Land of milk and high tech

It is not for nothing that Israel is known as the startup nation: Israel has the highest number of high-tech workers in relation to the population, and the number of companies that have has successful exits rivals the United States, making a career in the fast-faced high-tech industry the new dream every Jewish mother wishes on her son. With Israel's modern history intertwined with all things startup, Israel Hayom revisited the origins of the industry that has swept the country by storm.

The first Zionist computer

In 1948, upon Israel's inception, Prime Minister David Ben-Gurion had the foresight to invest in technology, thinking Israel must close the gaps opposite the West, as well as versus the Arab world.

Ben-Gurion had a dream, and in 1954 a group of scientists at the Weizmann Institute tried to realize it by putting together Israel's first-ever electronic computer. The Weizmann Automatic Computer, dubbed "WEIZAC," performed its first calculation in October 1955, and some of the scientists working on the project later revealed that the first Zionist computer was originally designed to serve its country for only one hour a week.

The first electronic computer outside the United States and Europe, WEIZAC was used for mathematical research and mapping the fluctuation of tides, and it remained operational until late 1963. In 2005, the United States Institute of Electrical and Electronics Engineers officially recognized WEIZAC as "a historic milestone in the history of computing."

Following its "retirement," WEIZAC found a home at the institute's Jacob Ziskind Building, which houses the Mathematics and Computer Science Faculty, where it has become a popular attraction for elementary school students visiting the Weizmann Institute.

The first Israeli high-tech company

In 1941, a curious 16-year-old boy named Aozias Rowling arrived in then-mandatory Palestine from Romania, having made the long journey on his own. Changing his name to Uzia Galil, he set out to make a place for himself and 20 years later, in 1961, he made history by securing the first-ever investment in the budding Israeli high-tech industry. The then-staggering amount of $160,000, was given to him by the Rockefeller Foundation and Discount Bank, and he used them to found Elron Electronic Industries, which he first ran out of his apartment.

Based in Haifa, the technology holding company has been involved in setting up, funding and developing over 30 high-tech companies, and it is considered one of the cornerstones of the Israeli high-tech industry.

Galil served and Elron's president, CEO and chairman of the board for 37 years. In 1966, he was asked by Maariv newspaper why he turned to the private sector, instead of continuing to rely on government resources for his ventures. "There is a lot of brain power in the Israeli scientific community, but it's not being utilized properly," he said.

In 1966, when Galil founded Elbit -- now synonymous with cutting-edge defense electronics systems -- the state caught on to the potential of integrating the defense and electronic industries, and became a full partner in the company.

Ahead of Israel's 20th Independence Day. Galil was asked what his greatest dream was. The young entrepreneur said he would "love to set up an electronics manufacturing center in Haifa." Then-Mayor Abba Hushi was happy to oblige, and gave Galil a 24-acre stretch of land, on which the Elron Electronic Industries compound still stands today.

Introducing: Intel Israel

In the early 1970s Intel employee Dov Frohman returned to Israel from California. While at Intel, Frohman tried to convince its executives, especially the company's president Andy Grove, to invest in Israel. In 1974, a shortage of research and development engineers eventually led the company to heed Frohman and establish a small chip design center in Haifa -- Intel's first outside the U.S. Named the first general manager of Intel Israel, Frohman went on to invent EPROM, the erasable programmable read-only memory chip that was essentially the first memory card in history and is still used today.

The success of the Haifa facility led Intel to set up a second facility in Israel in 1981, this time in Jerusalem. At its height, Intel Israel employed 10,000 Israeli workers in research and development centers in Jerusalem, the southern town of Kiryat Gat, and the northern town of Yokneam. In March 2016, Intel announced it was cutting 12,000 jobs, or 11%, of its workforce worldwide, including dozens of positions in Israel. In the future, Intel plans to consolidate its operations in Israel to one main location.

Cue the Hebrew text

In 1988, Kibbutz Dvir member Yitzhak Mintz developed QTEXT, a Pascal programming language-based word processor that was the first fully Hebrew software of its kind.

