Rewarding risks

Courage and imagination play a crucial role in mushrooming of start-ups in Israel

Tel Aviv, September 3

In 2010, Rami Cohen, an Israeli physician, noticed that most of his patients were not following medication instructions properly.If they were told, for instance, to take two pills twice daily, only 50 per cent would take two pills in the morning and two in the evening.

“Others would interpret the instruction in their own ways and either take one pill each two times a day or follow some other pattern,” says Cohen.These types of inconsistencies do not yield favourable results, preventing patients from getting cured even after spending tonnes of money. And this bothered Cohen.“There are syringes that can cost up to $1,000 each. If patients inject them wrong, they won’t have any effect,” Cohen says.

Tailored contents

While Cohen was trying to find a solution to this problem, he accidentally stumbled upon a business idea that had never been pursued. That was when he formed a start-up company called Telesofia with Danny Ben Shitrit, a webmaster and IT expert.

The duo, along with a team of medical doctors and internet industry experts, then started designing a web platform to generate videos, which would teach patients when and how to take medication.After comprehensive testing, the web platform was finally launched in May 2014.

Since then, the company has created millions of video contents tailored to suit unique needs of tens of thousands of patients.“These videos comprise a human model who calls patients by their names and instructs how to follow medication and other medical instructions,” says Cohen, now founder and CEO of Telesofia, adding, “These personal videos are created automatically within seconds using medical information provided to us by physicians, pharmacists or pharmaceutical and insurance firms.”

These videos can be viewed on any device, without downloading any application.“We send the link through text message or e-mail. All patients need to do is click on the link,” says Cohen, who has an office on the 38th floor of the posh Azrieli Centre in the Israeli financial capital of Tel Aviv — an indication he is making pretty good money, although he did not fully explain his revenue model.

Wearable solution

Around the time when Cohen was facing problems with patients, Rami Parham, a student of industrial engineering and management, was getting bored watching a television show with his brother.“The topic of the show was so interesting. But the host presented it in such a lame manner, I kind of felt pity for him,” says Parham, who is now 30. Here too Parham saw an opportunity and decided to come up with a wearable solution to control presentations from a remote location.

Soon, he established a start-up called MUV Interactive.This company is now about to commercially launch a small wearable device called ‘Bird’, using which one can control PowerPoint presentations by waving the hand.

This interface, which works on Bluetooth technology, can be worn like a ring in the index finger and even controls drones and any smart device, including television and even lamps, from as far as 30 metres.The beauty of this interface is that it detects the movement of the hand in the space, enabling people to touch on a surface or device, without actually touching them.

So, using this device, coupled with a projector, you can turn any object, such as walls or tables, into a touchable interactive screen.This is probably why Bloomberg recently said: “When Apple introduced the iPhone, it brought the touchscreen to the masses for the first time. Today, MUV has gone one better by enabling you to turn your sofa into a smartphone, or your table into a tablet.”

Start-up nation

It is because of people like Parham and Cohen — who rush to establish a start-up soon after stumbling upon an innovative idea — that Israel has earned the moniker of a ‘start-up nation’.

No wonder, the country, located in the Middle East, is now dotted with around 5,000 start-ups, which are working in areas, such as IT, telecom, biotech, digital health, financial technology, consumer goods, education technology, energy and water.

The number of start-ups operating in the country is the highest in the world in terms of population density. Simply put, Israel has one start-up per 2,000 people.One of the reasons for such a high number of start-ups is the presence of quite a good number of leading science institutions, which churn out young talents.

But along with that, two other ingredients have also played a crucial role in mushrooming of start-ups. They are courage and imagination, says Saul Singer, co-author of ‘Start-up Nation: The Story of Israel’s Economic Miracle’, an international best-seller.

The courage that Singer is talking about is not related to ‘jumping out of a plane or bungy jumping’. “It’s about pursuing imagination or idea that people around you think are absurd or wrong,” he says.

Now add to that tolerance for failure and it provides a fertile ground for growth of start-ups.

