GOLB: Is this Israel?

What Price Energy Security in the USA?

The usual way in which the cost per kilowatt-hour (KWh) of electric power produced by solar cells – devices that convert sunshine directly into electricity: no pollution; no nasty stuff to dispose; no harmful side-effects like global warming due to carbon dioxide, etc, etc, etc – is compared with that from conventional power stations, particularly those that burn oil or coal (ugh!), is to put the numbers side by side, and conclude that …the bigger, the worse. Well, my friends, if that’s deemed to be the whole answer, it would be challenging to find a way of being more myopic and remote from reality.

How so? For starters, do we really need to remind ourselves of where most of the oil comes from, and who, so to speak, has their greedy fingers on the tap? And how much does the U.S of A spend in an effort to protect itself from the constant threat of big-time blackmail (remember 1973?) from those – ironically mostly sun-drenched – tap-masters? In fact, of course, being armed to the teeth with every imaginable kind of weaponry is no protection at all: at the drop of a burnoose, the tap can slam shut.

Is there a remedy available? Well, how about this for a start? The cost of a nuclear-powered aircraft carrier was about $5 billion back in 1973, and to arm it, staff it, and keep it operational is, as a guess, probably about another $5 billion over 5 years, not including putting aside a few pennies for the eventual and inevitably necessary decommissioning of those 2 nuclear reactors aboard.

OK, folks: here we open the door for those more rigorous than me in solar photovoltaic (PV) systems arithmetic, but I’ve got some pretty good back-up data for what follows. Currently, large PV systems that deliver AC cost about $8,500/KW, and deliver up to 2,000 KWh/year/peak KW of the solar panels – in sunny Arizona, for example. To get a feel for the numbers, a 2KW peak power system in the sunnier parts of the USA will deliver the approximately 4,000KWh/year used by the average household. If made from crystalline silicon, the solar cells themselves simply do not wear out; they last about 20 years or so. And most of them are based on silicon, the second most plentiful solid element in the earth’s crust. So, unlike fossil fuels, the supply of silicon will never ever run out.

Assuming an attainable reduction in PV systems cost to, say, $2,500/KW due to increased efficiency solar cells and a huge increase in the production thereof, the cost of building, owning and operating a single nuclear-powered aircraft carrier for 5 years could, instead, enable the construction and operation of enough solar PV systems to supply electricity to some 2,000,000 homes for 20 years or so. Not a bad start! (It’s left as an exercise for the reader to figure out how much less oil would need to be burned to supply that much electricity.) Somehow that would make me, at least, feel more secure than knowing that there’s one more dinosauric naval vessel afloat, who’s most successful function would be never to be called upon to get used in anger.

Please note that the US Department of Defense budget for 2005 was over $400 billion – plus a few more tens of $billions since then to ‘democratize’ Iraq: but Defense against what? Certainly not against the USA’s ever-increasing dependence on imported oil, and the ever-decreasing prospects that your grandchildren and mine will be able to ‘enjoy’ the lavish squandering of irreplaceable fossil fuels, the burgeoning air pollution, and goodness only knows the extent of the hardly beneficial effects of global warming.

Technorati Tags : solar energy, silicon solar cells, US energy independence, how to reduce oil consumption

A Step Backwards in the Right Direction?

What if there were a universal moratorium on the creation and development of any and all new technology?

Surely I can’t be the only - pick one: nutcase, genius, troglodyte, visionary, reactionary, avant guarde-ian (and so on, but you get the general idea) who speculates, from time to time, about what all of us self-defined creative types, or batteners thereon, would do with ourselves, were such a universal moratorium to be not only declared, but actually acted upon. (I was about to write “implemented” but how does one implement inaction, even if there’s a fancy word for it?)

            Many of us, including VCs, who make a living (litotes!) from innovation – by others, of course – might bitch and moan at such an outrageous proposition but, to get at least semi-serious, wouldn’t it take approximately forever to cause the widespread diffusion of the technology we already have, without continuously widening the gap between the (technology) haves and have-nots? And would there not be boundless demands for every kind of creativity and innovation to spread the (technology) wealth around, not as an act of  altruism, but indeed as a highly self-serving but victimless equivalent of  relieving the social and cultural stresses – does one need to add ‘religious’ to the list? – that bedevil our society and limit the ‘Global GNP’, so to speak? And would not success in such a (bizarre?) undertaking produce opportunities for true wealth creation that would

            make “VC Homeruns” look like strikeouts?

