Israel as a source of Energy – The future of entrepreneurship in Israel

A few days ago I noted an article on a leading Israeli financial website who’s title was “Can Israel become a center to emission free car industry” (Globes 02/12/2010) . The author brings two valid arguments as to why it would be naïve to think that Israel can be a leader in the emission free car industry. The article compares the capital invested in alternative energy in the US and in Israel and mentions the fact that Renault-Nissan decided to invest 150M Euro in a manufacturing facility in turkey (and not in Israel). Despite these valid points I would argue that Israel faces a great opportunity to duplicate its past success in the high-tech industry and become a leading center for alternative energy and electrical vehicle.

A short history recap:

During the 80’s, different manufacturing industries, such as the textile and car industries,  started to lose ground and for a reason: Israel had no comparative advantage in manufacturing. However, around that time another industry emerged. Leaders like Uzia Galil, Zohar and Yehuda zisapel  and others established companies like RAD (1991), taking a step to what would later lead Israel to be a center for entrepreneurship and high tech. Three foundations to their activities were established a couple of years earlier:  high quality education, innovative culture and government initiatives. A forth piece, large potential market, was missing but Uzia Galil, Zohar and Yehuda zisapel learned how to overcome that and even took advantage of that by having Israel a test bed for their products.

Towards the late 80s’ and early 90s’ domestic companies such as Gilat (1987),  checkpoint (1993), Amdocs (1995) and Lannet (1995)  were established, and International companies like Microsoft (1992) established R&D centers in Israel. Shortly after, the venture capital industry emerged (Evergreen, Yozma etc.) , empowering Israel’s significance in the high tech industry. The industry was at its peak in the late 90’s and early 2000 with the acquisition of DSPC by BMC (1997), Mirabilis (ICQ) by AOL (1998) and Chromatis  by Lucent (2000). Israeli companies raised $2.8 billion in 36 public offering during 2000.

This leadership resulted in economic prosperity: In 1997 high-tech comprised 33% of all industrial exports. Moreover, civilian R&D expenditure totaled 2.2% of GDP, the fifth highest percentage in the world, and exports of the fruits of this R&D totaled $10 billion.  Software sales by Israeli companies rose from $450 million in 1990 (of which $89 million was exported) to $3 billion in 1999, of which $2 billion was exported.

Capital raised by Israeli High-Tech Companies (2000-2009)

Capital raised by Israeli High-Tech Companies (2000-2009)

A few years later (2007) Israel was ranked 3rd in terms of absolute venture capital investments and 3rd in terms of absolute number of companies listed in the NASDAQ, while ranked 102 in terms of population size (World Economic Forum ranking). Today Israel is perceived here in the Silicon Valley and around the world, as a major center for high-tech and Innovation.

The alternative energy industry in general and the Electrical Vehicles (EV) in particular share similar characteristics to the high tech industry ,  and are only a couple of phases apart . Again, high quality education and innovation are critical foundations. Sounds familiar, right?

So what does it require ? leaders such as Uzia Galil and the Zisapels . Fortunately Israel has Shai Agassi, a visionary leader, to realize that and help Israel become a  center for EV and possibly alternative energy. Shai Agassi is the CEO of Better Place, and the former president of the Products and Technology (PTG) at SAP. Another visionary leader, the Israeli president  Mr. Shimon Peres, helps complete the fourth building block to a successful transformation – government support (though it is clear that further support is needed).

Israel, as a small country, can serve as a great test bed for EV. A relative modest investment is required in placing infrastructure and many lessons can be learned. That also sounds familiar, right ?

Now, Israel will not necessarily be a manufacturer of batteries or electrical vehicles, just like M-System, who invented the Flash memory (also known as Disk On Key), joined forces with Toshiba to manufacture Flash memories. It is also clear that the demand here is very limited but the high-tech industry faced the same conditions in its early days and learned how to take advantage of such conditions.

Better Place and is one example. Other examples are Solel Solar Systems, which was acquired by Siemens for $418M a couple of months ago, and Bright Source, which received an offer for $1.4B  in loan guarantees from the US department of Energy. Starting to remind us of the early days of the Israeli High-tech industry ?

While this might indicate a possible trend, it is not enough. Israel must encourage a larger eco-system of companies together with Better Place, Bright source and others to take an early lead and direct more resources towards Alternative Energy. Such eco-system is key to Israel leadership and to a successful transformation towards alternative energy (Regulation, Utilities & infrastructure, enabling devices, accessories  and service providers are just part of the eco-system).

The long term returns of such an investment are such that the opportunity cannot be ignored: Not only will foreign capital flow to Israel increase. Israel will be able to reduce its energy import expenditure, which currently accounts for almost 20% of its total annual import expenditure, thereby reducing its budget deficit and its vulnerability to oil prices.

In summary, the opportunity is there – Israel should take bold acts to capture it as it did before.

About these ads

About shanishoham

After 14 years of General Management and incubating/scaling new businesses & organizations for enterprises (established a $55M mobile business and a $100M/400 employees global division), I became an investor Today I’m a board member/mentor with 5 incubators & micro-VCs and involved with many other private & public incubators around the world. I also founded a VC firm named 2020 and I'm a member with a number of angel groups so i get to see & work with many startups, innovation centers and other parties across the ecosystem. I’m an alumnus of the Stanford Graduate School of business - Sloan Master in Management program, a 10 months intensive program for 57 carefully selected experienced Executives and leaders from all around the world.

2 comments

  1. Pingback: What should non-US VCs/Entrepreneurs focus on ? « Shani's Business Review (SBR)

  2. Pingback: Quora

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 32 other followers

%d bloggers like this: