Saturday, June 28, 2008

Israel - Can we count her blessings?

A (first ever) guest post by Mano:

It is a common knowledge, or perhaps a perception, that the state of Israel is a world leader in technology and innovation. In this short paper we will probe this perception from a few different angles.

The Israeli economy grew at a rate of 5.4% per annum during the first quarter of 2008. On the one hand, this is not negligible when compared with other leading economies, which did only 1-2% annually in this quarter (e.g. USA ~1%, Canada ~1.7%). This is quite an impressive performance considering the security situation and the ongoing defense expenses. However, on the other hand, one may say ‘what goes up must go down’ – this is only one part of an economic cycle.

Innovation is, without doubt, one of the elements, which creates economical growth, wealth and jobs. While innovation continuously occurs in large, well established corporations, new firms and startups are known to have lead innovation and paradigm changes, the basic elements required to create economic and corporate value. The table on the right provides the absolute total venture capital investments (in $US) and the number of deals made in a few countries. The last column is the calculated $ in venture capital investment per capita.





The pie chart is a visual representation of the total venture capital investments. It is clear that the USA is leading the pack in absolute terms.



However, when the numbers are adjusted (or normalized) per capita, the result looks completely different. Israel invested about $80 per capita, the USA $22 per capita, and all the rest are far behind. This is shown in the bar graph below. What is surprising (or maybe not) is that Europe is also significantly lagging behind. Is this a leading indicator for the future?



The bar graph below provides data for the last 3 quarters. The trend is positive both in number of Israeli companies acquiring venture capital, as well as the collective $ amount.






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