Hi, today we will talk about Israel, one of my favorite countries in terms of international business that I use as an example in my international expansion strategy courses. However, being a strong exporter, this country has a relatively small market which is highly competitive being served by local and international companies, and in addition to this, its internal regulations are extremely demanding.
Taking this into account, the question appears if it's worth spending efforts and resources for entering Israel at all. But at the same time, Israel is strategically located at the crossroads of Europe, Asia, and Africa, making it a getaway to these markets. It has a diverse population with a mix of immigrants from various countries, including Europe and the United States and the Middle East, and the country has a relatively high per capita income, and its population has strong purchasing power.
Israelis are willing to spend on quality products and services, both domestically and internationally, and it has a thriving and technologically advanced economy. So it is known for its innovation in high-tech industries, particularly in sectors such as cyber security, software development by technology, and pharmaceuticals. So perhaps it is still a very interesting market to enter.
In one of the previous episodes in my conversation with Johan Gustafsson about Sweden, Johan said that his secret for international expansion is Tel Aviv. If you need to find connections to the whole world, you need to go to this city. He said that Israel is like a getaway to all the other countries, and it might be a great idea to start your journey there.
Taking this advice into account, and the fact that Israel is known as a startup nation due to its thriving startup ecosystem, I have invited to a short but very saturated talk an expert from the field of startups and innovation in Israel. I am Dmytro Shvets, your host at The Start Global Insights, where I interview experts in different countries about local business secrets and international expansion experience.
So let me introduce my guest Or Haviv, a partner and head of innovation at Arielli Capital. Or has more than 17 years experience in working with Israeli innovation ecosystem and innovation centers, and I hope that today he will share all insights about this side of the country and how to use it to enter the world's market. Hi Or, and welcome to the show. Hi, thank you for the opportunity. And my first question is about greetings in Israel. What is more appropriate?
Should I call you Mr. Haviv or just Or? You know, if you want to be official, you can always use Mr. in Israel, but Israel is a very, the culture, the business culture in Israel is very non-formal. It's not very common to call people Mr. unless you're talking about official circles such as, you know, government and things like that. So feel free to call me Or. Okay, deal.
Could you tell our listeners, what do you do in Israel and what is the scope of your activities and some words about the industry perhaps? As you know, we're talking about the innovation ecosystem, talking about the technology industry, which is very, very exciting. I mean, obviously in Israel, we're going to talk about it in a second, but globally, world one, the tech ecosystem is super exciting for one very simple and obvious reason.
The tech ecosystem or the innovation ecosystem is basically touching upon one of the most important points in humanity. What is differentiating humans from other animals is our ability to not just innovate, but execute on our innovation. Okay, so not just dream about something, but make it happen. Human beings have discovered a way to act upon our innovation capabilities and that way is the startup way.
So you know, Israel is positioned second after the Silicon Valley in the entire world as far as the amount of unicorn, which are companies, rich foundations crossing the billion dollars. Right. So it's only second to the Silicon Valley, which is again, by size, a very, very amazing comparison because Israel is very, very small. It reached that place. So that's all we do in Israel.
To your question, we deal with innovation, we invest in technology companies, but we also grow innovation platforms, innovation centers, innovation programs, not just in Israel, all around the world. We have a financial side that sits in the UK and we have a capital side that sits in New York. I'm always showing Israel as an example of an amazing expert experience.
A small country with extremely harsh conditions and constant missile attacks managed to turn the desert into the forest and became one of the biggest exporters of fruits and vegetables in the world. So I believe that innovations that you are talking about are not only for the software, but also for brick and mortar, as you said. So you could use it to do all of those amazing things that then succeed in the world trade.
Human beings usually will not innovate or change anything, right, if everything is okay. But if you have challenges, you've got to innovate. So you have one more natural resource that is un-united, which are human brains. And if you tap into that, if you start mining human brains, then you get to innovation, then you get to high tech and export the knowledge, export innovation, export unicorns, export IP and patents.
And you know what, at the end of the day, more than half of the economy in Israel is tech. Over 25% of the income generated by the government comes from the tech sector. So the thing is, if you ask us, why do we do what we do in our real capital? Our real capital is based by a family office. We're not a fund, conventional fund or a VC. We're invested in many B-C, for example, you know, or innovation center. So NGT.
NGT is an innovation center positioned in Israel, in Nazareth, which is in the north of Israel. It's a mixed city with Jews and Arabs. That's the reason the innovation center was positioned there is exactly that, to create more opportunities for people, for the community to work, new type of jobs, and everything. There's an amazing thing that's been working. They already completed the first fund, investment fund, investing in 25 startups.
And now they completed the second fund, the second VC investment fund, which is 93 or 94 million dollars. Our real capital is GP in this fund. And it's a great example of a fund that is not just money, but it's also an incubator. It has actual facilities. When you visit there, you see companies that benefit from the team's knowledge, the actual facilities, not just offices, but, you know, laboratory, you know, clean rooms to produce the drugs or whatever they need to move forward.