            There, that wasn’t so hard, was it? Be a Nike fan and ‘just do it’!

           

Techn   Tags : technologydiffusion, innovation, vchomeruns

 

 

 

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High Tech Investments - grow 'em rather than pick 'em

Some thoughts and speculations about VC Seed investments: does our common use of the term obscure rather than clarify the intent thereof?

 

A few days ago, I found myself giving free advice (worth what one pays for it?) to a pair of colleagues from one of the more conservative countries in Europe, on the subject on how to present seed and early stage high tech deals in palatable form to LPs whose digestive systems, as it were, equate such an arcane diet to, at best indigestible, and at worst, just plain poison.

 

And yet these same LPs, many of them Insurance companies, typically worship at the feet of the Gods of risk reduction. (Why else was the re-insurance industry born?) And how many of these metaphorically if not actually rotund burger/bankers would not leap, or at least waddle hastily, towards any financial equivalent of testing the waters with one finger before whole-body immersion in a costly investment, any and all varieties of which have inherent risk. (‘Come now, you surely exaggerate: a couple of years ago, how could one define an investment in Enron as risky?’ How indeed! The defense rests.)

 

So what is a seed investment in a high tech start-up if not a low $ cost way to test the waters? Of course, there’s lots of work involved, but us VCs are typically overpaid anyway, so we may as well try to earn our caviar-coated crusts of bread. And the eager beaver types amongst us simply do not subscribe to the VC gurus’ view that the return on any investment is inversely proportional to the time one needs to devote to it. True, I’d admit, of first investments in later stage companies – “C rounds” and beyond in VC parlance – but inapplicable to the process of growing companies from seeds, and being able to avoid putting in the big money until the seed has reached the seedling stage as a promising candidate for metamorphosis into a meaningfully large hunk of vegetation, metaphorically speaking, of course.  (Nonetheless, ‘lemon’ trees do not qualify…)

 

My free advice, then to you, dear risk-averse money men is: don’t eschew, but rather espouse experienced high tech ‘agronomists’ who grow your high returns by culling out the lemons before serious money is committed.

Deal-making: Part 2

The first time I used a model to swing a deal is blogged below. The next time this sneaky technique was employed was in my first patent license deal based on our shaped-crystal growth process: but first a bit of background.

 

I forget how it came about, but the New York Times picked up on our activities, the fruits of which were some amazingly long and intricate constant cross-section sapphire crystals, grown with great dexterity from molten alumina at over 2040 °C  (white heat!)  by my young colleague and protégé, Harold LaBelle. The NY Times reporter was intrigued, but also savvy enough to ask what applications there might be for such crystals. Not suffering from excess bashfulness, I reeled off, extemporaneously, of course, a list of ‘applications’ that somehow managed to include an everlasting razor blade. No surprise that the following Sunday, we featured prominently in the Times, the razor blade idea being accorded pride of place. (Actually, since sapphire has a low coefficient of friction, exceptional hardness and extraordinary wear resistance, maybe, just maybe….)

 

The article generated lots of interest, but not a whisper from Gillette. OK, so who, we asked ourselves, is an Avis to Gillette’s Hertz? (Remember when Avis used to try harder?) We decided to target Gem, a razor blade manufacturing subsidiary of Philip Morris (yes, the tobacco giant, but before smokers knew the severe hazards of their addiction) although we were, to any objective observer – not including ourselves, of course – far, far too early in the technology development to merit being taken seriously.

 

Off we traipsed to Richmond, Virginia, armed with hastily grown sapphire ribbon-like crystals roughly in the form of long single-edged razor blades, and a (grossly inaccurate) estimate of the time and cost to perfect the technique and to bring the price per blade down to what we imagined would be an acceptable level. (Ah, the refreshing naïveté of youth and inexperience: so much more stimulating than the somber face of jaded professionalism.)

