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What Australia can learn from Israel’s Silicon Valley

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Tuesday, April 1st, 2014

Start Ups in Israel

As reported in the AFR: It was the northern summer of 2011 and I was standing in a lush garden in the affluent Israeli beachside city of Herzliya, discussing innovation. In fact, the garden was part of the Australian ambassador’s residence and the ambassador at the time, Andrea Faulkner, had just asked me how Australia should replicate Israel’s success.

Israel is widely considered the global blueprint of an innovation economy. The tiny country of just 8 million (6 million of whom are Jewish) produces more founders, engineers, Nobel prize winners, science papers, and venture capital dollars per capita than any other place on Earth. From within its borders came technologies, including the corporate firewall, the flash drive industry, Pillcam and instant messaging. It is Intel’s R&D centre, as well as a big base for Google, Facebook, Apple and many others.

So the ambassador’s question was a tough one – how can Australia do the same?

Israel’s success is attributed to many factors: a military-industrial complex born of a permanent existential threat from hostile neighbours, a culture that embraces risk-taking without fear of failure, a historical absence of natural resources that places the focus on human capital.

Usually cited near the top of the list is the large pool of available venture capital dollars, and here in Australia there is much hand-wringing about how our relative lack of available risk capital stifles innovation. But to blame lack of capital for a lack of innovation is to blame the cart for the direction of the horse. It is indeed true that the world’s largest VCs have offices in Israel. However these VCs did not drive the innovation economy in Israel, they simply responded to it.

Only once Israel had emerged as a global centre for innovation did VCs set up shop, driven purely by a commercial desire to access a fertile market for large future returns.

Engineers at the foundations

In fact, the primary building block of technological innovation is neither capital nor culture. It’s access to great engineers, a trait shared by both Israel and Silicon Valley. The huge US population size means there are more than a million engineers and the very best gravitate to the tech Mecca of Silicon Valley. Key cities in India are emerging as tech centres for similar reasons, but there the engineering population number tens of millions.

Israel, though, has a small population and it’s engineering success occurs for reasons that are more interesting to us in Australia. Working in “high tech” is arguably the pinnacle of professional life in Israel. It involves the best pay, best recognition, best conditions (although they work hard), and best bragging rights. And the high point of high tech is product engineering, which of course drives society’s best and brightest to become engineers rather than doctors or lawyers.

The quality of engineering education is also stellar in Israel.

The tiny country boasts leading technology colleges such as the Technion in Haifa, which is number 69 on Reuters global list of the top 100 engineering and technology universities. Finally, the Israeli military and, in particular, sections of the intelligence corps are technologically unmatched globally.

Consider the 18-year-old who spends the next seven years in the military developing software that extrapolates the parabolic trajectory of a rocket so it can be intercepted, or builds the avionics for that missile, or designs countermeasures for cyber warfare. These men and women develop a whole other level of engineering excellence and then go on to launch start-ups.

Risk encouraged

Israel takes this quality of engineer, puts them in a culture that encourages risk and tolerates failure, and wraps them up in venture capital dollars – a vital final step but never the first one. This magic formula, first and foremost, is about quality engineers; the rest follows.

That’s great news for Australia because we’re not going to change our risk culture overnight and, thankfully, we don’t have Israel’s military imperative. We do, however, have a great, cheap-to-access education system. The University of Melbourne, for example, is ranked an incredible number 32 on that same list of top engineering universities. So our focus must shift towards encouraging the highest calibre teenagers to skip medical or law school and instead become engineering graduates who go on to start companies.

That’s not to diminish the value of the new sources of capital emerging in Australia. It is certainly a positive development and, after 10 minutes with guys such as Daniel Petre and Paul Bassat, the positive impact they’ll make on the investment side is obvious. But VCs can’t succeed without great tech businesses to invest in, and those businesses are started by great engineers.

Consider my business, Catapult Sports. It is a Victorian company, started in 2009 by two Australian engineers and boot-strapped to profitability due to lack of VC funds. Today, it is the global leader in wearable athlete analytics, with more than 400 clients in the AFL, English Premier League, NFL and NBA.

While MBAs can build online retailers, only real engineering talent can produce IP-based global technology leaders. That’s the innovation Australia must harness if we are to replace the decline in manufacturing industries, and remain a globally competitive first-world economy in the information age.

Adir Shiffman is a serial entrepreneur, investor and Catapult Sports chairman.

His Catapult Sports has developed wearable tracking devices.