What’s good for venture capital is good for the country

November 24, 2009

Today’s WSJ reviews Start-up Nation, a book about how a small population can be very entrepreneurial and attract venture capital if it focuses on the right things.  Although the book explains Israel’s high-tech success (per-capita VC invested 2.5x that of the US and 6x that of the UK), most of the lessons apply to the economic development efforts of Southeastern states as well:

[Israel has] a “classic cluster of the type Harvard professor Michael Porter has championed [and] Silicon Valley embodies”: the tight proximity of research universities, large firms and start-ups, a talent pool drawn from around the world, and an ecosystem of venture capital and military and other government R&D funding. In addition, they contend, Israel has a unique entrepreneurial culture that combines individualism, egalitarianism (a penchant for organizational flatness) and nurturing.

The authors further speculate on the origins of Israel’s unique entrepreneurial culture.

Where does this culture come from? Mainly, the Israeli military. “You have minimal guidance from the top,” Messrs. Senor and Singer write, “and are expected to improvise, even if this means breaking some rules. If you’re a junior officer, you call your higher-ups by their first names, and if you see them doing something wrong, you say so.” High-school stand-outs are recruited into elite military units and trained intensively, with an emphasis on technology. When they’re done, everything required to launch a start-up “will be a phone call away. . . . Almost everyone can find some connection to whomever he or she needs to contact to get started.” Israel is a country, it seems, where everyone knows everyone.

This description of the mandatory service requirement for every Israeli obviously won’t be duplicated in the U.S., but the principles of building an entrepreneurial culture and the importance of a broader network certainly apply.  States in the Southeast that are looking to build a stronger “venture capital ecosystem” would be wise to study the factors that have made Israel a leader in venture capital investment and not focus too exclusively on simply increasing the amount of investment capital available (though that is obviously a critical piece of the puzzle).

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