 

Because the tech-stuff we described to the Gem engineers was leagues more exciting than their usual diet, we encountered not the NIH (not-invented-here) Syndrome of a Gillette, say, but rather an enthusiasm that transcended their habitual engineering torpor.In fact, everything seemed to be progressing smoothly, and uncharacteristically swiftly, until: enter the sharp-faced eyeshade wearers to discuss the financial details of a possible deal, most notably the matter of license royalties.

 

The concept that had emerged from the discussions with the techies and the marketeers was a one-piece razor comprising a fancy plastic handle bonded to a sapphire single-edge blade. It would be advertised as ‘everlasting’ – as older versions, at least, of the wedding ceremony also proclaimed.

 

OK then, we needed to agree on a royalty rate (1%? 3%? 5 %?), but as a percentage of what? We, of course, sought to make the royalty base the net selling price of the fancy ready-to-use razor; they, no surprise to learn, insisted that the royalty base be the cost of the sapphire part only. Reasonable? In a pig’s eye! Since they would be manufacturing the blades, even if we made the pre-sharpened ribbons, they could assign an arbitrary ‘cost’ to the blade, making it a very small fraction of the selling price of the sexy razor. Our royalty would then be a very small percentage of a very small percentage: phooey!.

 

My youthful chutzpah not having been seriously eroded, I insisted on talking to THE boss-man, a very senior Philip Morris executive, maybe even the President. This was neither a request for which they were prepared, nor one with which they could quickly comply – luckily for us, it turned out, since we needed some extra time.

 

For this crucial meeting, probably to be scheduled for no more than 15 minutes, a show-and-tell deal-unbreaker would be needed: no trenchant arguments, no how-can-a-giant-like-you-beat-up-on-a-small-company-like-us sort of thing, no verbal foreplay, just one swift knockout punch. Call in the model-maker!

 

The prop I decided on was a sapphire-bladed model of an old-fashioned ‘cut-throat’ razor with a teak handle, to nestle, of course, in a red velvet-lined teak box. (From the previous blog you now know what razors and thermoelectric generators can have in common.)

 

Wonderfully ingenious Harry LaBelle figured out how to grow a long sapphire crystal with the same cross-sectional geometry and dimensions as the blade of a classic ‘cut-throat’ razor, but with a rounded rather than a sharp ‘cutting edge’. (We couldn’t afford the risk of a slashed Philip Morris exec, and anyway, we were far from being able to put a seriously sharp edge on our crystals.) Notwithstanding its tenuous relationship to the goal of the actual project – but that was for said exec to fathom – the result was a thing of beauty.

 

Back, then, to Richmond with the precious prop, and to a room full of weasel-faced nay-sayers  arranged in an arc around the massive desk and presence of  ‘His Nibs’ the unmentionably senior Philip Morrisite. “OK gentlemen” he said, but in a tone that made ‘gentlemen’ sound more like an insult than an approbation, “what’s the issue?” He was addressing his cohorts, but focusing on the box that I was slowly unwrapping. The senior eye-shaded cohort ranted on about the unreasonableness, illegality even, of our demand that the royalty base on the to-be-developed ‘everlasting sapphire-bladed razor’ be the net selling price of the whole fancy razor, and not just the novel blade. But by then, the exec had the box in his hand, had opened it, had carefully taken out the ‘razor’, had run his manicured fingers along the shiny sapphire ‘blade’, had held it up admiringly to the light, and had acquired that visionary demeanor to which only the most overpaid execs are allowed to aspire. “Give them what they’re asking”, he proclaimed: exeunt the corporate plebes, spluttering and muttering, but to no avail.

 

Said I: “May I be allowed, sir, to request that you keep, as token of our appreciation, the …, the….”(What should I call it? Not ‘model’ surely.) No need to worry: his piercing stare defied me to request the return of whatever it was to be called.

 

At the negotiated royalty rate of 4%, we would have attained wealth beyond the dreams of avarice – if only the damn project had been successful. But then, us research types are, well let’s hear it from the thrice-married but still virginal Ms. Smith: “Married for the third time?” expostulated the incredulous gynecologist. “Well”, said demure Ms. Smith, “my first husband was killed in a car accident on the way to our honeymoon; my second husband may have had a stiff you-know-what, but his wrists were big-time limp; and my present husband is an R&D Director who keeps telling me how good it’s going to be when it happens.”

