Why US Companies Are Drooling Over Israel's Amazing Startup Scene

Business Insider/Julie BortGadget shop in Tel AvivU.S. companies and investors are falling over themselves to get a piece of Israel's startup action these days.

There are at least two dozen accelerator programs in the Tel Aviv area, including some run by Microsoft and Google.

It seems like every U.S. VC has at least one Israeli startup in its portfolio. Some even have full offices here, like Battery Ventures, Benchmark, Bessemer, Sequoia, according to the Mapped In Israel startup map.

With 4,800 startups in the country today, Israel is known as the "startup nation." That's more startups per capita than any other country, and No. 2 in actual numbers after the United States (not counting those who claim the tax shelter Cayman Islands as their home).

Of those 4,800, about 700 are VC backed. The rest are bootstrapped, Microsoft's Tzahi Weisfeld, senior director of Microsoft global startup group in Tel Aviv, told Business Insider.

What makes Israel startup heaven? Weisfeld explained:

• The Israeli culture breeds lots of "risk adverse" people. Although Tel Aviv is a safe and friendly European-like beach town, Israelis live with the daily "pressure" of neighboring countries that wish them harm. That makes them tough.
• Israelis tend to speak their minds. The tech scene is tight so it's not a matter of who you know (they all know each other) but what you know. It's an industry-wide meritocracy.
• People launch careers a little later in life and with more worldly experience than in the U.S. and Europe. They usually do the required military service before going to college (3 years for men, 2 for women). They sometimes take a year of travel after the military.
• Israel has a lot of world-class engineering schools. (However, Israel has the same shortage of women entering tech fields as in the U.S.)
• Military service tends to make them experts at certain types of tech like "machine vision," where computers can understand what they "see." For instance, Microsoft's Kinect is built on tech licensed from the Israeli company PrimeSense.
• Israel is a huge hub for semiconductor R&D. Intel employees 8,300 people there. Apple, IBM, Motorola all have similar chip R&D facilties.

It all adds up to a nation of people who can create hardware, gadgets and apps and who have the confidence to leave good jobs and launch companies.

(Disclosure: Microsoft paid some of the travel expenses for Business Insider to attend a cloud computing event in Tel Aviv on Tuesday.)