GaWC Research Bulletin 132

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This Research Bulletin has been published in JO Maos, M Inbar and DF Shmueli (eds) (2004) Contemporary Israeli Geography, Haifa: The University of Haifa, Department of Geography, pp. 61-76, under the title 'Attributes of Israel's Start-Ups: A Conceptual Review'.

Please refer to the published version when quoting the paper.


Global Cycles and Israel's Boom, Crisis and Signs of Revival of its Start-up Phenomenon

B.A. Kipnis*


This study concerns Israeli start-up efforts beginning in the late 1990s, the era of an economic boom. They resulted from Israel's entry into the post-industrial age and its integration into the global economy. This era described by Arazi (1998) as "Israel's high-tech revolution", in which the country ranked fifth in the world in its number of start-up firms and first in the number of its start-up firms per 1000 population. According to Perman (2000), in 2000 Israel had more start-ups than any other place except Silicon Valley. During those prosperous days Israeli start-up firms were exceptionally successful in recruiting FDI, and close to 160 managed to enlist up to $4-5 billion (Hermony, 2001).

The first draft of this paper written before the beginning of the global high-tech crisis, named by Lipshitz (2001) 'The End of the Start-Up Era', whose dynamics were analyzed in detail by Kipnis (2002). By mid-May 2001 venture capital investors acting in the Israeli market reported that 40% of Israel's start-ups were about to cease operations; that there would be an 80-90% decrease in the number of new start-up firms; and that only 5% of those that had received basic capital from private investors would survive. Lipshitz also conjectured that some 80% of the American start-ups might end operations in 2001. The causes of the collapse of Israel's high-tech industry and of its most vital constituent - its start-ups - are elaborated in Kipnis, 2002.

Throughout the high-tech crisis some positive announcements were made by the media from time to time, but repeated optimistic reports and economic growth have appeared in the media since mid-2003. Hermoni (2003), for example, titled his Haaretz Economic Section article "No Drama, No Climax - Israel's [high-tech] Industry Returns to Itself". The growing firms are those that survived the crisis and have adopted efficient and mature production practices. Leading the revival process are medical equipment and communication, of which three firms were sold to US giants for $160 - $200 millions each in 2003. Likewise, Galit Yemini (2003), also in Haaretz Economic Section, predicts 4.5% growth in the value of IT (Information Technology) services in Israel in 2004, and 14% growth in the value of services from 2002-2007, to pass the $3.7 billion mark. She also foresees that combined Israeli spending on hardware, software, and IT will increase from 2002 to 2007 by 20%, to reach the $3.8 billion level in 2007.

These indicators bear an impact on the high-tech revival, start-up included, and on some National Accounts indicators. Hermony (2003), for example, tells us that venture capital companies have left the underground bunkers and have started to work with investors and entrepreneurs, and that start-up recruitments were expected to be $1 billion in 2003, 60% of it from foreign funds. A special issue of Technology 2003 contains a few notes on Israel's technology recovery. These include the story of the particularly good year for Israel's pharmacology industry (Nahir-Aeizen, 2003). Stein (2003) reports Israel's advantage in expanding its Nano-(minimizing) Technology, becoming a leading country in the area. The current emphasis of Israel's start-ups, which are moving from 'venture capital' to 'knowledge capital', is described by Belizovski (2003). The outcomes of all these are summarized by Basok (2003), who cites the Central Bureau of Statistics on an increase in Israel's GDP by 1.7% during the second half of 2003, slightly higher than the 1.2% increase at the first half of that year and than the 0.6% growth in 2002. At the same time, public consumption in 2003 decreased by 1% while private consumption increased by 2% (Basok, 2003). However, those who benefited most from that increase are the upper middle and the upper classes (Sinai, 2003).

The above signs of recovery have made Israel's start-up phenomenon a relevant topic once more and inspired the updating of this manuscript. In its new version it centers on the following two issues:
1. How should one define a start-up firm, a start-up innovation, and a start-up entrepreneur, and how long does it take a start-up firm to proceed from the stage of 'innovative idea' to 'start-up', and then to production?
2. What is the social-cultural milieu that made Israel in the past, and probably still does in the present, so involved in the 'start-up' economy?


What is a Start-up Firm?

