A tiny nation of 8 million people is one of the leading startup hubs in the world. Here's why Israel produces so many top entrepreneurs.

• Israel is among the world's 50 smallest countries with a population of just eight million people, but has produced some outsized tech hits such as mapping firm Waze, freelance platform Fiverr, and insurance startup Lemonade.
• The country has been beset by political difficulties since its founding but has emerged to be one of the strongest economies in the region, thanks to a strong education system, can-do attitude, and scores of ambitious founders.
• Business Insider spoke to four tech entrepreneurs from Israel to find out how the country has consistently punched above its weight.
• Click here for more BI Prime stories.

"In many ways the entire country is like a startup which should fail but instead its become one of the richest nations in the world. It was an impossible dream that succeeded."

That's a view of Israel from Arik Shtilman, founder and CEO of fintech startup Rapyd (valued at around $1 billion, per Pitchbook).

He says the country's many entrepreneurs are formed by the same mentality which successfully carved out this sometimes contentious part of the Middle East in the 20th century.

Israel is a factory for successful entrepreneurs, and, WeWork cofounder Adam Neumann aside, most make the news for positive reasons.

It's estimated that Israel produces 1,400 startups each year from a population of about 8.5 million, according to Aharon Aharon, the CEO of the Israel Innovation Authority, a government agency.

And according to Tech Aviv, a network for Israeli entrepreneurs, the country currently has 25 unicorns. That's including startups that were founded by Israelis but are headquartered elsewhere, such as WeWork.

Tel Aviv alone has the most startups per capita outside of Silicon Valley, according to a report from Startup Genome.

As of August 30 this year, almost $2.3 billion had been invested across 153 deals for Israeli startups, according to PitchBook.

In other words, this comparatively tiny nation produces some outsized tech successes. Notable Israeli startups include ride-sharing app Via, messaging app Viber, Google-owned mapping app Waze, and another ride hailer, Gett. Israeli freelance platform Fiverr went public in June 2019, and software platform Monday.com became a newly minted unicorn this year.

Why is the country such a relentless innovation hub?

Business Insider spoke to four repeat entrepreneurs and an Israeli investor to better understand the forces that drive the country's business leaders.

1. Israel's army, the IDF

Perhaps unsurprisingly, conscription into the army of the region's only democracy is a tough learning curve. Israelis are expected to undertake two years in the Israeli Defense Forces (IDF) at aged 18 and this experience is cited as a game changer in terms of mentality for its citizens.

"It's a life-changing experience," Rapyd's Arik Shtilman said. "You learn two things, first that everything is possible and secondly that there is only I can't do it or I don't want to do it. This informs the Israeli mentality generally, nothing is impossible for you."

This view is echoed by Shachar Bielick, CEO and founder of London financial startup Curve, which is valued at $250 million according to TechCrunch. Bielick described how his IDF unit was built up over many years to accomplish a previously impossible-seeming challenge called "the journey", a 40-mile walk with 40 kgs on your back in wet, cold conditions.

"At first you think you'll never be able to do this but over time you incrementally change your mindset until it becomes second nature," he told Business Insider in an interview. "The grit you need to get through those years and the journey is the same kind you need to succeed as an entrepreneur ⁠- where others see walls, we see something to overcome."

But it's not just the mentality change which makes the IDF such a driver of the Israeli psyche. Many recruits are brought into the army's intelligence unit and they end up specializing in different areas of tech. That was the case for Yoni Assia, the cofounder and CEO of trading app eToro, valued at $800 million, who majored in computer science but gained experience in numerous emerging technologies during his time in the IDF.

"A lot of tech experience comes from the IDF," he told Business Insider. "In Israel you have a lot of cross-pollination of tech expertise compared with say New York where much of it focuses on Wall Street, for example."

This is echoed by investor Gil Dibner, founder of Angular Ventures, who called the IDF a "tech incubator." His fund straddles the US, UK, and Israel. And he cites the IDF as a key factor in shaping Israeli entrepreneurs because where in other countries you enter the real world after study in Israel it is reversed.

"It helps with networking, team building, problem solving because you've already been forced to confront massive technical issues at scale, usually before beginning a formal education," Dibner said.

Tech founders' origins in war and spying can lead to controversy, however.

NSO Group, a shadowy security company whose founders and employees previously worked at the IDF and Israeli intelligence agency Mossad, sold its spying technology to Saudi Arabia, allowing the regime to see messages sent on devices. The company was also recently sued by Facebook after it allegedly used its "Pegasus" software to hack WhatsApp accounts, including those of journalists, politicians and activists.

