’t familiar with the entrepreneurs’ fields, and those who ar e familiar with the technological issues are cautious about investing, since they know the odds. We have no shortage of ideas or people to generate them, but in most cases the money goes to entrepreneurs who have already proved they can beat the odds, or to those with a different kind of proven track record, such as graduates from the army’s elite computer and communications units or its academic training programs.

Ultimately, this means that the key question in Israeli high-tech is not technological at all, but rather about the money − where is it going to come from? True, there’s money earmarked for high-tech, there are venture capital funds, there are angel investors, there are state incubators.

But to actually raise money, everything needs to be perfectly aligned. You need a very good product, a great team, the correct timing and the right expectations from all sides. And this is an almost impossible mission.

This year’s Startup Ecosystem Index report found that Tel Aviv is the second most supportive place for startup companies in the world, behind only Silicon Valley.Credit: Moti Milrod
Illustration by Marina Zlochin.

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