It is still not clear what may be called a start-up firm, and much of what is called 'start-up' is done by R&D laboratories of large high-tech corporations (Neel, 2000; Nesheim, 2000). Moreover, even if most R&D is affiliated with high-tech industry, quite a few start-ups also exist in tourism, services, banking, and commerce. Notwithstanding the above, for this paper a start-up firm is one defined by Myers et al. (1986) as a high-tech 'pioneer plant', or one that is 'an emerging company', a term coined by the organizers of the Technion's (Israel Institute of Technology) management conference.

A common view of a start-up firm is that of an innovative enterprise in its early stages with high expectations for fast growth (Sheinberg, 2000), and it preserves its status as a start-up slightly longer than its innovative period (Hadar and Peleg, 2000). Lipshitz (2001) defined a start-up firm negatively by asking, "What do we really mean by start-up?" suggesting that "it is easier to tell what a start-up is not: it is not a small firm; it is not a firm that develops a new technology using external capital; and it is not a technology-intensive firm". A start-up is "a firm formed by an entrepreneur who tries to promote a new technology or a new business initiative in order to command a new large market in the future". Lipshitz also contended that by commanding a new market and/or by initiating a new production paradigm, a start-up might evolve into a commercial giant such as Bell Digital. Other examples are certain entrepreneurs of the Internet and of PCs, who became leaders in their field (Lipshitz, 2001).

For Myers et al. (1986) the 'start-up' is an advanced stage of their pioneer plant's product/process development. It takes place between the 'mechanical completion' stage and the point at which the operation capabilities begin, or when control is turned over to the operating crew at the new plant. Similar staging is proposed by Peri (1999) and Nesheim (2000), who positioned the start-up stage among those at the end of the firm's innovative process. For Peri (1999) this is the last of three stages, from 'utopia' to 'start-up', occurring during the firm's second and third financial recruitment drive on the eve of its actual innovative operations. For Nesheim (2000) start-up is the tenth in a 14-stage process, when the firm's main focus is on hiring people and appointing its board: it is ready for its innovative endeavor. Nesheim and Peri concur that if a firm does not reach the stage of start-up it fails. The probability of a firm's survival between its idea and its IPO (Initial Product Offering) stage is six in 100,000; between its plan stage and its IPO it is six in 1,000; and between its first funding and its IPO it is 1 in 10 (Nesheim, 2000). The main reasons for poor survival reported by MATI (Israel Center for Promoting Small Enterprises) include poor management, remote markets, and weak marketing. The above were responsible for 95% of the failures of Israeli start-ups in late 1990s (Ganot, 2000).

Innovations and Entrepreneurs

Start-up endeavors reflect social innovative behavior, and seem to be compatible with the concepts of innovations and social learning. Short (1996), drawing on the concepts of business cycles (7-10 years), associated with the longer Kondratieff cycles (50 years), distinguished invention from innovation. An invention, according to Short, is the creation of a new technique, device, or process. It occurs at random, and it is a product of human ingenuity. Inventions result in technological change, but they also exert an impact on social, spatial, political, and economic aspects of the society. Innovations are a successful adoption of an invention into marketable commodities. One invention might spin off into many or into a chain of innovations. While inventions happen at a random, innovations tend to cluster, and to appear in cycles between inventions.

Entrepreneurs are the 'actors' of start-up innovative practice. Traditionally an entrepreneur is viewed a as a person enjoying family affiliations to become the owner-director of an enterprise (Casson, 1982; Wilken 1979). Gilad (1984) in his more comprehensive approach assigned to the entrepreneur psychological attributes, such as creativity, imagination, and far sight. Others esteem in the entrepreneur attributes such as wisdom and ethnic origin (Shpaero, 1982), level of education (Cross, 1981).Drive likewise is evaluated. The entrepreneur is often of one of the firm's employees, who makes use of his or her innovative skills to launch his or her own fresh pioneer endeavor (Roberts, 1991). Non-traditional notions of an entrepreneur described him or her as a person or group of people who possess capital and human resources, and are ready to take a risk in applying them to advance a new idea (Kipnis, 1975, following Pedersen, 1970). Others define an entrepreneur as one who takes advantage of the environment and embarks on innovative missions in a situation of unforeseen capital hazards (Pennings, 1982; O'Farrel, 1986; Burch, 1986).

