Entrepreneurship Flowers Far Away from Silicon Valley

7/17/12Follow @sramana

These days, the media are getting better at reporting on entrepreneurship outside Silicon Valley. Within Silicon Valley, however, people tend to be somewhat cocky about the region’s place in the entrepreneurship landscape. But technology entrepreneurship is happening all around the world, and here at the 1M/1M global virtual incubator we have always tried to present an international and non-parochial view of the entrepreneurial universe. In my recent blog post Far Away From the Valley, I presented a list of interviews with successful companies from across the globe.

As you know, 1M/1M works with startups around the world, from Estonia to Vancouver to Kolkata. As part of our coverage of the international nature of entrepreneurship, we asked our members for their views and experiences in their respective regions. In this piece, I will summarize some of their observations.

Entrepreneurship in Israel

Israel is of course an established country for startups.

Mark Heifets, founder of Inphodrive, has been in Israeli high-tech for the past 15 years and today runs a company focused on developing hands-free driving apps so that drivers can interact with mobile apps through a voice interface only.

Mark says that Israel is located in a geographical spot with a scarcity of natural resources. Until recently, when large sea-shelf deposits of natural gas were found, it suffered from a lack of practically all basic natural resources, including water. For this reason Israeli entrepreneurship in the past 25 years has been focused mainly on high-tech as an engine for building national wealth and increasing exports.

A spirit of high-tech innovation became one of the nation’s distinguishing features. The country has the second largest number of startups after the U.S. But does the national business ecosystem meet the demands of growing high-tech enterprises?

There is an obvious disproportion between number of growing enterprises and the supply of venture capital. Over past 12 years, the local VC industry has shrunk from 80 VC funds to only eight funds that are actively investing.

In these recent years of global financial crisis, many young local enterprises have been forced to rely on angel investors as the only available source of capital.

With the scarcity of venture capital in recent years, there’s been a shift to industries that require less capital expenditure.

Mark explains that there has been explosive growth in enterprises dealing with the Internet, mobile applications, and social networks. Many of them have adopted bootstrapping models. These companies easily overcame their distance from the major markets using online communication.

On the other hand, new enterprises developing technologies that require significant capital resources for expensive equipment, field or clinical trials, FDA approval, and so on, experience obvious difficulties, and Mark says that their number has decreased.

Mark also notes that the State of Israel does a lot to support new young businesses. The Israeli Office of the Chief Scientist (OCS) has various programs to support research and development in the country. It provides seed capital to high-tech enterprises directly and indirectly via more than 25 technological incubators that nurture several hundred young businesses each year.

However, OCS seed capital is aimed only at technological development and does not provide capital for marketing and business development. This is clearly a missing link for the successful merchandising of the numerous innovative products that come from R&D programs but do not succeed in becoming exports to the U.S. and Europe—both major foreign markets for high-tech Israeli goods.

The Israeli market is very small and geographically distant from these major markets. The National Export Institute helps local exporters connect to international markets, but it is not enough, especially for young enterprises and startups. Mark believes massive state support and private international initiatives will be required to … Next Page »

Sramana Mitra is the founder of One Million by One Million (1M/1M), a global virtual incubator that aims to help one million entrepreneurs globally to reach $1 million in revenue and beyond. She is a Silicon Valley entrepreneur and strategy consultant, she writes the blog Sramana Mitra On Strategy, and is author of the Entrepreneur Journeys book series and Vision India 2020. From 2008 to 2010, Mitra was a columnist for Forbes. As an entrepreneur CEO, she ran three companies: DAIS, Intarka, and Uuma. Sramana has a master’s degree in electrical engineering and computer science from the Massachusetts Institute of Technology. Follow @sramana

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