From innovation in Latin America to Europe. In this column, I cover my travels to Israel, France and the UK. In the next column I’ll cover Scandinavia and Russia ─ the northern portion of my travels.
So back to Tel Aviv— where old world meets new — let me pick up on my travelogue from a few weeks ago. While in Tel Aviv, I stayed at the Hotel David InterContinental, a new high-rise structure that rises above the winding streets of Neve Tzedek, Israel’s “Soho” district and medieval Old Jaffa. This Mediterranean seaside resort has a modern façade — not unlike the country itself with its thriving tech focus. I couldn’t agree more with Bill Gates when he visited Israel last fall, announcing our relationship to foster start-ups and entrepreneurialism: He called Israel a “technology powerhouse.”
Israel — Secure In Startups. They Are Everywhere
The Israel Venture Association estimates that the country now has more than 2,000 startups in various stages of development. In 2005 alone, BusinessWeek adds that more than 200 new ventures were started. From what I saw, Silicon Valley best practices are second nature here — witness established Silicon Valley VC firms [think Benchmark and Sequoia] operating in Tel Aviv. Israel has a highly educated workforce with nearly twice as many engineers as in the U.S. or Japan for every 10,000 employees.
Much of the innovation in Israel stems from early strategic R&D investments made by the military. In fact, the VC industry in Israel is a by-product of the government-sponsored Yozma Fund, designed to bootstrap the venture market in 1993. It obviously worked. The fund was privatized in 1997 with the government exiting from direct involvement. Today, Israeli VCs — having invested more than $10 billion in local companies since the 1990s — are playing a major role in making the country an important global source of innovation. Ronen Smooha, head of our ISV and developer work in Israel, and I met with some of their world-class venture capital firms: Pitango, Vertex Management, and , in December. Together with foreign VC funds, $1.5 billion in new ventures flowed into the country in 2005 alone in the area of communications, software, the Internet and life sciences.
Multinationals Establish Footholds in Israel
Israel’s highly educated and trained workforce has made it attractive to large multinational R&D investment from companies such as Microsoft, IBM, Intel, Cisco, Motorola, and SAP. In fact, many are continuing to expand their development and research facilities there. Clearly, Israel benefits from the sophisticated internal use of its IT technology along with funding and further training of its workforce by multinationals. With a small home market for high-tech, the country has a natural propensity to develop products for offshore markets, and multinationals have been critical to this end.
For years now, innovation in security has been the central theme with leading startups such as Secured Dimensions and Safend. Other hot startups include Olive Software and DB Motion.
In 2005, Microsoft announced a relationship with the Israeli government to establish a joint program to give Israeli start-ups financial and technological support. During this three-year effort, we’ll provide individualized consulting and technical advice to help stimulate innovative start up opportunities in the domestic and global marketplace.
My key takeaway:
The big advantage in Israel continues to be engineering quality and the level of innovation in security startups. Israel has an outstanding record of success and one of the highest concentrations of high-tech in the world. Many Israeli startups have become global companies, most notably Check Point Software in Internet security or Amdocs, one of the leaders in telecom billing and one of the largest ISVs in Israel. Intent on taking the software ecosystem there to the next level, we will continue to participate as a partner with the government, as asked, and continue to monitor our efforts.
France — How Are Startups Doing? Très Bien, Merci.
Everyone knows about the great food and wine, but a vibrant start-up culture to boot? France has one, in part, due to the role of government-backed R&D and exciting initiatives such as the recently launched INRIA, the national institute for research in computer science and control. The Institute plays a major role in software development by promoting the transfer of technology via collaborations and partnerships, and through the creation of new startups. Historical success stories include Ilog or Kelkoo.
Sofinnova Partners, France’s largest venture fund, is absolutely world-class in their insight and approach to emerging opportunities in the mobile space and the new world of the web. Banexi Venture Partners have also been doing quite well with an extremely hands-on and focused approach to core and complicated business models — all of which create competitive advantage.
France Gets Innovative Ideas
At the end of 2004, the French government was directly/indirectly responsible for more than one-third of the total VC investments. Wanting to encourage more seed investments, the French government created an innovation agency (ANVA, now part of OSEO) in 2005 that can finance innovative companies and R&D projects, up to 400KÎ per company. While this agency enables entrepreneurs to push ahead with their project, and in certain cases, helps attract investors, it was not designed to provide expertise or best practices, nor clients.
With this in mind, in October 2005, we announced an initiative to encourage software development and tech-entrepreneurship in France. Abbreviated IDEES, the French word for ‘ideas’, the agreement involves 20 venture-capital partners, 25 software companies, and an initiative by us to offer cooperation in a number of ways, including marketing, business development, internationalization, and technological support through the Paris MTC. IDEES aims at helping young, promising and innovative software startups emerge faster.
Leading this effort for us in France is Julien Codorniou, who brings extensive expertise outside the industry.
My key takeaway:
France’s weight in the global software industry is bound to grow, with a new generation of talented entrepreneurs and developers.
Similar to the initiatives we’ve launched in Israel, we are committed to supporting local economic development through partnerships with promising companies and local administrations. While our initiatives are not a panacea, they are stepping stones that will begin to change the innovation landscape.
United Kingdom — A Cultural Fusion of Best Practices
Of course, the UK is also deeply committed to fundamental research and computational science and the wealth effect it generates. The UK attracts some 30 percent of European VC investment — and the Cambridge area, known for attracting the greatest amount of VC funding outside of Silicon Valley, accounts for 25 percent of that. Along with outstanding UK VCs (such as 3i, Amadeus, Doughty Hanson and ) that are taking aim at the next generation of startups, many leading US VCs (think Accel and Benchmark) have also established a presence in the UK.
Given this fusion of research-led innovation, shared practices between the UK and its Silicon Valley counterparts, and increasing VC fund raisings — as well as much improved venture-backed IPO activity — I sense the beginning of a new wave of exciting UK companies being created. Think of AePONA (provisioning high-value telco services quickly); Autonomy (enterprise information management solutions heralding from Cambridge University research); Forty Two Objects (discovering the “DNA of business”); and NeverFail Group (reducing down-time in no time.) David Rowe (our Emerging Business Team lead in EMEA) and Peter Bell (DPE Microsoft UK) really do have their hands full with exciting companies and great VCs to work with.
My key takeaway:
The UK is no longer just about great scientific discoveries — or academic ivory tower stuff anymore. They now have marketing muscle to build new businesses — particularly with well-connected VC firms on the ground that have great partners. In fact, Silicon Valley best practices, coupled with a highly educated workforce and sophisticated research community, are accelerating the pipeline of new startups.
Everywhere I travel, I see that the next generation of opportunity for the local economy is certainly tied to innovation. Through innovation – in startups as well as partnerships among local agencies, multinational companies, and the entrepreneurial and venture community – come jobs and economic growth.
Join me next week in my continuing travels to Scandinavia and Russia.
Travels with Dan'l Part I
Travels with Dan'l Part III