 

OK, a flippant account, this, but of actual events – and with a powerful message. Maybe professional intellectuals, philosophers and the like, can ‘buy’ an idea from words alone, but most men/boys (women are less likely to still be girls) often need a tangible something to open the clogged passage through their cynical ‘yea, tell me another’ attitude, the metaphorical Kevlar vest to protect them from idea salesmen. That ‘something’ will best be a physical model that can be played with, e.g. disassembled and reassembled, or at least a ‘toy’ that can be handled and admired. What it really is, in context, is a metaphorical drill to burrow through the veneer of adulthood into the spontaneous receptivity of the youthful mind.  (Wow! Did I say that?)

 

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Deal-making tip: We males get older, but do we ever grow up?

Maybe used car salesmen and other peddlers of tangible goods know it, but do many of us self-nominated sophisticates appreciate the value of physical props (toys) in selling ideas, deals and the like? I think not: when it comes to toys, not only will boys be boys, but often men will too. So use it!
 
A couple of examples, in this blog and the next one, may titillate you. Back in the late 1960s when the development of portable energy sources rose high on the list of US Government interests, priorities even, thermoelectric generators (T/Es for short) – namely devices that produce electricity from heat, with no moving parts – were being disinterred from their previous obscurity. The basis for their possible resurrection was two-fold: more efficient active materials – semiconductors, of course – and long-lived heat sources, like radioactive isotopes that emit only easily stopped alpha particles that heat what stops them, but don’t produce those nasty gamma-rays, the bodily absorption of which is cancer-causing, for a start.
 
On the basis of a crash course in thermoelectrics – not literally, I’m glad to report, since the expertise was acquired by reading the thankfully short classic text on the subject during a flight from Boston to Washington DC – I proudly presented to various funding agencies there a ‘novel idea’ (are there any other kind emanating from us techie hucksters?) for the development and construction of an efficient T/E generator. The reaction? Well, as a Royal might say to a plebe: “We are not amused.”
 
Back to the drawing board, from which emerged what we thought was a rather fetching design for a compact, efficient T/E generator that no serious evaluator could fail to recognize as such. Ha! Based on the frequency and consistency of rejections from those self-designated pundits in Washington, however, we might well have given up on thermoelectrics and sought a text on, say, fuel cells instead. But wait… I felt a rush of neurons that could signal an inspiration.  “Build a model”, spake the proverbial still small voice – which I interpreted literally, not being an economist or an academe.
 
Our in-house jack-of-all-trades built this beautiful model of the T/E generator, using various colors of transparent plastic, held together by brass screws, nuts and bolts. A red velvet-lined teak box housed the necessary tools to eviscerate and reviscerate it. (Apologies to Webster’s and the OED.) Gorgeous!
 
So off I went back to Washington DC to confront the severest critic of our previously paper-only proposal, but the man (boy?) with the license to dispense funds summarily for projects of his choice. He sneered at me, as his version of a welcome, but focused on the package that I peeled the way Gipsy Rose Lee used to peel herself.  Without a word, he reached over and captured the model and the teak box.
 
With something approaching animation – a quality not before exhibited by this guardian of US Government funds – he lovingly disassembled the model, reassembled it, and once again did both. In response to a signal he must of sent via an under-the-desk button – this was, after all, the US Atomic Energy Authority – a minion appeared, whom he instructed : “Write this man a contract”. To me: “You can go now”, his hands encircling the model and the tools in a manner that quite effectively discouraged me from requesting their return.
 
Not many weeks later, we received official approval for our proposal, in the full amount requested. (Of course, the project never achieved its goals, but the Final Report was masterly!)

 

 

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Large and speedily executed deals between small companies and industrial giants? Implausible, but not impossible.

The way in which Mobil Tyco Solar Energy Corporation, a Joint Venture between then quite small but now infamous Tyco, and the mighty Mobil Oil Corporation, came into being was, in retrospect, so implausible an occurrence as to contain many interesting lessons for aspiring deal-doers. Driven by the need for a solution to a pending crisis that, in context, rated mention on the Richter Scale, namely the almost assured demise of Tyco’s ~100 person laboratory - the company name back then, early 1970s, was Tyco Laboratories Inc. - and having as a tool only chutzpa-tinged instinct, I set about a rescue operation for the crisis which I, perforce, had created by hiring, as successor President and CEO to me, an archetypal US hard-core executive who would surely take very little time to decide that what he most certainly did not need in acquisition-of-profitable-companies-based Tyco was a bunch of scientific types whose best bottom line performance would be to cost the company less rather than more to maintain.

