Despite the lingering Gaza war and downgrade of Israel’s credit rating – now at “Baa1”, close to “junk bond” status, 2024 was a very good year for Israel’s tech sector: “the past year has seen a 78% surge in the value of exits by Israeli companies. The total amount reached $13.4 billion, compared to $7.5 billion in 2023” (Ctech, 23 Dec. 2024).

The Ctech primer quotes 2024 data (up to 8 December) published by Price Waterhouse Cooper (PwC) Israel. A closer look at the PwC report shows that it excludes follow-up deals (with which the the total amount would be substantially higher) and that more than 94% of the rise can be attributed to M&As: essentially acquisition of relatively young Israeli startups by larger US companies (Salesforce, Nvidia, Ashley), or, to a lesser extent, US and UK VC funds (e.g., Permira).

As I argued in my London Business School lecture earlier this year (30 Oct. 2024), the success of Israel’s Silicon Wadi is found to a large extent in the natural conjunction of 1) private capital discipline, 2) IT including cybersecurity and AI excellence, with seed money and/or emerging technologies coming in part from military procurement programs and founders fresh from military service, and 3) the superior use of US-style marketing and advertising techniques (see e.g. eToro, Resident) – that third success factor is essential and often lacking in many Mainland European and UK startups.

I have also argued that the Israeli recipe for success is based to a large extent on the ideas of General Georges Doriot (US Army, Harvard, INSEAD) who founded American Research and Development Corporation (ARDC), the first venture capital fund, in Boston back in 1956. Doriot argued that, “when harnessed properly”, new companies started by young American engineers and technicians returning from the Korean War would constitute superior investment opportunities for “smart capital”.

For cultural and ideological reasons, Israel wasn’t ready to heed Doriot’s call in the 20th century (Marxist leaning governments, military bureaucracy, mediocre capital markets). But things changed in the past 15+ years with Israeli prime ministers and generals alike, many of them MIT and Harvard alumni, embracing America’s original venture capital ethos: combining patient private capital, a focus on consumer electronics, e-commerce and “dual use” military-civilian technologies, and fiscal incentives from business savvy policy makers (Eisenhower, Ford, Reagan). Tellingly, prime minister Benjamin Netanyahu majored in marketing and management at MIT after spending his formative years in Pennsylvania, and his predecessor Naftali Bennett is a software entrepreneur turned venture capitalist from San Francisco …