Meir Valman, author of The Network Effect: The Origins of Israeli High Tech, joins Yoel Israel to trace how universities, government policy, immigration, and ties to the US built Israel’s tech industry.
Most accounts of Israeli tech start with the army’s elite units or the dot-com boom of the 1990s. Meir Valman starts much earlier, before the State of Israel existed.
In his conversation with Yoel, Meir walked through the decisions, accidents, and outside influences that shaped the industry. Many of the lessons he found in Israel’s early companies still apply to founders building today.
The Universities Came First
The Technion, Hebrew University, and the Weizmann Institute were all founded before 1948. Meir said their early presence gave Israel a pool of highly trained engineers and scientists who later built world-class companies.
The army’s technology units did not become a major force until around the 1980s. Before that, they were too small. Early sectors such as chips also required engineering degrees, which came mainly from the Technion. Software was the exception. The army created Mamram, its computer unit, in the late 1950s to train programmers at a time when universities were not yet teaching the subject.
Universities remain central to life sciences, an industry Meir said is often overlooked. Because it draws on academic research, it brings in more women and minorities than army-driven sectors such as cyber.
A Computer Built to Recruit One Scientist
The Weizmann Institute built one of the first computers in the Middle East in the 1950s. Meir explained that the decision had more to do with recruiting than with foresight.
The institute wanted to hire Chaim Pekeris, a prominent applied mathematician at Princeton. Pekeris was a committed Zionist, but his research depended on Princeton’s computer. He would come only if Weizmann built him one just as good, at a cost of about $50,000, roughly 20% of the institute’s budget.
Some directors doubted it was worth the money for one person, so Pekeris gathered prominent scientists at Princeton, including Albert Einstein, to make the case. According to Meir, Einstein stood up and asked, “Why does such a small country need such a large computer?” The room laughed, the other scientists argued the computer would bring benefits no one could yet predict, and the institute agreed to fund it.
A Government That Let Founders Choose
By the late 1960s, Israel’s economy had stopped growing. Immigration had slowed and the major infrastructure projects were finished. The government needed a new growth engine and turned to industries built on R&D.
In the early 1970s, it created the Office of the Chief Scientist to fund research. Meir called the model genius because entrepreneurs brought their own ideas from any industry, and the government backed those with viable plans. Most countries practicing industrial policy at the time chose the sectors themselves, usually without success. Meir said many early Israeli companies would not have survived the 1970s and 1980s without these subsidies.
In the 1990s, the government began targeting specific sectors, an approach that continues today with quantum computing. Meir sees the logic, since computing has long been an Israeli strength, but he said the challenge is deciding how much to invest. Too much risks neglecting other fields and unbalancing an industry that has stayed strong partly through its diversity.
How Yozma Built Israeli Venture Capital
In the early 1990s, Israel had only one or two venture capital funds and little startup expertise. Yigal Erlich, then the chief scientist, designed Yozma to solve both problems.
Each fund paired an Israeli VC with a foreign partner who would teach Israelis how to run a fund and how to build a company. To attract foreign VCs, the government matched their investment and let them buy out its stake later at cost plus interest. Founders welcomed the guidance. Meir said many told him they had no clue about business at the time.
Some funds returned 14 times their capital and others eight times. The government recovered its money and more, and Israeli VC grew into the billions by the end of the decade. Countries around the world tried to copy the program, and most failed. Meir believes they drew the wrong lesson by assuming the capital created the boom. In his view, the demand to build startups already existed, and Yozma supplied the money and know-how that let it take off.
What Israel Learned From America
Israel was not yet a free-market economy, and as Meir put it, “You just couldn’t learn business in Israel.” Nearly every successful Israeli entrepreneur of the 1970s and 1980s had spent time in the US.
Efi Arazi, founder of Scitex, Israel’s most successful tech company in the early 1980s, studied at MIT and worked at American defense companies. Meir highlighted three lessons Arazi brought home. Sales and marketing matter. Design matters, even for B2B products, and Scitex focused on making its products beautiful and easy to use around the same time Steve Jobs was promoting the idea in Silicon Valley. Customer service became a moat, with Scitex known for the best service in its industry. Meir said each lesson still applies to Israeli companies today.
Culture traveled less easily. Israelis fit well in Silicon Valley’s informal culture but struggled with the formality of the East Coast and, later, Japan, where partners wanted proof of long-term commitment. Meir sees the same concern today as Israeli companies pursue business in the Gulf.
The Engineers From the Former Soviet Union
The wave of immigration from the former Soviet Union in the 1990s had a massive impact on Israeli tech, Meir said, though few of the newcomers became entrepreneurs. They came from a centrally planned economy and many had worked in heavy industry. As strong engineers, most were retrained as programmers within a few months.
Their biggest effect came through the labor market. Tech booms always create shortages of skilled workers, which drive up wages. In the 1990s, Israel suddenly had tens of thousands of engineers looking for work, so startups with small budgets could still hire the talent they needed.
Still the Startup Nation
Meir credits Check Point with being the first company to proudly market itself as Israeli in the 1990s, pointing to its founders’ elite army units. Others followed. Today, some companies are again downplaying their Israeli identity in parts of Europe, which Meir described as a purely political concern. Competition has also intensified, with the biggest rivals now often in the Far East.
Still, the number of startups keeps growing. “Israelis love creating new companies,” Meir said. He sees that drive as cultural and permanent.
Scaling is harder. Large companies require production, quality control, global hiring, and sales, and many founders prefer to sell and start again. Meir noted that Israel’s large independent companies, such as Check Point, Amdocs, and NICE, date to the 1980s and 1990s, while newer giants such as Wiz were acquired. “But the question is, are we actually good at it?” he asked. He considers that an open question and points out that, apart from the US and China, few countries have built very large tech companies.
