Handbook of Research on Venture Capital: Volume 2

Handbook of Research on Venture Capital: Volume 2

A Globalizing Industry

Handbooks in Venture Capital series

Edited by Hans Landström and Colin Mason

This Handbook charts the development of venture capital research in light of the global financial crisis, starting with an analysis of the current venture capital market and the changing nature of the business angel market. Looking at governance structures; the performance of venture capitalists in terms of investments, economic impact and human capital; geographical organization of business angels and venture capital global ‘hotspots’; this book also analyses the current state of venture capital research and offers a roadmap for the future.

Chapter 9: Global venture capital ‘hotspots’: Israel

Gil Avnimelech and Shai Harel

Subjects: business and management, entrepreneurship, economics and finance, corporate governance, economics of innovation, financial economics and regulation, innovation and technology, economics of innovation


If Israel were to become the 51st state of the United States of America, its Venture Capital (VC) industry would have been surpassed in absolute numbers only by the two major clusters of Boston and the Silicon Valley. Israel is first in the world in R & D expenditure per GDP, per capita ratio of engineers, per capita VC investment, and per capita ratio of start-up initiatives (Bosma and Levie, 2009; GCI, 2010; OCS, 2010). Moreover, after the United States, Israel has more companies listed in NASDAQ than any other country in the world (more Israeli companies are listed in the NASDAQ exchange than all companies from the entire European continent combined). Most of the leading technology companies in the world have an R & D center in Israel responsible for developing new cuttingedge technologies. Thus, it is not surprising that several researchers have suggested that Israel probably represents the most successful instance of diffusion of the Silicon Valley model of high tech and VC beyond North America (Bresnahan et al., 2001; Bresnahan and Gambardella, 2004; OECD, 2003; Carmel and de Fontenay, 2004; Avnimelech and Teubal, 2006). The natural question that arises is how come a young, small country of merely 7 million people, which has a complex geopolitical situation, is geographically isolated, and has one of the highest expenditures on military needs worldwide, has managed to develop such a flourishing venture capital industry alongside a flourishing Information and Communications Technologies (ICT) cluster in less than 20 years? This chapter tells the story of the Israeli VC industry alongside the development of Israel’s ICT cluster. Interestingly, the VCs’ emergence in Israel was a policy-enhanced process, in the sense that a targeted government policy was directed to this goal (Yozma Program, 1993–98).

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