from the April 2007 issue

IVC: Capital raising by software companies up 59% in 2006

99 software start-ups raised capital. 278 new Israeli software start-ups were founded in 2004-06.

IVC reports a 59% increase in the amount of capital raised by Israeli software start-ups in 2006: 99 start-ups raised $352 million. Software start-ups raised $221 million in 2005. Software start-ups accounted for 22% of total capital raised, the same proportion as in 2004, compared with 17% in 2005. 45% of investment in software start-ups, $145 million, was in enterprise software start-ups and 31%, or $108 million, was invested in enterprise infrastructure start-ups.

There is an unmatched concentration of engineering and entrepreneurial talent in Israel. A lot of young people come out of military units, from various universities, and the high-tech industry itself, who are very gifted engineers and scientists and also, are by character highly entrepreneurial. While in the west students study fundamental physics the Israeli, when completing his army service has already absorbed the knowledge of algorithms. This know-how forms, in due course, the basis of many start up companies.

This good blend would have never been enough without the most important characteristic - entrepreneurship and innovation.

Vishay chairman Dr. Felix Zandman told the story of his first efforts to set up a company in Israel. He gathered a number of first class engineers. He told them that he wants to build a plant for the same capacitors that he manufactures in the US. He asked them to prepare a list of items needed to build the plant. Two weeks later he met with the engineers once more. To his great surprise, each engineer offered his idea how the product could be best made and what the plant should look like. Dr. Zandman smiled and told the gathered engineers, "We manufacture $250 million of the capacitators in the United States and make a big profit. Do you think that you could build a similar plant and to our specifications?"

The personal history of Steff Wertheimer forms one of the finest examples of how success can be achieved in Israel. Wertheimer was born in Germany and arrived in Israel while still a youth. A product of the Tel-Aviv public school system he became a high school drop out. At 17 he joined the British Air Force and subsequently became a member of the Palmach elite units. In 1952 at the ripe age of 26, he had finished his army career and went about trying to earn a living. He set out to make carbide tipped tools. This became the basis for Iscar, the company for which Warren Buffet paid $4.0 billion, last year.

Reprinted from the Israel High-Tech & Investment Report April 2007

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