Venture capital is flooding in, attracted by the
growing reputation of companies here for innovations in
telecommunications, software, electronics and
biotechnology. In 1991, Israel had one venture capital
firm, with $35 million to invest in young companies that
have good ideas. Now, nearly 70 venture capital firms
operate here, with a combined pot last year of $700
million.
"What we see today is a clear recognition, in Israel
and worldwide, that high tech is our instrument for
growth, and it's changing our image in the world," said
Uzia Galil, 72, the chairman and CEO of Haifa-based
Elron Electronic Industries Ltd. and a pioneer in the
field.
Jacob Goldman, a former head of research and
development at Xerox Corp. and now a
Connecticut-based venture capitalist and consultant,
agreed.
"Israel has one of the most vibrant high-tech
communities in the world these days," said Goldman,
who has studied Israeli high tech through frequent
consulting trips and personal visits here. "It's a great
deal like Silicon Valley 15 years ago. Israel, per capita,
is producing an awfully large number of good technical
people, and just about every major banking and venture
capital concern has a branch there."
That was not the case in 1962, however, when Galil,
the former chief of the Israeli navy's electronics
division, launched his first company. Many people were
skeptical of Galil's vision of turning advanced military
technologies into commercial products.
"People said we weren't serious," said Galil, whose
multinational technology empire, including Elron and 20
spinoffs, topped $1.2 billion in sales last year. "We
heard again and again that there would never be a
future in high tech and certainly not in Israel."
The naysayers were wrong.
Today, the boom is evident from Haifa in the north
to the Sharon Valley just outside this city--an area
often called Silicon Wadi, or valley, for the red-roofed
stucco homes and palm trees that remind many of
California and the original high-tech hotbed.
Orna Berry, the chief scientist for the Industry and
Trade Ministry, heads the government's effort to
support and strengthen the high-tech sector. "Because
Israel has only human resources, there is no real hope
of an economic breakthrough in any area other than
high tech," she said. "But this is a sector that is very
well-suited to us and that we are working very hard to
develop."
She and others regard high tech as a godsend for
Israel's economy, which slowed considerably in
1997--from an average annual growth rate of 5%
throughout the previous decade to just 2% last year.
Many industries, including textiles, metals and food
processing, have been hurt by the continuing deadlock
in the peace process, reduced foreign investment and
what some analysts call an overly tight monetary policy.
But high tech, with its market mainly in the United
States, has appeared almost immune to those
challenges, and grew more rapidly last year than
before.
Starting in 1991, the government set up the
high-tech incubators--research facilities to fund and
assist scientists and engineers in the early stages of
technological projects. So far, more than $125 million
has been funneled into the incubator program. It has
yielded about 300 projects, with more than half going
on to become full-fledged companies.
Shwed, Check Point's 31-year-old president and
CEO, said he believes that some of Israel's high-tech
aspirations have been aided by a tendency toward
nonconformity.
"Israelis are often very creative entrepreneurs,
goal-oriented, with a lot of innovations," he said. "There's
also a tendency to improvise and find solutions. And
since we don't have enough of a local market for high
tech in Israel, we have to take a global approach from
the very beginning."
His own story is a case in point.
Shwed was 10 when he started playing around with
computers. By the time he was 18 and headed into the
Israeli army for his mandatory three-year stint, he was
already a gifted programmer, and he used his time in
the service to learn new skills.
He left the military in 1991 with the idea for his
company already formed, but the Internet was still too
limited. Two years later, however, with the rise of
multimedia and video transmissions on the World Wide
Web, he knew that the time was right. The new
possibilities meant more chances for hackers to break
into corporate computer networks--and a growing need
for businesses to protect themselves.
"We raised money, wrote a small-business plan and
then focused on developing a product," Shwed said.
"Since we were so far from the market, we knew we
wanted to be in the products business, not service. It
worked."
The product they developed that summer is still the
backbone of their company, which has its U.S.
operations in Redwood City.
*
Overall, high tech has produced strong bonds
between Israel and the United States, with executives
such as Shwed commuting frequently between their
research and development facilities in the Tel Aviv
suburbs and their sales and marketing offices in
California.
At the same time, many top U.S. technology
corporations, including Microsoft, IBM and Motorola,
have opened plants and offices in Israel, attracted both
by the high-tech talent and by a variety of tax breaks
and other incentives. Intel, which already has a
research and development site in Haifa, is building a
$1.6-billion semiconductor plant in Kiryat Gat.
The already high-profile presence of the Israeli
companies on Wall Street is likely to be further
boosted. The software company Amdox is expected to
raise up to $400 million--a record for an Israeli
firm--when it offers its stock for the first time this
month.
In many ways, high tech--with its small start-ups and
jeans-and-T-shirt culture--seems almost uniquely suited
to the casual, shirt-sleeves society of Israel. In addition,
high tech's global market also works well for Israel,
which is still isolated from many of its Middle Eastern
neighbors.
But the growth of high tech is also changing Israel,
shifting its economic power center from the textile,
food-processing and banking moguls of recent years to
the young upstarts of high tech.
Unlike their predecessors, the newcomers tend to
have few ties to the government and little interest in
politics. And they--with their sudden wealth--have
contributed to a growing culture of upward mobility
and an appreciation for the good life that was once
foreign in socialist Israel.
Haim Bittner, 50, now a top software engineer in
the Tel Aviv office of a U.S.-based high-tech company,
has been part of that evolution.
Bittner grew up on a collective farm in northern
Israel, but he left to pursue an engineering degree and
a career that took him to the U.S. and back. He is now
a project manager for EMC, a Hopkinton, Mass.-based
firm that specializes in disk drive arrays for large
computer data systems.
He acknowledged the philosophical distance
between his old job--managing the kibbutz's date
farm--and his current position, but he said there is no
inherent contradiction. Not only does he know many
former kibbutz members who are now working in the
high-tech sector, but several of the collective farms
have also gotten in on the act, shifting from agriculture
to running technological companies.
"I know many that have made such a transition," he
said. "Now it doesn't seem unusual at all."
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