With the arrival of Windows 3.0 and Microsoft Word to Israel in 1990, however, QTEXT was unable to keep up. It released its last version in late 1991, after which it was discontinued.

The Soviets are coming

The early 1990s saw about 1.6 million Jews immigrate to Israel from the former Soviet Union. The Israeli high-tech industry received an infusion of high-quality labor that completely changed the rules of what until then was a rather humble game.

The combination of original Israeli thinking and Soviet-style tenacity made Israel an attractive investment destination for U.S.-based companies, which began setting up research and development centers in Israel in a rapidly growing pace.

A study conducted in the mid 2000s on the contribution of the Soviet immigration to the Israeli high-tech industry, found that without the immigrants, the local industry would have eventually fallen behind its global counterpart. Had it not been for the Soviet immigration, exports and revenue in the field would have shrunk by at least 10%, and fewer Israelis would have pursued advance academic degrees in the various technological fields. The Israeli economy saw a double-digit jump thanks to the immigration from the former USSR, and the Israeli high-tech industry gained the most from it.

The first major Israeli exit

"I remember telling myself and the people around me that this was the biggest thing I had ever seen," businessman Yossi Vardi said in 1996, shortly after he, together with his son Arik and business partners Yair Goldfinger, Sefi Vigiserm and Amnon Amir, introduced ICQ -- the first stand-alone, open source instant messaging computer program.

Everyone involved knew a big thing when they saw it, and on June 9, 1998, Israeli media was atwitter with exciting news: America Online, then the world's biggest internet provider, had acquired ICQ developer Mirabilis for a staggering $287 million -- in cash.

The transformation was complete. Not only had Israel realized the high-tech industry's potential, Israeli society, which until then saw tech enthusiasts as geeks and nerds, now saw them in a totally different light. Being a techie became synonymous with being cool, and Israeli youth had officially set their sights on the high-tech industry, with a new dream in mind -- the startup exit.

Data at your fingertips

The technology-infused reality of 2016 makes it impossible to imagine life without the ever-handy USB flash drive. In 2005, the little memory stick was even named one of the top 20 most important technological innovations of the 20th century, and it has been able to preserve its status as one of the greatest gadgets in history well into the 21st century.

"I wanted to change the world we live in. I think I managed to do that," Israeli USB flash drive inventor Dov Moran told Israel Hayom. Moran's company, M-Systems, was acquired by its main competitor, SanDisk, in 2006 for an estimated $1.55 billion.

The sizeable deal came as little surprise to industry insiders, but it also evoked criticism over the fact that yet another Israeli company was sold to an American one, and sparked a debate over whether or not such exits were benefiting Israeli society as a whole. Moran admits that "I wanted a big Israeli company, so in a sense, I saw it [the deal] as a personal failure on my part." Still, even with that pang of regret, he admits the deal was one of the Israeli high-tech industry's biggest success stories yet.

A decade of exits

The years 2000 to 2010 brought the word "exit" front and center, becoming the mission statement for every young Israeli entrepreneur and every Jewish mother's dream for her son. Silicon Valley investors often smile at this enthusiasm, as they do not seem to understand the great Israeli exit chase.

More than 700 Israeli technology companies were sold in the first decade of the 21st century for a combined $40 billion. This trend has continued into the second decade and clearly reflects how Israel has become the "pilot program" for young entrepreneurs who dream of making the big bucks, as well as of working in Silicon Valley, be it in their own companies or in Google or Facebook.

Hebrew is prevalent in the streets of Palo Alto, California, and many Israeli make their living by working in tech giants such as Hewlett Packard, Park, VMware, Facebook, and Tesla Motors, or are getting their graduate degrees at Stanford University.

The new watchword for the third millennium is "relocation." Annual industry surveys consistently find that over 85% of Israeli high-tech workers would love to move to the U.S., especially to New York. London, Berlin, and Madrid are also on the list, although they rank lower. At this point, Silicon Valley has become home to about 80,000 Israelis, with the number occasionally ballooning to 100,000.

