Start-up Nation

How Israel Became a Global Start-Up Hub

In a quiet suite in the Swiss Alps, eighty-three-year-old Shimon Peres, a Nobel laureate and former prime minister, sat waiting to help a young software executive named Shai Agassi pitch a radical idea to the world's most powerful carmakers: a plan to take an entire country off oil. Most CEOs had already laughed them off, insisting that fully electric vehicles were a fantasy and that hybrids were the only realistic future. The turning point came with Carlos Ghosn, the head of Renault-Nissan. When Peres pushed the vision of an oil-free world, Ghosn surprised them by agreeing. He dismissed hybrids as a nonsensical compromise, famously comparing them to a mermaid—if you want a fish, you get a woman, and if you want a woman, you get a fish.

This shared conviction opened the door for Agassi to present his solution, which addressed the two biggest hurdles of electric travel—cost and range—with a shift in business logic rather than just technology. He realized that electric cars seemed expensive only because consumers were forced to buy the battery upfront. He proposed a model similar to the cellular industry where customers would own the car but subscribe to a battery plan based on miles driven. To solve the range problem, he envisioned a massive infrastructure of charging spots and automated swap stations where a depleted battery could be replaced in sixty-five seconds, faster than filling a gas tank.

Israel was the perfect laboratory for this experiment. Because of its small size and the hostility of its neighbors, it functioned as a transportation island where drivers rarely crossed national borders. This geographic isolation meant a limited number of swap stations could cover the entire country. Furthermore, the nation’s culture was defined by a deep dissatisfaction with the status quo and a high concentration of engineers ready to tackle the complex software required for a national smart grid. The engineering challenges were met with military-grade precision. To secure a five-hundred-pound battery so it was both stable and instantly removable, Agassi's team used the same hook mechanisms that hold bombs on fighter jets.

This spirit of audacity is a product of the Israeli environment, where the military culture fosters a unique brand of leadership characterized by an insatiable questioning of authority and determined informality. In Israel, a junior officer is expected to challenge a senior’s plan if they see a better way. This attitude translates directly to the business world, where failure is seen as a necessary step in the learning process rather than a permanent stigma. It was this combination of technical skill and the refusal to accept "impossible" that allowed Agassi to raise two hundred million dollars for his start-up, Better Place. The results of this culture are reflected in staggering economic data: despite its tiny population and constant security threats, Israel has more companies listed on the NASDAQ than the entire European continent. In 2008, its per capita venture capital investment was eighty times greater than in China and three hundred and fifty times greater than in India.