 

Although the lab had lots of projects supported by a variety of Agencies, the only activities with even conjectural commercial viability were in the area of the growth directly from the melt of any constant cross-section shaped crystal by the Tyco-invented EFG process, e.g. putatively, at least (at most?), silicon ribbons for low-cost terrestrial solar cells. At that time, however, the closest we had to a ‘silicon ribbon’ was a few-cm long hunk of silicon that was somewhat wider (~ 1 cm) than it was thick (~0.5 cm) – clearly (sic!) the precursor of continuous silicon single-crystal ribbons 100 cm wide and ~0.2 mm thick, hundreds of meters long, wound on drums in preparation for fully automated solar cell manufacture. (We leave shrinking to violets... )

 

‘Clearly’, says he: there’s chutzpa for you. No, no: there was back-up data, which just happened to fit on the back of an envelope, to the effect that, for the paltry sum of $50 million (early 1970s dollars, that is) spent competently over a ten-year period, I posited that a process could be developed for the production of ribbon-based silicon solar cells that would produce electricity at a cost per kilowatt-hour competitive with that produced by conventional power stations.

 

First write a business plan, right? Right! Except that mine comprised a 1½ page letter that would not strain the attention span of even a business mogul. (I still have the grace to blush when I remember the criteria for business plans that I later established as Executive Director of the Israel-US Binational Industrial R&D Foundation, BIRD: 1½ pages indeed!) It offered 80% ownership to the fortunate JV partner for an investment of $50 million. We, Tyco, would get 20% for the technology, the practioners thereof, and the intellectual property (IP).  All that was needed was a partner who could and would go for this once-in-a-lifetime opportunity.

 

Obviously the partner-elect had to be B-I-G, but monolithic to insure that the decision would be made at the top, with no filtering by – perish the thought – techies with genetic ‘not-invented-here (NIH)’ syndrome. OK, let’s take a look at Fortune’s (then) 100: ATT, the leader? Forget it! Wait a bit: how about oil companies? Esso(Exxon), sad to say, had already started diversifying, including some solar cell stuff. Mobil looked good – good enough, in fact, to have the privilege of becoming the prime target. So off I trotted to Mobil HQ on 42nd Street in NYC.

 

With the embellishments that accrue from re-telling, I have almost come to believe that I simply walked in off the street and told a startled doorman/guard that I wanted to see the ‘individual in charge’. Not knowing what else to do, he called the top hauncho and told him that a Dr. Mlavsky had come to see him on a matter of great importance. Not knowing what else to do, said hauncho invited me up to the hallowed Executive Floor. I gave him the letter and, with great portentousness, unwrapped and handed him that then one and only silicon harbinger of a Solar Age. Don’t ask me to reproduce the pitch, but within an hour or so, said he: “$50 million and 10 years? Sounds high to me: how about $30 million over 7 years?” Need it be said that, after the obligatory pause for appearing to give somber consideration to this counter-offer, I accepted. And yes, that was the deal later enshrined in legal gobbledygook, namely Mobil receiving 80% of the JV after it had invested $30 million.

 

OK, so I probably had arranged an appointment in advance. (Picky, picky!)  But the next meeting, very soon after, was with the Mobil President, the Chairman of the Board, and assorted VPs and chief assistants to their respective assistant chiefs. One was the VP PR, who, when instructed to tell the world that Mobil was about to go into the silicon solar cell business, went into red-faced spluttering mode: “Silicone?” said he. “Not silicone”, said the Pres., “that’s the stuff that went into Raquel Welch’s tits. SILICON, that’s a – what is it, Ed?:  right, a semiconductor.”

 

Breaking “n” more rules, where “n” is large indeed, within eight weeks, yes eight  weeks, of my first meeting with them, Mobil, as part of its role in the newly-created Mobil Tyco Solar Energy Corporation, starting picking up the tab for Tyco’s lab, almost all the staff of which were reassigned to the solar cell project.

