'Where's our Nokia?' is a question the multi-billion dollar Israeli business community asks itself often. While it is phenomenally successful at taking start-ups to enviable heights, Israel recognises large corporations are not its forte, hence the 'Nokia envy'.

Saul Singer, a Jerusalem-based columnist and former editorial page editor for the Jerusalem Post, believes chutzpah - the sheer audacity or gall to persevere with creative ideas - and the hurry Israelis are always in to be successful, are two major reasons for this state of affairs. Not that anyone in this city of contrasts is complaining.

Singer has co-authored 'Start-Up Nation, The Story of Israel's Economic Miracle' with his New York-based brother-in-law Dan Senor, a Pentagon-decorated former senior foreign policy advisor to the US government, to answer a few questions, among them: '"Why are there so many more start-ups in Israel than any other country in the world?'

"Start-ups here have been able to attract more venture capital than any other country," Singer told a gathering of journalists from across the European Union in Jerusalem last week. "In 2008 we received two and a half times more venture capital than the US per capita. The US gets about $10 billion a year of venture capital, Israel gets around $1 billion - but the US economy is about 100 times as big as Israel.

"Start-ups are concentrated innovation. We basically came to the conclusion that it is a cultural issue. The best way to describe the culture is through stories and we tell a lot of stories in the book."

One such story is about Scott Thompson, president of PayPal, the world's largest online transaction company. PayPal was acquired by eBay; eBay's main investor is Benchmark Capital, a large US venture capital firm which had identified a small company in Israel called Fraud Sciences. Thompson, an expert on credit card fraud matters, was asked to check it out. He promised to give a "kid who claimed to have a solution to the problem of online payment scams, credit card fraud and electronic identity theft" 20 minutes. Shvat Shaked's job during military service within an elite army intelligence unit was to track terrorists over the internet. He had discovered "bad people" left very few traces in cyberspace. The trick, he explained to Thompson, was to identify them.

Thompson was quickly losing interest in Shaked's bizarre ideas, but gave him 100,000 transactions to process. Fraud Sciences had only managed to process 40,000 transactions in its five years and he was not expecting to see Shaked ever again after he returned to Israel. It was a Thursday. On the Sunday, Thompson received a two-word e-mail from Shaked: "We're done".

Significantly impressed, Thompson raced to Meg Whitman, the head of eBay who is currently running for governor of California, insisting the company be acquired. The problem was, if they told Shaked his 55-strong team's systems were dynamite, the asking price would go through the roof. Thompson and Whitman offered $79 million. Shaked and his partners refused. After a few days' negotiation, both sides agreed on $169 million.

Thompson flew to Israel to see the company he had acquired for himself. At Fraud Sciences, he was given the Israeli treatment: teams bombarded him with questions and criticism of PayPal's processes as he sat wondering: "Who works for whom?" It was his first close encounter with Israeli chutzpah.

"Israelis do not have much respect for authority - it is a very flat culture," Singer explains. "There is a lot of informality and a tendency to challenge through a debate. The story has a lot in common with many others in the book: a young Israeli coming up with a very creative idea in the military context and then an equally creative version in the civilian context. And then having the chutzpah to follow it through.

"Israelis have a lot of impatience and we are not saying that Israelis are good at everything. These traits are good for start-ups but not for big companies. If you have a lot of impatience, if you like to improvise, these things will not take a $100 million company and turn it into a $1 billion company."

Shimon Peres, the Israeli President and one of the most quoted figures in the book, gave Singer and Senor an "amazing" three-hour interview. What struck the authors most was his description of Jewish people in general and Israelis in particular - dissatisfied. Again, Singer emphasised, good for start-ups, not necessarily for big companies.

'Start-up Nation' goes beyond start-ups. Young businesses have become an integral part of giants like Intel, Cisco, IBM and Google, all of which have acquired tens of start-ups in Israel. Many are bought for one or a handful of intellectual properties but soon turn into the corporations' key research and development centres, such is the prowess of the Israeli teams.

Singer explains the last part of the book, of which an edition in Hebrew is to be published soon, deals with the 'miracle' behind the success story of a nation and a sector. In its first 20 years, Israel fought five wars, absorbed millions of refugees, but miraculously raised its standard of living from 30 per cent of US levels to 60 per cent, while seemingly doing everything wrong: it was under Socialist rule and applied a top-down approach. In the 62 years since the establishment of the state of Israel, while it was busy at war, suffering boycotts, and generally dealing with adversity, Israeli creativity and entrepreneurship flourished in parallel.