“At least 90 per cent of start-ups all over the world fail. Israelis know this, yet they are not afraid of failing. So, it’s all about failing and trying again, failing and trying again. And Israeli society accepts this,” says Inbal Arieli, vice president, strategic partnerships, Start-Up Nation Central, which connects business and government leaders with people and technologies that can solve their most pressing challenges.

It’s because of courage of wannabe entrepreneurs and absence of culture of stigmatising failure that MUV’s Parham — who initially faced rejections from investors — was able to invent ‘Bird’. This is the same with Telesofia’s Cohen, who took a bold decision to ditch his career as a physician and open his own company from scratch.

But knowledge, idea, courage and tolerance for risk may not always help young innovators to pursue their dreams unless there are funds and entrepreneurial skills. Everyone knows innovation and entrepreneurship are two different things. Innovative people may not always be able to market their creations in the absence of entrepreneurial skills. At the same time, funds are also required to generate innovative products and cover other expenses.

This is where venture capital firms come in. And it is because of these firms, the country, which was established around six decades ago, now has a successful start-up ecosystem.

Early days

But this was not the case in late 1980s and early 1990s when start-up companies first started sprouting. “Before the introduction of venture capital in Israel, there were only two sources of funding,” says the book, ‘Start-up Nation’.

“First, Israeli start-ups could apply to the state-owned Office of the Chief Scientist for matching grants. Second, Israeli companies could apply for grants extended by the Bi-national Industrial Research and Development Foundation, which was created from $110 million put up by the US and Israeli governments to support US-Israeli joint business ventures.”

But matching grants alone did not solve the problem.

This was because grants were usually not sufficient, which led to closure of companies deemed capable. Second, companies, which were doing fine in research and development, were unable to market products or manage themselves.

This was when it was realised that the only solution was venture capital funds. Venture capital firms do not only provide much-needed money, but work as mentors to help a company grow. They also work as a bridge to connect start-ups with potential clients, government officials and other investors.

Then in early 1990s, the Israeli government introduced a programme called Yozma — a Hebrew word for ‘initiative’.

“The idea was for the government to invest $100 million to create 10 venture capital funds. And each of the fund had to be represented by three parties: Israeli venture capitalists in training, a foreign venture capital firm and an Israeli investment company or bank,” says ‘Start-up Nation’.

Some features of Yozma funds introduced by government, like sharing risk but offering all rewards to investors, did draw investment from foreigners as well, who at that time were not eager to pour money into Israel because of conflict with Arab nations.

Despite this, 10 funds were able to raise only over $200 million between 1992 and 1997 — that too with the help of government’s one-is-to-one matching funding.

The game changer

While things were not really looking up, Israel’s budding start-up industry got its first big break in mid-1998.America Online (AOL), a US-based media company, acquired ICQ, an internet chat programme founded by four Israelis in their early 20s, at a whopping $407 million — the highest amount paid to an Israeli tech company at that time.

“The acquisition of ICQ gave a big boost to entrepreneurs. Many said ‘if those idiots can do it, we can also do it’,” says Singer. “At the same time, this also drew attention of venture capital firms from around the world.” That was when Israel was placed on the map of innovation and venture capital firms from leading countries started to invest in the country’s start-ups.

Today, Israel draws highest venture capital per capita. And the World Economic Forum Global Competitiveness Yearbook 2014-15 has ranked Israel ninth for venture capital availability out of 148 economies.

“So, it’s not only state’s research and development spending that drives innovation because the government basically does things it thinks are correct,” explains Singer.

For instance, if the government wants to promote technology, it builds a tech park, adds Singer. “But that does not work very well, because start-ups like to base themselves in cool neighbourhood with coffee shops.”

So, the real driver, according to Singer, is the result and Israel found that through acquisition of ICQ. “This led to the growth of the (start-up) ecosystem, which, in turn, prompted the government to allocate more resources for research and development.”

While start-ups are doing miracles to Israel’s economy, few problems have also started to crop up.“When we recruit young people, especially in life sciences, the first thing they want to do is establish a company. This is pulling them away from basic science to more of an applied science. If this continues the spring of knowledge that fed us in the beginning will dry because applied science comes from basic science,” warns Aaron Ciechanover, an Israeli biologist, who won Nobel Prize in Chemistry in 2004, currently affiliated with University of Technion.