 

How did it turn out? By chance, Mobil finished up spending about $50 million over about 10 years  (sounds familiar?), namely in the early '80s, before selling off the operation at a truly bargain price - a pity, since the solar panels then being produced by the venture were the most efficient in the industry, and have been surpassed only very recently. And remember, please, that the 'business plan' upon which the investment was made occupied little more writing real estate than the back of an envelope.

 

Moral: start at the top, and go no lower until the deal is made. And remember, Business Plans are for VC functionaries, plebes and Government funding agencies: for top bananas, keep it short and simple. (Put mathematically, it is posited that the ideal length of a presentation is inversely propotional to the stature of the addressee.)

 

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Some serious stuff about High Tech Israel - Part 2

Yesterday's Post included the quantitative validations of the claim that ‘Israel is a high-tech powerhouse' - today we cover the qualitative, and as promised, the Beatles.

 

So, what was the primary catalyst in Israel for converting opportunity into reality?

No choice ! With nothing much under the sand here except more sand, if one insists on attaining a GDP per capita that is comparable to what is to be found in, say, Spain – and we’ve already passed them – and later, what the Swiss enjoy, there is no more feasible strategy than to create high added value products.

 

One such was the achievement of the Beatles ! To exaggerate a bit, one might say that they bridged the gap from Imperial Britain to North Sea oil. (When I was a kid in England, practically the whole Globe was Imperial Red – and not the sort of red that Karl Marx would have liked to see.) How much higher added value can one get than by selling zillions of plastic disks or tapes which cost pennies to make, but command prices of many dollars a piece? (The UK repaid these Liverpudlians by handing out a few knighthoods, not a significant cost.) Unfortunately, Israel songsters sing in their own language, not widely appreciated on a global scale. Another field that enjoys a fantastically high ratio of selling price to material cost is the fashion industry. (I once weighed my daughter’s upscale bikini: we’d paid ~$1,000/lb for the cotton of which it was composed – just a bit more than the price of the as-harvested variety.)

 

Sadly however, it’s not a viable strategy for Israel to rely on fashion or the performing arts for its economic growth – and citrus exports will hardly cut the mustard. (I wonder where that strange expression originated…) But look at software, for example: the ‘manufacturing cost’ of, say, a $100,000 enterprise software product is comprised mainly of the box in which it is shipped – if, indeed, it is not downloaded from computer to computer. Now there’s added value for you.

 

Way back when, my rule of thumb for guessing the price of an electronic ‘black box’ was to estimate its weight: commodity products, were $X/lb. (Pity, but I’ve forgotten the value I ascribed to ‘X’, but it was quite small.) But boxes that perform miracles in the communications field, for example, sell for a huge multiple of the weight of the box, a large factor in the ability of such products to command premium prices being the highly sophisticated silicon chips and the embedded software. Some of these chips themselves, many of them designed and a quite significant number thereof also manufactured in Israel, can command prices per unit weight that would allow gold foil to be used as the wrapping material.

 

For medical products, the ratio of price to cost is also often seemingly outrageous, but if you need a stent, you need a stent, never mind that it costs many thousands of $/lb. By the way, stents were invented in Israel , as were many other devices now judged indispensable, e.g. the Intel Centrino chip that is now ubiquitous in laptop and other mobile computers – which only adds to the frustration one feels here at our national lack of ability to generate PR about ourselves that is fair, accurate, and therefore very positive! (Sorry: I promised to forswear political comment – but one could opine that, with friends like France, for example, a healthy dose of truth-based PR – not necessarily an oxymoron – would not come amiss.)

 

OK: so we have a driving need to succeed, and lots of relevantly qualified people – a good start, but not enough to account for how Israel has managed to attain what is no less than an extraordinary status in the world of high-tech. One of the underlying cultural factors that predate the foundation of the State is a deep-seated belief in the value of learning in all its aspects. Thousands of years of wandering about as a people, but not yet a nation, reinforced the need to carry one’s identity and profession around with one. No prize for naming the best repository for these assets: the head.