A unique type of a start-up entrepreneur is a scientist motivated by his vision of the results of a given idea/innovation, and with proven experience in a needed technology and management (Treen, 2001). Treen argues that if a scientist is eager to achieve rapidly the project's results, he might possess the know-how for evading the structured job design or the in-depth ordered scientific tasks needed to lead to the project's ultimate goal. In some cases, driven by his aspirations to bring the project to its successful end, a scientist entrepreneur is also likely to overcome the project's ambiguity by inventing new steps and processes, at times based on untested up-to-date data.

Life Span of a 'Typical' Start-up Firm

Many factors determine the length of time it takes for a start-up firm to reach the market. Bareket (1998) identified two: competition and financing. If a product reaches the market too late it might be too old to be competitive, bearing in mind that today's competition might not remain the same tomorrow. For example, in the past a start-up company needed $1-5 million to reach the market; at the end of the 1990s it needs $25 million (Bareket, 1998). Some start-up entrepreneurs might say that if a decade ago a start-up firm could allow three years of labor before a product was on the market, today 18 months is too long. A start-up strategy also depends on its financing ability and on boom-bust venture cycles (Nesheim, 2000). The boom of the PCs of the 1980s ended; that of bio-technology began later and ended too. The take-off of the Internet started in the 1990s, its ROI (returns on investments) rapidly rose, and by the end of the 1990ssome of its venture capital partners reported on 75%-90% returns and even higher. Yet the Internet is considered as one of the main victims of the 2001 NASDAQ collapse (Kipnis, 2002). In sum, boom-bust cycles have caused wide swings in the financial return on the portfolios of venture capital firms: a few failed, leaving nothing to their investors; others survived, and some flourished (Nesheim, 2000).

Management and founders can make a substantial impact on the time span of a start-up firm's entry into the market. A Rand study (Myers et al. 1986) reported that the strategic choices about how to manage a project critically affected its schedule. Heavy costs imposed on projects when emerging factors compelled managers to expedite a project without appropriate schedule definition. Still another management cost burden creating unnecessary overlapping actions, mainly in engineering and in construction, resulted from pushing a first-of-a-kind project into the field earlier than needed (Myers et al. 1986). Nesheim's (2000) report on a study of more than 300 start-ups since 1981 revealed the strains placed on their founders immediately upon launching their enterprise. Inexperienced founders dealing with the wide range of outside experts -- lawyers, bankers, landlords, leasing firms, board members, Wall Street agents, and shareholders -- underwent severe stress. This actually increased in boom times, when investors and strong competition drove founders to go faster for IPO (Initial Product Offering) to secure a "first mover advantage."

Nesheim (2000) also suggested that the use of commercially unproven technology is a major factor in start-up delays. Usually, until a start-up reveals serious design problems the deficiency in technology is not recognized. When they occur, their corrections are usually costly and time-consuming. This author stressed that the use of new technology and the degree of technical advance are key factors in determining the duration of a start-up process, and that projects involving only one or two new process stages had shorter and less costly start-ups than those more new stages. Nesheim's study also disclosed that innovative projects suffered more problems with handling materials during development, and that unrefined solid feed stock materials created grave difficulties leading to longer construction and higher costs.

Two models reveal the time span needed for a start-up firm to move from its innovative idea to production. One is that of Myers et al. (1986) and the other is that of Nesheim (2000). Figure 1 shows that for Myers and his colleagues the time span from project definition to start-up, including delays through slip and external factor effect, was 42 months. Their start-up stage is situated between the 'mechanical completion' and the point at which the new plant is turned over to the operating crew, or starts its operating capabilities. Their study also indicated that experience with a plant start-up and the know-how of the firm's staff in the process being started was a valuable asset in managing a successful start-up. Myers and his colleagues (1986) asserted that inexperienced operations required40-50% more time to start-up than did experienced operations. Besides, these authors showed that the required start-up time for a pioneer plant was longer in every problem category than that of a standard plant, and that the former suffered from design and equipment failures more often than those using proven technology.

