The secret sauce of a ‘start-up nation’

The World Bank
Anabel Gonzalez, Ganesh Rasagam



Israel has one of the most admired innovation systems in the world. With the highest Research & Development (R&D) spending and venture capital investment as a percentage of GDP, the country has positioned itself as a global leader in research and innovation, earning the title of “start-up nation.”

Avi Hasson, Chief Scientist of the Ministry of Economy and Industry and Chairman of the Israel Innovation Agency, was at the World Bank Group last week to share some of the “secret sauce” behind Israel’s success in the innovation and entrepreneurship space.

Hasson highlighted the key role played by public-private partnerships over the last 40 years. Those partnerships have resulted in the establishment of an innovation infrastructure — including educational and technical institutions, incubators and business accelerators —anchored within a dynamic national innovation ecosystem built around shared social goals.

Specifically, to reduce the risk for investors, the government has focused on funding technologies at various stages of innovation — from emerging entrepreneurs and start-ups to medium and large companies. Strengthened by that approach, the Israeli ecosystem is maturing: according to Hasson, mergers and acquisitions have increased and exit profits have almost tripled over the last three years, with more and more new projects being started by returning entrepreneurs.

A maturing ecosystem calls for impact-oriented public policies that can help harness innovation to address social challenges, enhance the local talent pool, expand opportunities for women and minorities, and ignite innovation in sectors that normally are not high-technology-driven.

The current strategy is to promote collaboration between large multinational firms and local small and medium-sized enterprises (SMEs), while also creating an open innovation platform connecting entrepreneurs with other stakeholders in the ecosystem to take full advantage of the opportunities of the fourth industrial revolution.

The Israeli experience has much to offer to emerging economies that are eager to develop an effective start-up ecosystem to address market, infrastructure and institutional gaps. It offers valuable insights on how to identify and build a talent pipeline through appropriate training, mentoring and coaching, and how to link effectively existing entrepreneurs to a global network of financial and technical resources.

The Innovation & Entrepreneurship unit in the World Bank Group’s Trade & Competitiveness Global Practice is drawing upon the Israeli experience to support developing countries in these efforts. In Poland, for instance, the World Bank Group helped the government design innovation programs and redirect funds toward R&D in growth-oriented start-ups, SMEs and large firms. In Serbia, the lessons from Israel were helpful in supporting the development of a sound innovation ecosystem, the establishment of the Serbia Innovation Fund, and early-stage funding programs for technology entrepreneurs and SMEs.

While much of the experience is contextual to Israel’s unique geopolitical situation, there are valuable lessons on how to build an innovation ecosystem that are applicable to many countries. We look forward to deepening this knowledge partnership with Israel on innovation policy design and implementation, as well as establishing open innovation platforms to support entrepreneurs, start-ups and SMEs in emerging economies.