 

With nationhood came the ability to create world class institutions for every kind of learning, but the first need was to survive whilst surrounded – and grossly outnumbered – by not the friendliest or most tolerant of neighbors. A sine qua non for survival is a high-tech army in which virtually all able-bodied male and female citizens must serve  - except those whose extreme religious beliefs make them unwilling and, indeed, unsuitable for inclusion.

Almost all young people, then, typically at age about 18, are drafted, the men for 3 years or more, the women for 2 years. Wow! What a price to pay for a country of one’s own! But the dividends from this investment of resources are huge: 1) mutual acculturation of immigrants from widely different places of birth; 2) education to literacy for those who need it; and - the clincher - 3) accelerated high tech exposure to those talented enough and motivated to advance in the field. It’s no accident, therefore, that many – in fact nearly all – of Israel ’s most successful high-tech companies were founded by individuals from a small number of elite Israel Defense Forces (IDF) units.

 

One of the most important factors in enabling maximum leverage from the skill sets acquired by these personnel is that the IDF retains no rights whatsoever to technology developed under its aegis. Of course, specific matters relating to national security must be respected, but even the most advanced military and security-related technologies can typically form the basis for valuable commercial and industrial products.

 

This “omission” in the restrictions that apply to, for example, Intellectual Property (IP) generated in the US under Government support, has proven to be a very powerful incentive to potential entrepreneurs: no red tape – just do it ! (Relax Nike: I’ll only borrow your slogan just this once.)

Some serious stuff about High Tech Israel - Part 1

The Socratic approach here might be as follows: ‘Israel is a high-tech powerhouse: true or false – and if true, how did it come about? Ask your questions, discuss, and then leave your scrolls on the table on the way out’.

 

Conclusions like: ‘you’re darn right it is’, to some of us impatient ones, just beg to be jumped to, and so stand back as I leap. (Too late: I’ve already leapt.)

We’ll talk about several quantitative (in this post) as well as qualitative (in the next post) validations of this brash claim before addressing the more complex issue of philosophizing about root causes.

Because we are, by any measure, quite a tiny country – that some would like to see shrink even to zero (Oops! Stay out of politics), almost all parameters that pertain to technical capabilities, resources and achievements are most meaningfully defined on a per capita basis: here are a few that aren't:

1. Israel has more than 140 companies listed on NASDAQ: only Canada and, of course, the U.S. of A have more.
2. In 2005, California-based VCs  invested in 895 local high-tech start-ups; New England-based VCs invested in 385; and Israeli VCs invested in 378 home-grown ones – and don’t even bother to ask about the numbers for European countries: the total for all of Europe in 2005 was about the same as for Israel…
3.   “In the first three quarters of 2004, Israel high tech companies placed third in capital raising after California and Massachusetts, but ahead of Texas, New Jersey, New York and other states. Israeli companies placed second in capital raising among European countries, after the UK, and ahead of Germany, France, Sweden, Switzerland, Denmark and Ireland.” Efrat Zakai, Director of Research, Journal of Israel Venture Capital, December 2004.
4. “It is estimated that some 15% of all communications equipment sold around the world comes from Israel.” UK Trade & Investment publication.

And a few that are on a normalized basis:

1. Israel has ~140 scientists and engineers per 10,000 of population, nearly twice as many as the US, and more than twice as many as Japan.
2. Israeli is second only to the US in the per capita number of scientific papers published in refereed journals, and in patent applications filed.
3. The percentage of citizens who are university graduates is among the highest in the world.

The last few points indicate that the raw material is at hand for the creation of a thriving high tech-based economy, but as us pedants are wont to remark, this is a necessary but not even close to a sufficient condition. Compare Israel, for example, with Switzerland. (OK, they did progress from cuckoo clocks to Swatches.) So, what was the primary catalyst here for converting opportunity into reality? (It’s great to be able to pose only those questions to which one believes one has answers – one of the few benefits of being a blogger rather than a bloggee.) Answer:No choice!

With nothing much under the sand here except more sand, if one insists on attaining a GDP per capita that is comparable to what is to be found in, say, Spain – and we’ve already passed them – and later, what the Swiss enjoy, there is no more feasible strategy than to create high added value products.

Now for more on high tech Israel and the Beatles, yes, the Beatles: stay tuned for Part 2...

 

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