Nesheim (2000) maintains that in the design of a strategy for starting a high-tech start-up company ROI know-how is a vital prerequisite, and a successful strategy depends on the entrepreneur's ability to secure the pricing of each round of venture financing. The final stage of the strategy is the project's IPO, 'the holy grail' whereby all those involved in the project aspire to secure higher value for their investment. The strategy begins with the stage of the entrepreneur's initial idea, a product of his or her own inspiration and vision, and it might last months or years (Figure 2). From stage 2 to 6 the entrepreneur is busy recruiting friends, other founders, and experts, all expected to work hard in order to form a business plan, to be completed at the 14th month, and to establish a management team by the 18th. The first round of raising seed money from a lead venture investor takes place at the 27th month. According to Nesheim (2000) the 'start-up' stage begins only in the 30th month, and is expected to continue six to 18 months. Secondary capital recruiting rounds, each lasting two to six months, come to an end two to four years after the initial seed money round. The first product is expected to reach the market at the 24th-36th month, a year or two following the start-up stage. Four months' worth of the firm's profits are devoted to a series of working capital campaigns, aiming at the IPO, the 14th stage, expected to occur at the end of the third year after start-up began (Nesheim, 2000). Since ROI (returns on investments) is a crucial requisite of a start-up growth strategy, the pricing of each round of venture capital ought to be secured by the firm's founder(s) entrepreneur(s). If the founder(s) share dominate early stages, it decreases as the project moves up the stages, and that of venture capital agents and the employees increases. Distribution of wealth is vital, as that of a 'typical' start-up rises from $31 million to $151 million through the successive rounds from seed money to IPO (Nesheim, 2000).


Attributes Supporting High-tech1

What has made Israel so special in its globally affiliated high-tech development, and so vigorous in its start-up activity? Although it is hard to single out one attribute or a set of them that have made this development possible, the following can serve as a checklist of a few factors that might offer an initial insight. Among the objective attributes, of significance is the fact that since late 1980s Israel has evolved into a post-industrial society, gradually becoming affiliated with the leading 'mega' centers of the global economy.The spatial hard core(s) of the post-industrial milieu are a few large urban agglomerations equipped with complex specialized producers' services, information and expertise, needed for integrating and supporting the global production environment (Crook et al., 1992). The agglomerated centers offer diversified social, cultural, and economic opportunities, quality-of-life assets (Short, 1996; Veltz, 1997), and 'psychic rewards' (Buswell, 1983). All these are requisites for a breeding ground of white-collar, high-income, knowledge-intensive, young start-up entrepreneurs and employees. These are the hard core of vigorous high-tech start-up endeavors whose leading agents belong to the global economy elite, described by Sklair (1991; 2000) as the 'Transnational Capitalist Class'.

The evolution of Israel TCC and Supper Rich has been associated with the prosperous hi-tech industry. The Marker's (2004) Directory to Israel's Wealthiest People reports that 19% 0f them are hi-tech people, 58% live in greater Tel Aviv (27% in Tel Aviv City), 27% have home address both in Israel and abroad, and the home address of 19% is outside Israel.

In addition the following attributes helped make Israel an hi-tech, start-up center:

The abolition of the Arab boycott, primarily that imposed on firms that invested in Israel.

The role played by Israel as an 'economic bridge' between the EU and NAFTA (Raveh, 1991). This status allow American firms to sell their products to EC and visa a versa, as long as the product includes substantial Israeli value add as specified by each FTA.. In a world of harsh competition, Israel's role as an 'economic bridge' is an important advantage in helping the country to evolve into an anchor for world-wide FDI..

Israel's social and cultural nature in terms of educational levels, the its advantage of associated with the absorption of over one million immigrants during the 1990s, many well educated in science, humanities, the performing arts, and engineering. The immigrants significantly benefited Israeli society as a post-industrial economy and its R&D-oriented high-tech abilities.

The role played by the IDF (Israel Defense Forces) in promoting a high-tech revolution, conceptualized by Perman (2000) and Hiltzik (2000). Hiltzik emphasized the IDF role in creating a high-tech ambience and a training ground for Israel high-tech leaders.

The fourth attribute nests in the elements of the 'labor reproduction' theory (Storper and Walker, 1984) that reflect the outcomes of the social-cultural attributes of the society involved. The Israelis' most relevant high-tech-related attribute is their ability to improvise, invent, and innovate. However, labor reproduction has some negative attributes too with regard to high-tech start-ups, primarily in the areas of managerial and marketing capabilities (Hiltzik, 2000; Ganot, 2000; Treen, 2001).

