In January, AIPAC, Temple Sinai and Congregation B’nai Torah held a program during which approximately 60 people were informed of the technological revolution in Israel and AIPAC’s efforts to be of assistance.
Daniel Frankenstein, co-founder and managing partner of JANVEST Capital Partners, spoke about why little Israel has had such outstanding success.
Frankenstein, a San Francisco Bay Area resident, and Brian Rosenzweig, an Atlanta resident and JANVEST co-founder, met in college and have been close friends ever since. Both men lived and worked in Israel and have a good appreciation of the Israeli business environment.
Seven years ago, they decided to combine their insight and experience to form a U.S.-based venture capital fund that invests in promising early-stage Israeli startups.
JANVEST is the result of that vision; the fund has:
- Some $25 million under management.
- Closed two partnerships and is funding a third.
- Offices in San Francisco, Atlanta and Israel, two U.S. board members, two Israeli board members and several prominent Israeli advisers.
JANVEST focuses its investments into early-stage startups, the venture capital sector that the partners feel offers the greatest risk/reward balance.
The investments primarily are in the following industry groups:
- Data analytics.
- Internet of things.
- Business intelligence.
How does a tiny country with no natural resources other than its human capital have such an enormous impact on modern life everywhere?
Frankenstein outlined the five factors that he believes account for Israel’s success:
Most Israelis are required to serve in the Israel Defense Forces, but only 10 percent deal with weapons on a regular basis. The other 90 percent focus on research and development.
The best and brightest go into cybersecurity.
Women serve with men in the IDF. Studies show that countries that treat women as equals are more likely to be innovative and creative.
The IDF gathers people at the height of their creativity and places them in an environment where all are respected and treated fairly. Women speak with men and privates speak freely to generals. Few barriers impede the flow of ideas.
Technology developed for weapon systems often is applied to commercial use.
Israel has an outstanding university system, one of the world’s best. It offers easy access to virtually all citizens. After serving in the IDF and gaining maturity, former soldiers enter the university with a high sense of purpose. Half of Israel’s universities are in the top tier in the world, according to The Economist.
Availability of Capital
Significant capital from a variety of sources is available for startups. The success of venture capital startups has led more capital to flow into the country. Success begets success. In 2016, Israel raised $4.8 billion for venture capital purposes, almost as much as the European Union.
Israel allocates 4.5 percent of its GDP annually for research and development, one of the highest allocations of any country. The money typically is spent in the following manner:
- The Office of the Chief Scientist (now the Israel Innovation Authority) offers low-cost, nondilutive risk capital to deserving startups.
- The university system receives funding for a variety of specific projects.
- Venture capital incubators also get government funds.
Tolerance for Risk
In a country that faces daily threats to its existence, financial risks and business failure are not seen as dire consequences. Worse things than losing money can affect you in Israel.
In many other countries, financial failure is a career-ending event. In Israel, it is just another bump on the road to success.
CEOs of large, public Israeli companies do not earn the huge incomes of their American counterparts, so the path to personal wealth follows the creation of economic value outside a large company.
In Israel, failure is OK; just do not stop trying.
Jews over the centuries have promoted good will, understanding and tolerance through trade. Initially, the benefits of trade were perceived to be economic, but the byproducts of trade became the most significant benefits.
I have long believed that good, honest and mutually beneficial commerce breaks down barriers and promotes tolerance. Some of Israel’s former enemies have become trading partners and have benefited from Israel’s advances in technology.
Al Shams is a Sandy Springs resident, a former CPA and an investment professional with over 36 years’ experience