What Can Canada Learn From The Israeli Startup Ecosystem?

By Sason Ross.

With the downfall of the price of oil coinciding with the rapid fall of the Canadian dollar relative to international markets, Canada needs to look elsewhere to replenish her faulty economic downturn.

According to Shannon Wells, the answer is in investments into our entrepreneurial ecosystem.

“The cornerstone for a national strategy should be a central enabling organization with a mandate to fuel high-growth entrepreneurship in Canada.”

Wells lists four required stages in which these start-ups need to pass through in order to become successful gazelles:

  1. The Founding Stage. The entrepreneurs and their friends and family fund the start-ups.
  2. The Traction Stage. Primarily high net-worth individuals provide financing.
  3. The Growth Stage. The company now requires significant capital from larger financial institutions.
  4. The Maturity Stage. Growth rates stabilize and the gazelle becomes a large international company.

However, Canada lags behind many smaller countries in promoting its entrepreneurial ecosystem. The question is, then, whom should we look to build a successful model upon? The country, as tiny as it may be, that seems to have it all figured out is Israel.

“Today, there are well over 50 VCs funding Israeli tech, many of whom are international firms with local offices,” says Hillel Fuld.

Fuld continued to report that “the IVC-KPMG Survey revealed that Israeli startups have collectively raised $1.1 billion in Q3 of 2015…In the first three quarters of 2015, 506 Israeli startups have collectively raised $3.2 billion in 2013…This is a country the size of New Jersey.”

Investment into Israeli start-ups, regardless of the political and physical instability in the region, has led Israel to become one of the dominant players in the tech and education industry in global markets. Their growth is obvious.

“The Israeli venture ecosystem has more than doubled in two years. By year’s end, we will see more than $5 billion invested in Israeli tech,” as described by Jon Medved of OurCrowd.

Medved sees a fivefold trend building in the Israeli ecosystem.

  1. The rise of the Israeli serial entrepreneur—startups being founded and run by individuals who have done it before.
  2. The increase of private equity in the Israeli ecosystem.
  3. The sharp increase in Asian capital inflow into Israel.
  4. Market shifting towards robotics, drones, etc.
  5. The next wave is social impact ventures—i.e. water, energy, etc., “no one does it better than Israel.”

Clearly, Israel has developed a method that has produced a private sector that is driving economic growth to be envious of. The Canadian ecosystem lags behind. How can Canada use elements of the Israeli model to help catch up? One clear difference is in the educational approach that has developed in Israel.

Within the ecosystem, there are, according to Abigail Leichman, “More than 100 Israeli startups developing sophisticated education tech tools…to enhance and transform the learning environment for all ages, learning styles and settings.”

One example is the startup Ed.il, which works with the Israeli education and economy ministries. The goal of this relationship is “to advance domestic ed-tech projects such as youth coding competitions…and municipal smart-education initiatives.”

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Israel has developed a structure to further encourage an already thriving ecosystem with the aims of creating a labor force that is highly ingrained and incentivized to pursue entrepreneurial aspirations. But can it be copied in Canada?

Avi Hasson, Israel’s Chief Scientist, isn’t fully convinced. When asked by Maclean’s senior writer Chris Sorensen whether the model could work elsewhere, Hasson was pretty blunt.

“You can’t copy and paste…Size matters and culture matter. But there are a couple of key points.”

He describes two key elements. First, is the Israeli government’s approach to public-private partnerships. The government has a role to play regardless of your economic beliefs, “because market failures are inherent in this space.” Second, the government will not determine industry. In other words, “we don’t have strategic sectors…we don’t think we can build or mentor companies.”

Hasson continued by saying that the “government can, and should, take on more risk than the private sector,” citing the reason that it does not want to crowd out private investors.

There is a very important lesson for Canada. Although our experience is much different than that of Israel’s, government aid and protection of a thriving entrepreneurial ecosystem is imperative to drive growth in the R&D and innovation sectors—parts of our economy that are in decay relative to the global competition.

Prime Minister Justin Trudeau echoed this point quite succinctly at the Davos World Economic Forum.

“My predecessor wanted you to know Canada for its resources. I want you to know Canadians for our resourcefulness.”

Evidently, this could suggest that Canada is beginning to take steps toward the Israeli model of increasing its priorities to funding its private sector to enable innovation. We need to move away from the oil dependent economy that we have become, and develop new technologies that can enhance our future economic growth.

Dobson Chronicles

Dobson Chronicles

The Dobson Chronicles is the official blog of the McGill Dobson Centre for Entrepreneurship.