The emerging R&D-intensive high-tech industry was so swift that by the end of the 1990s it created a demand to import qualified engineers and programmers, and initiated a public debate whether to allow this. The demand was called by some 'the sin of arrogance' by Goldman (2001), while others emphasized the negative impact of the poorly paid high-tech foreign workers on Israelis' salaries, a factor that could enhance the 'brain drain' from Israel (Elyada, 2000).

The Milieu of a 'Start-up' Economy

A 1999 survey revealed that in less than a year some 1,500 new start-up firms registered in Israel (Ganot, 2000). While early start-ups in high-tech began in the early 1990s, the process took off in the mid-1990s and reached maturity by the end of that decade. A leading force in this was the deep trust in Israel's technological capacity, inter alia the outcome, as stated, of its advanced military technology, opened to many young Israelis during their military service. Following their subsequent academic training many became leaders of Israel's start-up economy, heavily financed by local money but also by FDI the US, Europe, and the Far East.

Israel has become an investment 'paradise' for FDIs originating in the US (Sagee and Dagoni, 1997), the EU, and the Far East, primarily Japan (Timor, 1997). FDI flows increased significantly since mid 1990s, from $2.3 billion in 1996 Bank Hapoalim, 1997) to $3 billion in 2000 (Hermony, 2000). Hermony reported that expected investment for 2000 was more than $3 billion, which would rank Israel fifth among the high-tech countries in total FDI and first in FDI per capita.

Functional and Spatial Linkages

Table 1 shows the functional distribution of high-tech industries. Despite the differences in the size of the two sources used, one can single out three industries: communication, information technology, and the Internet. According to A Guide for High-tech Employees (2000), the three industries accounted for 79% of all the outlets; according to NATO Hi-Technology (2001) they constituted only 48%. This difference is explained by the different sizes of the sample and by the fact that the latter resource also contains high-tech tertiary elements that are not manufacturing industries proper; for example, advanced services containing high-tech elements accounted for 15.5% of the sample. Almost the same functional distribution of high-tech industries exists among the first ten detailed industries. Of these, Communication, Networking, and Telecommunication together making up 29.5%, and the many elements associated with the Internet, amounting to 17.9%, are notably important. Important too are Venture capital, E-commerce, data management, and advanced services functions, totaling almost 18% among the first ten detailed industries.

The spatial distribution of Israel's high-tech firms is shown in Table 2, revealing that close to 99% of the firms are spatially nested in Israel's three major urbanized regions. The fact that 85% of the firms located in Greater Tel Aviv, perceived as a 'wannabe' world city (Kipnis, 2001), conforms with the nature of highly aggregated post-industrial economies in the major urban regions. Greater Tel Aviv controls all industries, but chiefly the three main ones: Communication, IT, and the Internet.Together these constitute more than 81% of the high-tech firms of Greater Tel Aviv.

Speedy restructuring of its economy and space followed Israel's affiliation with the post-industrial globally oriented economy. This process was more advanced in Tel Aviv than anywhere else in Israel (Kipnis, 1998). Early restructuring took place in Greater Tel Aviv, and was depicted by Kipnis and Noam (1988) in Herzeliyya Pituach industrial park (the 'high-tech Mecca on the coast'), one of the most dynamic high-tech and start-up ambiences.

At issue is who actually benefits from Israel's high-tech industry and its start-up phenomenon. This concern must be examined from both its formal and its functional aspect. From the formal point of view, Trachtenberg (1999), for example, reported that from 1968 to 1997 some 7,000 Israeli patents were registered in the US, but only 35% carried the name of an Israeli organization. This gap is explained by the fact that patents are named according to the nationality of the sole/first inventor, but the organization's affiliation is usually that of the sponsors. Another (Cox 2001) report treats formalities. Cox detected the "Israeli firms' stampede from the Holy Land to Delaware" that began in 1998, following Israel's relaxation of foreign currency control. This relaxation made it easier for Israelis to set up offshore companies. More than 1,000 Israeli high-tech firms, 60-90% of them believed to have formally started up in Israel, relocated to Delaware, propelled by the incentive of securing funds and avoiding taxes.