It's a lot of amazing thing that the industry realizes that are required in order to bring a company to success, which is much more than money. And if we move forward to business, you've said that Israel is a multicultural country with different nations living there. And taking this into account, how well do you characterize the business culture in Israel in general and in comparison to the European, for example? Israel is very opportunistic.
The mindset, the business mindset is very opportunistic. They're always looking for good deals. Any place or any person or any organization that will come to, you know, an Israeli person or institution say, oh, there's a business opportunity. They'll jump. They'll be all over it. They'll try to see if they can realize. Not everything is wrong, not all things are equal, not everybody is within this industry.
Still you have to remember directly as far as the technical system, it's only 10% of the entire Israel population works in tech. The impact is huge. The part of the economy is huge, but directly it's up to 10% of the population that works in high tech. And not all 10% are entrepreneurs or business people. A lot of them are amazing people, programmers, like that, but they're not necessarily the business side.
When you talk about the business side, I can tell there is a business difference in mindset. Really, one of the biggest sections in our company is working with governments. We build and lead innovation programs with governments to help them grow their ecosystems and to help their startups to break through the glass ceiling of scaling up. So we work with amazing countries like, you know, Italy. So they have governments, being in government, going to Germany, certain states in America.
So we work a lot in Europe. And I can tell you that after many years of working with European entrepreneurs, there's a lot of amazing things that they do, such as, for example, Europeans are very conservative as far as business people. They're not big risk takers, which means they'll go for validation early. You will see early stage startups that are already making money, which you will not see in Israel in any case. Israelis are risk takers, so they will run with their big dream.
Like you said, they're really good sales in the early stages, so they will sell their dream. They will raise a lot of money. The Europeans will not raise a lot of money in the beginning, but they will go for validation. They will get flash. So you think Israel might be a great place for startup to begin? Israel turned out to be one of the most attractive places for startups that want to scale out, not because they target Israeli market, but because of two things.
Number one, because of the high validity of the Israel tech ecosystem, your chances of growing, scaling into big markets like America, et cetera, are bigger than to go from a small, medium, sometimes even large hospital in Europe that is not well known. So that's number one. And number two, there is a huge, huge concentration in Israel of multinational companies.
So there are literally hundreds of multinational corporates with their business offices, R&D offices, invasion offices, scouting offices. It's like fishing in a barrel for a scaling up startup to come to Israel in a very short amount of time. They'll be able to physically meet and potentially work with the world's largest global brand. Israel is an amazing entry point. Well, it looks like a portal to the whole world. Exactly. You said it.
And how easy it is to sell to this innovation people and corporations? How long does it take to do it? And why actually it is better to reach them in Israel and not to go to them in their home headquarters? In short, startups from all around the world, that's a question they'll tell you in one word, painful. The process is painful. And even if you get to the relevant person, there is the whole value of death between when the corporate says, oh, we like you, we want to start working with you.
And until they start working with you, an average startup can die 10 times in that period. It's super, super painful for startups. But in Israel, it's still a corporate process because at the end of the day, she's talking to Microsoft, Google, Samsung, I don't care what, it's still a huge corporate and they still have to run it through their system. What they're missing is that in Israel, after many years of working, they started to find a cracks in the system.
The people, at the end of the day, these big companies, they hire local people from Israel. They hire Israel from this sector. And then Israel is not to stick the land with the business plan. They know how to bridge the gap with startup. And they help the big corporates to understand how do we shorten the time to work with these companies? How do we speak the startup language? Don't necessarily go after the very, very big fish. Go after the small to medium fish. Validate your model.
Make sure you create value. The big fish are looking. They're always interested. Make sure you have value so they can chase after you. So when you can come to them, you don't say, oh, I'm going to do it. You tell them, look what I've done. And they actually prefer to pay bigger money for something that has bigger value and less risk than to pay less money for something that has more risk and less value that they have to build.
So do I understand it right that the strategy may be to target smaller companies first, validate your business model and understand if your products are sellable in Israel, that you have clients and that your value added goods are accepted by the market. And only then you can scale up to the bigger market. And another question is, is it a good idea to utilize a local startup ecosystem for that? I would say first look for programs. For example, we have a program open for agriculture.
We're calling global coal, insurance agriculture, market ready, C2 round A type of company. You know, you can apply today. You know, that will be great. Going through programs, innovation programs like that will increase your chances of connecting. It's a road show on steroids, right? So you will meet a lot more people than you can meet alone. You will work with a lot of people and you earn legitimacy. Well, I see that networking is highly important in Israel.
Networking, trying to go through certain programs, make sure the program is quality, make sure it suits you and your stage. But if you can find a high quality relevant program, it will really help you. Or I understand that you don't have much time. So I will try to summarize a bit what we have discussed. So Israel is a multinational country with a highly developed tech startup and innovation ecosystem that can be used to enter the market. The business culture is risk tolerant and opportunistic.
Many international corporations have representatives in Israel and they are hunting for innovations and new solutions. One of the most appropriate ways to enter the market is via some incubation innovation program in Israel. And well, actually all of that, despite the small internal market, makes Israel a perfect portal to the whole world. Exactly. Great, great. So thanks a lot and thanks for your time and for your experience. It's a pleasure and thank you.
And anybody who's listening, keep listening to this podcast.