The Israeli economy now finds itself fighting a brain-drain, and the threat that both Israeli high-tech companies and foreign companies operating in the country will take their business elsewhere given a change in taxation policies. Big money is leaving Israel and dozens of new millionaires retire in their 40s. High-tech Zionism has become somewhat of a profanity.

Madam CEO

In 2012, American technology giant Yahoo announced the appointment of Marissa Mayer as its CEO. In 2013, Sheryl Sandberg, chief operating officer of Facebook, published her best-selling book, "Lean In: Women, Work, and the Will to Lead," in which she sheds light on a sore subject in both the U.S. the Israeli high-tech industries, namely the sacrifices of women in high-tech are forced to make for the sake of their careers.

Israel's high-tech industry is dominated by men and is very much an extension of their military service. The life of the Israeli high-tech executives are a sequence of overseas trips that take him away from his family, which automatically makes the industry one where women are in the minority.

As of 2016, the wage difference between men and women in Israeli high-tech firms stands at 16%. More Israeli women want to find their place in the industry compared to their American counterparts, and they are willing to shoulder the burden. Intel, Facebook, Google, SAP, Matrix, and other companies employ women in senior positions, making the Israeli high-tech industry far more progressive than its counterparts worldwide.

While 2012 saw a record number of startup inceptions, only 9% of them were founded or led by women. In the Arab sector, more women see their future with the technological industries, and they make up over 50% of engineering and technology students in the sector, but only 5% of those pursuing advance academic degrees find themselves in the Israeli high-tech industry.

Today, Nazareth is the high-tech capital of the Arab sector, and it employs about 200 women in development and engineering positions.

High-tech politics

The dizzying success of the high-tech generation in the early 21st century has charted a new course. With both money and time on their hands, the desire to change society, and the belief that industry practices could successfully translate into national policy, many have added a new step to the path comprising military service in an elite unit and a startup exit -- politics.

Prior to joining Habayit Hayehudi, party leader Naftali Bennett co-founded Cyota, an anti-fraud software company that was sold to RSA Security in 2005 for $145 million. Zionist Union MK Erel Margalit made his fortune in a venture capital fund that facilitated 26 exits to the tune of billions of dollars. Jerusalem Mayor Nir Barkat's history in the high-tech industry made him the richest politician in Israel, with a personal fortune estimated at 500 million shekels ($130 million).

Israeli high-tech employees change jobs every 2.8 years on average -- about the same amount of time each of the Israeli governments of the last decade have been in office.

Future outlook

Truth be told, the future of the Israeli high-tech industry is something of a mystery. The studies, interviews, and panels held annually paint a bleak picture, one that is far less optimistic as to the industry's structure and influence on Israel in the 68 years to come.

The Israeli high-tech industry currently numbers over 7,000 companies. More than a quarter of them provide Internet-related services and products, and another 25% are in the field of telecommunications. The statistics show that in recent years there has been an increase in the number of companies that fail, and they now number dozens a year. Nevertheless, for each startup that shuts down, several others pop right up. These fluctuations have caused investors to be more wary, diminishing the chances every Israeli entrepreneur will find a backer for his brilliant idea.

The Israeli high-tech industry still enjoys a solid reputation worldwide, a status it is likely to keep in the foreseeable future. Countries such as Britain, France, Germany, and Norway, which are trying to build a robust high-tech industry of their own still find it difficult, and seek the counsel of Israeli companies. The latest example for this is the expected introduction of British real estate consulting firm Savills to the Israeli market. Savills specializes in consulting high-tech companies seeking to expand into other countries and it will advise international companies looking into setting up an Israeli presence.

Israeli initial public offerings in 2015 amount to $11 billion, and 2016 is not expected to see them significantly decrease. Alongside the threat of major companies leaving Israel, the near future is expected to see the inauguration of a new high-tech park in the central Israeli city of Petach Tikva, and a high-tech incubator in nearby Bnei Brak, as well as other ventures in Israeli cities seeking to become high-tech hubs.

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