Two major functional concerns exist regarding the Israeli high-tech industry. Elyada (2000) argued that the Israeli market has not yet reached the threshold enabling it fully to enjoy the fruits of its own innovations, or in his words, "Is Israeli high-tech for export only?" Advanced Israeli start-ups in Internet and communication technologies have been adopted successfully abroad, but have failed to be incorporated in Israel. More worrisome is the issue of the functional affiliation of Israeli high-tech industry, more specifically, if it has been functioning just as a 'node' of foreign interests, and as such if its role in the Israeli economy in terms of growth-inducing linkages has been marginal (Felsenstein, 2001). Felsenstein asserts that Greater Tel Aviv's high-tech 'hot spot', the nation's high-tech core region, has not yet evolved into an 'anchor', namely one that maintains strong intra-regional linkages. Instead, and since Tel Aviv's advanced high-tech 'hot spot' has mostly concerned stock options and raising VC abroad, many of its industrial linkages are with firms overseas. From a functional point of view, according to Felsenstein, the Israeli high-tech industry has functioned purely as a 'node' or an 'enclave' in a global network, and only as a backdrop to the global economy.

True, the emerging robust ties of Israel's intensive high-tech start-up industry with the hard core of the global economy were reported by Kipnis (2002) and Elyada (2000), but their meaning is different. Israel, as a small economy with a small local market, must clearly aim its high-tech, start-ups, or any other advanced services at the global economy for financial resources and for markets. Moreover, many FDI ventures have chosen Israel in order to take full advantage of its unique status as a bridge between NAFTA and the EU FTAs, allowing large savings in export tariff fees. Lastly, using advanced communication, globally oriented Israeli firms, start-up included, have striven to establish workable network alliances, with eligible foreign counterparts. These have facilitated R&D and prototype development operations that have been carried out in two shifts around the clock and around the globe - one in Israel and the other 12 hours away in the western USA. Around-the-clock operations have become a must in today's innovative high-tech, where the interval between start-up and IPO has significantly narrowed. A study in the mid-1990s revealed that considerable linkages were maintained by Tel Aviv metropolitan CBD and its two satellites office and high-tech firms with clients, subcontractors, and suppliers (Kipnis, 1998; Kipnis and Borenstein, 2002). The survey also revealed a distinct pattern of linkages with firms located in Tel Aviv City, in the rest of the metropolis, and in Israel at large. With quite a number of high-tech firms in the sample, and considering that local linkages have slightly intensified since the mid-1990s, one has to conclude that Greater Tel Aviv's high-tech 'hot-spot' has emerged as a promising 'anchor', in addition to its complementary, or rather essential, production ties with other global high-tech centers.


Neel (2000), quoting Dave Barry, the editor of Access Alternatives, stated the obvious: successful high-tech companies are getting into the business of making investments in start-ups, but this trend comes with a twist. Today's corporate investors are looking to do two things:

  1. Advance their own technology and business practices by integrating new technology into their own.
  2. Use their start-up investments as extensions of their own research and development.

Neel added that as a result of the tech-heavy NASDAQ's plunge, high-tech start-up IPO became more difficult, forcing firms to stay private longer, which means third, and even fourth rounds of funding. NASDAQ's accelerated decline had a serious impact on Israel's high-tech industry and its start-ups. In the introduction to this paper we cited Lipshitz's (2001) "The End of the Start-Up Era", in which he predicted an almost catastrophic end to the optimistic vision that Israel has evolved into a global high-tech incubator (Karp, 1998) and a second Silicon Valley (Sagee and Dagoni, 1997; Karp, 1998), or as having a chance of becoming Europe's Silicon Valley (Sadeh, 2001).

Notwithstanding the crisis situation of 2001-2003, Israeli start-ups had a positive effect on the nation's GNP in 2001. This rested on the belief that the inherent reasons for Israel's start-up advantage, namely its technological human capital, would survive. Superfluous less qualified labor would face a sort of a 'frictional' (temporary) unemployment, but the most competent people would remain, working on next-generation invention(s), the essential fuel for future innovations.

