“Israel has innovation in its DNA.” Izhar Shay explains why Canaan Partners has shunned Europe… for now

izhar sahy
izhar sahy

I’ve just arrived at the sprawling Technion campus – the 1.2 sq km site of the Israel Institute of Technology, occupying the  pine-covered north-eastern slopes of Mount Carmel in Haifa. 


As well as being home to three Nobel Laureates, the birthplace of PHP, and one of the few universities to design, build and launch its own satellite into space, it’s also the alma mater of 70 per cent of founders and managers in the Israeli high tech industry.

This week, it will be home to the LIL (Learn, Innovate, Lead) Conference. Launched by students at the faculty this year, it has bagged some of the leading names in the Israeli tech and startup scene to give an unprecedented insight into what makes this small, isolated country the definitive “Startup Nation”.

Budding entrepreneurs from India, serial CEOs from Canada and Poland, marketing professionals from New York and interested parties from as far afield as Russia, Mexico, Albania and Uruguay are all here to unpick the secrets of Israel’s startup success.

VentureVillage will be bringing you some special reports from LIL this week – from talks with Yossi Vardi to tours of Google Labs Israel – to find out some of the key differences – and similarities – with our own startup scene.

izhar sahy

First up, Izhar Shay, head of multi-billion dollar global venture capital firm Canaan Partner’s Israel operations since 2005 explains why startups are part of the Israeli cultural makeup… and why Canaan chose the territory over Europe.

Israel has 5,000 active startups…

sodastreamWe also have the top number of registered patents per capita and we’re in the Top 5 producers of NASDAQ-listed companies. We can also count some remarkable success stories of homegrown tech: BetterPlace [the electric car infrastructure company], M-Systems [creators of the USB Flash Drive], Intel Centrino was born from R&D here, the tech behind Xbox Kinect, even Soda Stream [our favourite VentureVillage fact – Soda Stream is a NASDAQ company, making over $275million revenue last year]. 

Innovation is in our DNA, as we are a startup as a nation ourselves – we have only existed for 64 years, we don’t have a legacy of generational wealth, so there’s a sense of just going for it on our own terms.

And strong global thinking

Intel, Cisco, Apple, Google, Yahoo, Motorola, IBM, Microsoft and eBay all have centres or R&D bases in Israel. The domestic market might be too small for production, but the biggest global firms come here for the brains and talent.

Because Israel is so small, startups never just think about the local market – they *have* to think globally from the off. They identify the market and then the opportunities in different territories. That’s one of the reasons so many of our companies have made exists to US giants, such as the ones mentioned above.

Failure is still a success

In Israel, we don’t see failure as a bad thing – it’s essential. It’s valuable, even – as experience towards your future successes. There’s a culture of taking chances here (again, linked to our history) that means failure isn’t a big deal. Sixty to seventy per cent of startups don’t make it through the first year, with those odds you HAVE to take your failures with you to create your next, better company…

Why we chose Israel over Europe

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Up until seven years ago, Canaan was a US-only VC firm. We knew we wanted to expand, so we looked at three different markets: China, Israel and Europe. We didn’t go with Europe because we felt the economies weren’t structured to help startups and we didn’t feel the same entrepreneurial spirit there. That’s what we saw in Israel.

It might be behind in terms of some areas of marketing and in terms of Media and Gaming industries, but the strong medical, comms and engineering markets, plus the spirit of innovation is was what attracted us here.

And the tax breaks are better

Another reason is that we saw the tax breaks that the Israeli government is willing to give to investors and startups. [There is a flate rate of 25 per cent corporate tax, plus a new “Angel’s Law” that means favorable tax treatment for Israeli angel investors in tech companies – a startling contrast to Germany’s startup tax support?]

There’s also good public funds for startups – one that sees the government invest a quarter of every privately invested money, but that won’t withdraw on the first round. And some great goverment-backed incubators.

Although we have started to invest in companies that run in the UK [namely OneFineStay, an Airbnb-style site and supermarket comparison site Mysupermarket.co.uk] so we don’t have our eyes closed to at least working out of Europe…


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