Dan Singer - Start-up Nation

He believed that both Israel and its economy needed a counternarrative. As the January 15 deadline approached, he became fixated on an imaginary boardroom debate—taking place somewhere in the United States—between an executive who was enthusiastic about investing in Israel and a cautious board that thought he was reckless. What would the enthusiast need in his back pocket? I understand your skepticism. I saw the news, too. But let’s not forget that Intel was producing the 386 chip—one of Intel’s most important microchips—in Israel during the Gulf War, and the Israelis never missed a beat. They stayed on schedule. They were not late . . . not even once . . . not even when missiles were falling on them .

On January 17, Frohman informed his employees of his unilateral decision to keep Intel Israel open during the war, in defiance of government orders, but on a voluntary basis: no worker would be punished for not showing up.

At 2:00 a.m. on January 18, Frohman, like most Israelis, was awoken by air-raid sirens. He and his family quickly put on their gas masks and sealed themselves into their home’s safe room. When the all clear sounded, they learned that eight missiles had struck Tel Aviv and Haifa—near Intel’s main R&D facility—but they had not been armed with chemical warheads. More missiles were expected in the days ahead. Whether Saddam would arm future Scuds with chemical capabilities was still unclear.

At 3:30 a.m. , when Frohman arrived at the plant with his gas mask, he went straight to the clean room—the heart of the chip factory, where, to maintain a dust-free environment, technicians worked in sealed suits that made them look like astronauts. Work there had already resumed. He was told that when the sirens had sounded earlier, the employees had gone to a sealed room in the plant, but after quick calls home, they had returned to their work stations. When the first postattack morning shift began, Frohman expected to see—best-case scenario—half of the shift; 75 percent showed up. Following a second Iraqi missile attack the next night, turnout at Intel’s Haifa design center increased to 80 percent. The more brazen the attacks, the larger the turnout. Welcome to Israel’s “new normal.”

The executives in Intel’s Santa Clara headquarters could not get their heads around this. During a conference call with Santa Clara two days later, air-raid sirens went off again. The Israeli team members asked for a moment to relocate, put on their gas masks, and continued the call from their sealed room. A group of Intel workers even set up a wartime kindergarten on the premises, since schools were still closed and if employees wanted to be part of Frohman’s defiant mission, they had no choice but to bring their children to work. On top of their regular jobs, the workers volunteered to serve shifts on kindergarten duty.

The legacy of Frohman’s commitment is still seen in the decisions of new multinational companies to set up critical operations in Israel. And some of these facilities, such as Google’s, were being built around the time of the 2006 Lebanon war.

The explanation for this concerns more than just engineering talent. It is also a matter of less tangible factors, such as a drive to succeed that is both personal and national. Israelis have a term for this: davka , an untranslatable Hebrew word that means “despite” with a “rub their nose in it” twist. As if to say, “The more they attack us, the more we will succeed.”

As Eitan Wertheimer told Warren Buffett at the start of the 2006 Lebanon war, “We’re going to determine which side has won this war by ramping up factory production to an all-time high, while the missiles are falling on us.” 10Israelis, by making their economy and their business reputation both a matter of national pride and a measure of national steadfastness, have created for foreign investors a confidence in Israel’s ability to honor, or even surpass, its commitments. Thanks to Dov Frohman, Eitan Wertheimer, and many others, the question of catastrophic risk, for investors and multinationals looking to do business in Israel, is virtually irrelevant.

CHAPTER 10

Yozma

The Match

John Lennon once said about the early years of rock and roll, “Before Elvis, there was nothing.”

On the success of venture capital and high-tech entrepreneurship in Israel, to paraphrase Lennon, before Yozma, there was nothing.

—ORNA BERRY

ORNA BERRY’S SON, Amit, delivered what would be the $32 million message. Amit had retrieved the voice-mail message for his mom. A vice president from Siemens, the German telecommunications conglomerate, had called. Orna Berry, away on yet another trip abroad to pitch her start-up to bigger companies looking to buy, had missed the call. The message from Siemens marked the beginning of a process that culminated in the first acquisition of an Israeli start-up by a European company. The transaction was finalized in 1995.

Though today it’s a pretty commonplace event—Europeans have invested hundreds of millions of euros in Israeli companies—in 1995, for an Israeli start-up to be acquired by a European company was unheard-of. Orna Berry believes a new Israeli government program at the time, called Yozma, was what made it possible. She also believes that hundreds of other start-ups have had similar experiences because of the government’s initiative.

Berry is hailed as one of Israel’s leading business leaders. 1In 1997, she was named Israel’s chief scientist in the Ministry of Industry, Trade, and Labor—Israel’s innovation czar; in 2007, she became chair of the Israel Venture Association. She earned a PhD in computer science from the University of Southern California, worked for the technology consulting company Unisys in the United States, and then returned to Israel to work for IBM and, later, for Intel.

But in 1992, she was a first-time entrepreneur. She founded Ornet Data Communications with five colleagues from Fibronics, one of Israel’s early tech companies. Ornet Data developed software and equipment for local area networks (LANs), to double the speed of data transmission.

While most users were dialing into the World Wide Web through telephone lines, the Ethernet networking technology was growing as a way to connect LANs—groups of computers that were close together in homes and offices. LANs could move more information, faster, between computers in the network, but bandwidth was still quite limited. Ornet Data’s solution created a switch for these networked computers that, Berry estimated, multiplied the bandwidth fifty times.

Ornet Data had just a handful of employees in Karmiel, a city in northern Israel, and an office in Boston that Berry used when she came through town. In the early days of the company, she flew to the United States repeatedly to try to raise money, but she soon realized there was none available.

“There was no mechanism for early-stage high-risk funding in the absence of local venture capital,” she told us. 2

Venture capital is investment funding that is usually put to work in high-growth technology companies. But for most foreign investors, putting money into Israel seemed absurd. To them, Israel was synonymous with ancient religions, archaeological digs, and deadly conflict. Even those investors who had marveled at Israel’s R&D capabilities were spooked by the surge in violence that came with the Palestinian uprising—or intifada—in the late 1980s. This was before Dov Frohman’s decision to keep Intel open during the 1991 Gulf War.

According to Jon Medved, founder of Israel Seed Partners, “You could talk to an American fund until you were blue in the face and say, ‘Hey, come invest in Israel,’ and they would laugh at you.” 3