One should take into account that a start-up endeavor is a workaholic environment. There is no clear-cut division between the employees' 'public' and 'private' time. A common statement is that a start-up worker starts his or her job at 9 a.m. and ends it when he/she turns 60. There is a growing body of research on the human and social ills of start-up and high-tech industries, but its cautionary advice has been blurred by the huge amounts of money involved. More research is needed to explore the long-term social costs, and the inequalities, including their shadow costs, set off by the headlong race for multi-million/billion-dollar innovations. The current crisis could well be a trigger for such research, which might be extremely valuable now (end of 2003 and early 2004) when emerging revitalization signs are before us.

Hermony (2003) predicted that Israel's high-tech industry has started to rebuild itself, this time in a more cautious way. Most firms established in 2003 have aimed at rebuilding a new generation of high-tech infrastructure, not for sale at a high price. Efficiency and maturity are the industry's key words, and the surviving start-ups are the emerging sectors with estimated sales of $1.5-$2.0 billion. More than 400 out of 640 of the surviving start-ups are highly active in the market; 15 of them have already had an annual sales of $10-$30 million.

Among the recovery signs of Israel's start-up activity is the emergence of venture capital companies from their 'underground bunkers', and their renewed work with investors and entrepreneurs. Start-up recruitments were expected to be $1 billion in 2003, 60% of it from foreign funds. A huge wave of IPO is expected in 2004 (Hermony, 2003). Still, true revival of the start-up movement requires an new type of venture capital funds, ones that are willing to take risks and lead others to join a start-up adventure (Tolkovski, 2004). Tolkovski goes a step further to claim that a more rapid recovery of Israel's start-ups does not reflect a shortage of money but a deficiency in leading venture capital funds. Leading funds, with energetic management, and capable of assembling many investors who wish to be led, is a major obstacle before the swift recovery of Israel's start-up supremacy.


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* Baruch A. Kipnis, Professor of Geography, Department of Geography. Prof. Kipnis is currently Director of the University of Haifa Library, Mount Carmel, Haifa, ISRAEL 31905. E Mail: mailto:baruch@univ. The first draft of this paper was presented at the meeting of the IGU Commission on the Dynamics of Economic Spaces, Turin, 2001when the Israeli start-up activity was at its climax. It is revised to slot in the hopeful signs of revival of the high-tech industry stating in late 2003. My interest in Israel start-up phenomenon commenced when Shachar Chinsky, my graduate student worked on his Master's thesis on the Spatial Dimensions in Start-Up firms in the Haifa Urbanized Regio in late 1990s.

1. For a detailed review refer to Bulletin 72 in :

Table 1: High-tech Industries of Israel in 2000 (percentages) 




Main Industries

% of outlets

(N= 1,980)

First 10 Detailed Industries

% of outlets

(N= 939)

Main Industries

% of Outlets










Data Communication Networking


Information Technology


Advanced Services*


Internet Software










Information Technologies**


Hardware & Equipment


Medical & Medical Instruments




E Commerce


All the rest


All the Rest***


Data Management






Internet Services






Venture Capital







A: Data from Neto Hi-technology (2001).
B: Data from A Guide for High-tech Employees (2000).
* Aggregate of 7 industries.
** Aggregate of 3 industries.
*** Aggregate of 3 industries.

Table 2: Spatial Distribution of Israeli High-Tech Industries by Region (percentages

A: Horizontal Percentages


Greater Tel Aviv region

Greater Haifa region

Jerusalem and region

Rest of Israel








Information technology


















Medical & Medical Instruments






All the Rest












B: Vertical percentages


Greater Tel Aviv region

Greater Haifa region

Jerusalem and region

Rest of Israel








Information technology


















Medical & Medical Instruments






All the est












Source: Calculated by the author from A Guide for High-tech Employees (2000).

Figure 1:  

Figure 1

Source: After Myers et al., 1986

Figure 2:  

Figure 2

Source: Nesheim (2000)

Edited and posted on the web on 27th January 2004

Note: This Research Bulletin has been published in JO Maos, M Inbar and DF Shmueli (eds) (2004) Contemporary Israeli Geography, Haifa: The University of Haifa, Department of Geography, pp. 61-76, under the title 'Attributes of Israel's Start-Ups: A Conceptual Review'.