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Israel has the largest number of startups in the world proportionate to its population, and is only second to the US in absolute numbers.

Israeli startup companies are known for their creativity, innovation, and originality. Israeli ingenuity can be found in some of the world's leading products and technologies: voice mail, billing systems, internet security, instant messaging, ingestible video cameras, and generic pharmaceuticals.

Leading multinational companies such as Intel, Motorola and IBM have established foreign subsidiaries and R&D centers in Israel. Major foreign firms have stepped up their local M&A activities, and direct foreign investment in Israel has exceeded $2 billion annually.

What is behind these impressive achievements?

1. Unique Concentration of Expertise and Ingenuity

Israel has the world’s highest number of engineers as a percentage of its workforce. Seven major universities and research institutions, including the world- renowned Technion (Israel Institute of Technology) and the Weizmann Institute of Science, bolster the country’s highly educated skilled labor pool. Israel’s workforce is also one of the most educated in the world, with 20% of Israelis (ages 25 to 64) holding academic degrees. Relative to its size, Israel publishes more scientific articles than any other country in the world. Civilian R&D spending is among the world’s highest; when military R&D is included, it tops the list.

2. Transition from military to civilian markets

Israeli high tech owes much to the military. Spurred by its need for military independence, Israel strove to develop a technological edge. Many high-tech innovations were born in the Israel Defense Force, and its highly trained graduates are credited with spearheading the high-tech boom. Military technological know-how has been applied in industries as diverse as optics and medical devices.

3. Government incentives

Encouraging startups is a national priority. The government of Israel actively supports entrepreneurship and private business initiatives through grants, loans, and tax benefits available through various programs sponsored by the Office of the Chief Scientist (OCS) of the Ministry of Industry, Trade & Labor and the Israel Export & International Cooperation Institute. Government programs for startup encouragement include Tnufa, Magnet, and the Incubator program (see below).

4. International ties and economic cooperation

Israel benefits from strong and growing economic ties with the world’s major economic powers and trading blocs. Israel enjoys a unique combination of free trade agreements with the US and Europe, its two major trading partners, as well as with Canada, the EFTA nations and others. The governments of Israel and the United States support the Bi-National Industrial R&D Foundation (BIRD-F) matching funds R&D program, and teams of Israeli and European companies are eligible for financial assistance from the European Commission’s Sixth Framework R&D Program. Other foundations and programs include CIIRDF, ISERD, EUREKA and MAGNET.

5. Dynamic Venture Capital industry

Israeli VCs have been at the forefront of funding promising startups. Nearly 150 Venture Capital firms operate in Israel and over $1.2 billion were invested in 2005.

Start-up Incubators

As massive repositories of potential ideas, the Israeli technological incubators have helped make Israel’s hi-tech entrepreneurship world-renowned. The Ministry of Industry and Trade takes great pride in implementing the government policy of encouraging and supporting industrial research and development in Israel at the earliest stages. Today, with both public and private incubators assisting entrepreneurs in turning their ideas into exportable commercial products, Israeli business ventures look forward to a promising future.

 There are 34 incubators scattered throughout Israel, many of which have been recently privatized.

 By the end of June 2004, more than 1000 projects had left the incubators (in addition to the 200 that remained). Of these "graduates," 45% have continued on their own path.

 Most of the ongoing projects have attracted private investments.

 The total private investment obtained thus far is over US $773 million.

Read more for Start-up Incubators

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Source: The Israel Export & International Cooperation Institute
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