Singer and Senor put it all down to two things: skills acquired in compulsory military service (three years for men, two for women) and culture.

"Innovation is not really the light bulb, it's not just about the idea," Singer maintains. "Start-ups are very difficult and most fail. In order for an innovation company to succeed it has to be mission-oriented. The fact that every person has military service has a tremendous impact on the culture. It endows Israelis with skills like leadership, teamwork, improvisation, the experience of sacrificing for something larger than themselves. At 26, Israelis are more mature than their counterparts in other countries. It also makes them impatient - they are in a hurry when they get out of the army. They are focused on getting their ideas realised."

Equally significant, Singer adds, is the fact that Israel is a country of immigrants. Immigrants, he says, are risk-takers. After all, half the start-ups in Silicon Valley are established by immigrants. Israel is the country most populated by immigrants and they have the right spirit: ideas, drive and entrepreneurial instinct that allow them to take risks and to live with the fact that failure is acceptable.

Erel Margalit knows something about failure. He also knows a lot about success. As founder and managing partner of Jerusalem Venture Partners, he is what The Economist hailed in 2006 one of the stars of Israeli venture capital.

He founded JVP in 1993, aged just 32, after his mentor, Jerusalem mayor Teddy Kollek who had entrusted him with marketing the Jerusalem Development Authority, lost out to Ehud Olmert. In later years, Olmert became Israel's prime minister.

Kollek had bowed to Margalit's insistence that the future for intellectual property in Israel was bright. At first, Kollek told Margalit Jerusalem was a city of lazy people who only wanted to study.

Even today, secular Israelis rarely venture into some quarters of Jerusalem where Orthodox Jews, defying the Mediterranean summer temperatures with their strict dress code, are becoming increasingly hostile, even violent. Taxpayer resentment continues to grow as the Orthodox community persists in its refusal to contribute to the economy, straining the country's finances while leveraging its weight on the election ballot boxes.

While at the JDA, Margalit brought 70 companies to the region - against the odds - and the first incubators were set up. Margalit describes it as a "very exciting" time and while the start-ups did not exist, it became clear to him that with money and guidance, some of the companies which were building products for larger groups could be building them for themselves. With Kollek no longer mayor, Margalit followed his instincts and branched out on his own.

He quickly managed to rope in enough cash from private individuals to establish one of Israel's first venture funds.

With $20 million in hand, the company was named Jerusalem Venture Partners according to Kollek's wishes for Margalit to remain in the city and name the business after it.

"Our first fund involved 13 companies," Margalit explains. "Seven went IPO on the Nasdaq, two were sold, four were written off. It gave us a big multiple on the money and it gave us the ability to continue. Our second fund was worth $75 million, our third $160 million, our fourth $400 million. Over the years we really enjoyed starting companies with smart people - that was our business."

Jerusalem Venture Partners' exits until November 2009 totalled a staggering $13.8 billion. Start-ups backed by the firm were eventually sold on to giants in the industry including Cisco, Alcatel, Lucent, Microsoft and Xerox. One of the largest exits had a price tag of $4.8 billion.

In 2002, Margalit founded JVP Community, a charity with a mission to building a better city through The Lab, a centre for performing arts. The Community Empowerment Programme was also launched to narrow educational and social gaps. Over 2,500 school children from Jerusalem schools participate. JVP also launched its own in-house business incubators.

"It is more than just a business," he explains. "The transformation is about passion, creativity, profit, entrepreneurship, social profit and it has significance to the environment. We are creating a new quarter in Jerusalem. It is about opening up to new disciplines and companies, the marriage between profit and non-profit. Everybody worries about the borders, we worry about the content of the city. Jerusalem is a city of passions, when you have passion you have energy."

Jerusalem has two big assets, he says, Israelis and Palestinians. Israelis are connected to the world, the Palestinians to the region.

"Young Palestinians are seeing what is happening in Israel, and we feel that if we leave it to the politicians, we could wait forever. There are opportunities for cooperation that we could build on. There is a lot of mental traffic coming to Jerusalem every day and there is a big opportunity to do things here. This is a new form of pioneering. A start-up nation needs to be an open society to prosper. This could be one of the most exciting regions in the world economically, with a few slight changes.

"What is happening to our companies is good. I see it on the micro level. On the macro level, there are issues with sovereign debt. The world is learning to live with the crisis and we can still take companies public. As long as there is not a threat on the entire system like there was in 2001 and in 2008, we can continue to move forward."

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