March 28, 2004

The state must create incentives for keeping entrepreneurs in Israel.

There has been a lot of talk in recent years about high-tech being Israel’s growth engine, about venture capital being the paramount expediters of the technology economy, about multibillion exits, and about the huge number of high-tech employees.

All this, however important, correct, and significant it may be, put the core of Israel’s high-tech industry into the shadows: the people, without whom there are no jobs, no exits, and no hope for funds or other investors; the people who are the heart of Israeli know-how and wisdom, and who maybe ought to be called the concentrated genius of contemporary Israel – the entrepreneurs.

Israeli high-tech entrepreneurs are the greatest phenomenon of the country’s technology industry, and they probably made the difference for Israeli industry, changing Israel from an average industrial country to a developed and advanced country, generating the extra 3% growth that make us the only Middle Eastern tiger, and creating the channel for progress that constantly faces Israeli society.

When entrepreneurs become a Check Point CEO Gil Shwed, Gilat Satellite Networks CEO Yoel Gat, or Chromatis Networks founder Orni Petruschka; when the fame of success and being a millionaire is attached to them, they are easily identifiable. The trick is to be with them during the period of confusion, obscurity, and sometime even the brink of failure.

No one knows how to do that. What is certain, is that the state does not know how to accompany the beginning entrepreneur as he or she sets out on the winding road, and it definitely does not do all it can to help them achieve success.

Ask yourselves, why should the state help? The answer is simple: a successful entrepreneur pays a lot of taxes. The entrepreneur pays a part of his income and a part of their capital gains. Furthermore, the company he or she founds pays company taxes and VAT for the services it consumes. And most important of all, the company of a successful entrepreneur employs scores, hundreds, or even thousands, of people. This employment is good for the country, both by preventing expenditures and by generating tax revenues. All this makes the state’s need for entrepreneurs obvious.

How is it, therefore, that Israel has not found the formula to attract entrepreneurs to establish their companies in Israel, and keep their headquarters and even their sophisticated production facilities in the country? Why are the headquarters of major Israeli companies mostly based in Oakland, California, and only a few in Ramat Gan or Petah Tikva? Most important of all, why aren’t there entrepreneurs and executives in Israel?

The state must create incentives for keeping these people in Israel, together with the lion’s share of the companies they’ve founded. True, sales and marketing departments will always be close to the customers, but Israel must become more than a center that supplies development services to the rest of the world. That approach, rather than turning us into a second Silicon Valley, will drag us down to the status of an Indian or Chinese R&D center.

When entrepreneurs stay in Israel, they keep their development centers in the country. But that’s not all. The entrepreneurs will prefer seeing Israeli engineers working for them, alongside sophisticated production staff. These activities can easily be moved to outlying areas at cost worthwhile for the employer, employees, and especially the country. There is no better way to expand the circle of achievement created by Israeli high-tech. There is no better way to reduce the gaps between the technological Israeli of Herzliya Pituah and his blue-collar brother in a development town.

Obviously, the government bears the main burden of this mission, but we too, the investors, can participate in the changes needed to achieve it. Cooperation with government agencies can provide funds with the incentives to keep entrepreneurs from founding companies in Delaware or the Antilles, thereby making a real contribution to the treasury.

But there is something else as well. Anyone with an understanding of the past decade in Israel should know that fund managers that entrepreneurs are the country’s doers and the greatest chance for Israel’s success. Therefore, we should bear in mind today that the main added value that we can always bring to the table is preserving the entrepreneurs’ interests. History teaches us that this interest is ultimately everyone’s.

(Originally published in Globes)

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Jason Harris

Jason Harris

Executive Director

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