Israel's tech scene is red-hot, but there are few Arab-led startups - a top venture capitalist thinks he knows why
- Israel is often called the "Startup Nation" due to the sheer number of entrepreneurs and tech companies in the country of 9 million people.
- While Arabs make up 21% of Israel's population, they currently only make up about 3% of the tech workforce.
- Itzik Frid, a longtime Israeli tech entrepreneur and the CEO of a startup incubator focused on Arab-led startups, thinks that the lack of Arab representation comes down to four factors, including geography.
- Most Arabs in Israel live far from Tel Aviv, Israel's tech hub. But he thinks that could be starting to change.
- This post is part of Business Insider's series on Better Capitalism.
Israel produces an impressive number of highly successful tech companies for a country with just 9 million people, from social navigation app Waze, which sold to Google in 2013 for $1.15 billion, to autonomous driving company Mobileye, which sold to Intel last year for a whopping $15.3 billion.
Israelis have long lovingly referred to the Middle Eastern country as the "Startup Nation," thanks to the sheer number of entrepreneurs building businesses there, particularly in cities like Tel Aviv.But, there's one group in Israel that hasn't truly benefited from the red-hot tech industry: Arab-Israelis. While Arabs make up 21% of Israel's population, they currently make up 3% of the workforce in the tech industry. There are likely even fewer Arab entrepreneurs.
Itzik Frid, a longtime Israeli tech entrepreneur and venture capitalist, is trying to change that. He is the CEO of Takwin Labs, a venture capital firm and startup incubator focusing on Arab-led startups.
"We don't invest in [Arab-led startups] because of philanthropy. There's nothing wrong with philanthropy," Frid told Business Insider. Investing is about business.
"We're not sitting here saying, 'Oh those poor Arabs, we screwed them for so many years, and we need to make it up to them,'" Frid said. "Yes, they were screwed, and they were discriminated against, but you cannot start a startup company from this. Nobody will care when you release a product to the market whether the one who programmed it was screwed, or his parents were screwed in 1948 or 1967."
There are many proposed explanations for why there aren't more Arab-Israelis in tech. Some suggest the insularity of the Israeli tech scene, which draws heavily from army units, puts Arabs at a disadvantage. By law, all Israelis must serve in the Israel Defense Forces, but few Arabs do.While Frid doesn't dispute that insularity may play a role, he thinks there are four major reasons for why there aren't more Arabs in Israeli tech.
1. Arab cultural and social attitudes around failure
Jewish and American cultures tend to have a high tolerance for failure due to familiarity with the entrepreneurial process. Generally speaking, Arabs don't, Frid said.
"With Arabs, it is often 'failure is not an option' in the sense that if you fail once, you will be stamped with that failure for the rest of your life," Frid said. "You cannot be an entrepreneur if you do not embrace failure. Because you will definitely fail at least once."
2. There are no major success stories of Arab entrepreneurs
While entrepreneurial American kids look up to Mark Zuckerberg and Bill Gates as cultural heroes and Jewish-Israelis aspire to build the next Waze or Mobileye, there haven't been any major Arab entrepreneurs in Israel yet.
Success stories, Frid said, have an amplifying effect, convincing other would-be entrepreneurs to take the leap. Creating those kinds of success stories is Frid's goal with Takwin Labs. All of the companies in Takwin's portfolio come from entrepreneurs with Ph.Ds in highly technical fields and involve deep tech like computer vision, autonomous driving, and nano-technology.
"If we want to create an ecosystem and successful infrastructure of the first [Arab entrepreneur] heroes that will pull everybody after them, we need to create success stories that will be huge on an objective level," Frid said. "Not a local level."
3. A lack of experience
This goes back to that mandatory army service for Israeli Jews. Some army units, like the Unit 8200 intelligence team, have become renowned for providing recruits with high-level cybersecurity skills and producing alumni who have started many of Israel's top startups.
In addition to gaining a large social network and prestige from serving in units like 8200, Jewish-Israelis gain years of invaluable experience in both management or technical skills before ever entering university or the workforce.
4. GeographyIt may sound strange, with a country the size of New Jersey, but Frid thinks that the biggest barrier to Arabs entering tech is geography.
Most Arabs live in the so-called "peripheries" of Israel. Nearly all of Israel's tech industry is centered around the city of Tel Aviv on the coast. Most Arabs live either in the north in the Galilee region or south in the Negev Desert. While many Jews grow up far from Tel Aviv, they tend to be more open to the idea relocating to the city if they have an interest in tech. Arabs, not so much, according to Frid.
"Even if an Arab guy finishes number one in his class at the Technion, he will probably still go back to living in his village. He will try to build a house, get married, and find a steady job near his village," said Frid.
Even those who secure jobs at the R&D centers of top companies like Google often end up commuting two hours every day back to their village in the Galilee to stay close to their families.
"That's not the way to build a career," Frid said.
That may be starting to change. Frid has headquartered Takwin Labs in the northern city of Haifa to take advantage of its proximity to the Technion, Israel's M.I.T., and the Galilee region where most Arabs live.
Erel Margalit, a legendary Israeli venture capitalist and politician, has made developing the so-called "periphery" of Israel his chief initiative after resigning from the Israeli parliament. His plan involves developing seven "regions of excellence" focused on developing different industries in marginalized areas.
And Arab-Israeli Fadi Swidan has worked with tech entrepreneur and Unit 8200 graduate Ron Aviv to co-found Hybrid, an accelerator program that helps startups with mixed Arab and Jewish teams, in the Arab-majority city of Nazareth.