As Business Insider's Becky Peterson reported in September, NSO Group is one part of a wider network of sophisticated - and apparently mercenary - security firms in Israel.

2. A culture of total confidence

"It's something we're notorious for, our superpower as Israelis is our self-confidence," said Shai Wininger, cofounder of insurance startup unicorn Lemonade, valued at more than $2 billion following its last funding round. "Parents tell you growing up you can be anything you want to be."

Being your own boss may be a pipe dream for many people, particularly in risk-averse cultures, but in Israel it's a way of life. Even entrepreneurs whose parents weren't business owners themselves will have seen family members or friends striking out in some shape or form with varying success but always with a steadfast will.

"The culture in Israel is very entrepreneurship driven," Assia adds. "Not conforming to authority and being your own boss is a very big thing, Israelis have a high risk appetite compared to other cultures."

The roots of this self-confidence and appetite for risk could be philosophized in a variety of ways. But as Schtilman puts it: "We have no oil, in the middle of the the Middle East surrounded by countries that don't like you and yet we are the most successful democracy in the region with great infrastructure and companies from nothing."

Failure is something to be embraced, rather than feared.

"I've started five companies and only two have been successful so far," according to Wininger. "I treat failure as an integral part of success. I don't get bothered by failure I just get up and get on with it." This has been echoed by other founders, with most indicating that they wouldn't be where they are today without those experiences.

Finally, Israeli entrepreneurs claim that their greatest strength is improvisation. Getting things done on the fly with little to no planning but iterating quickly to meet deadlines.

3. A growing ecosystem to support new entrepreneurs

The regular explanation for the change in mindset in Israel is the oft-repeated industry aphorism: From start-up nation to scale-up nation. But that doesn't do full justice to the existing and now growing ecosystem for founders in the country.

Israel's Silicon Wadi (Arabic for "valley") began its journey to an international hub for startups with the acquisition of ICQ/Mirabilis, an instant messaging company, to AOL in 1996. It was seen by many as the catalyst for Israel's tech scene. But in spite of the country's ability to produce reams of founders, Israeli entrepreneurs traditionally moved abroad, often to Silicon Valley, to do big things.

This was almost customary, explains Assia. "Israel was always known for enterprise software but to do big tech projects you had to move to the US or for financial services companies, I was told: 'You have to move to London.'"

That's precisely what Assia did, alongside his brother Ronen, to found eToro in 2006. The company had over a trillion dollars in assets deployed through its trading platforms last year and employs more than 800 people across global offices.

Now, Assia thinks it would be possible to set the company up in Israel. "It's far easier to recruit talent from abroad than before, video conferencing makes things more simple and domestically there's a lot more experience because you have founders who have exited other companies doing new projects."

Israel has traditionally had a number of venture capital funds within the country, complemented by the presence of major US funds on the hunt for exciting startups, but this body of capital has increased dramatically of late.

While this "older generation" of venture capital funds is now very well-capitalized, there have been some 50 or so "micro VCs" set up in the past decade which specialize in different parts of the tech world.

Wininger now says Israeli entrepreneurs and founders are reaching a "third stage" of the country's development, going from a nation of startups, to being acquired by major businesses, to now creating companies which will become iconic brands in the same way Google or Facebook are.

That first stage came around during the early years of the internet and many entrepreneurs were made during the dotcom boom, according to Shtilman. The experience of seeing large companies being born and grow rapidly was a partial inspiration for his own entrepreneurship.

The next stage of acquisitions was heralded by AOL's purchase of 5min Media, a video syndication site, for $65 million in 2010, according to Wininger. But the more important step was Google's deal to buy traffic data startup Waze for $1.3 billion in 2013. The company kept its headquarters in Israel and that acquisition has since been eclipsed by other deals, notably Intel's $15.7 billion acquisition of Mobileye in 2017.

Now Israelis are seeing the benefits of both culture and mentality with wider access to capital, talent, and experience than ever before. The Israeli government is spending 4% of its budget, the second-highest in the world, on research and development, per Statista. In 2019 alone, three unicorns emerged out out of Israel: software provider Monday.com, Lightricks, and Compass.

According to Dibner: "We are now seeing a unique phenomenon in Israel which is that its technology ecosystem is now fully mature. This is allowing entrepreneurs to branch out into new areas, as technology-driven change sweeps across virtually every industry from automotive to healthcare and beyond."