Israel, a global cleantech powerhouse, is now attracting hundreds of millions of dollars in cleantech investment every year.
The country gets more from its soil, water, air, and sunlight than most other nations on earth.
Why has such a small country been able to position itself a world leader in cleantech?
The answer, I believe, is a combination of many factors: its history, attitude of the people, ingenuity, and challenges to survival.
According to my research, the following are major highlights of Israel’s cleantech leadership to date in 2010:
- Israel is the Silicon Valley of water. Relative to its small size, Israel has devoted more resources to the development of waste water treatment and reclamation than any other country in the world. Seventy percent of its waste water is recycled, three times the figure of number two: Spain. Israel is the birthplace and world leader in drip irrigation, which has literally turned deserts into farmlands. The Israeli firm Netafim, a $500 million high-tech drip-irrigation giant, is a world leader in smart irrigation technology and has been credited with starting the drip irrigation revolution. Israel Newtech, which promotes Israeli clean energy and water technologies, has identified hundreds of water companies. It's estimated that Israel's water industry was valued at $1.4 billion in 2008 and could reach $2.5 billion by 2011. The sector is supported by early stage private and government investment programs, such as the Kinrot incubator, 11 investments to date) and the Office of the Chief Scientist (several million dollars in early stage R&D grants), as well as large industrial players such as IDE Technologies, a global leader in water desalination and Mekorot, the country’s innovative technology-oriented water carrier.
- Brain trust. Israel has the highest ratio of university degrees to population in the world. Within its small borders is an enormous concentration of PhDs and engineers, bolstered in large part by the large immigration from the former Soviet Union. This concentration of minds in a relatively small geographical space creates a country-wide incubator where ideas are constantly tested in the coffee shops of Tel-Aviv and the hallways of universities. Israelis also benefit from compulsory military service, where early exposure to high-pressure environments develop team building and leadership skills and a focus on technology-oriented innovation, which has a direct correlation with the needs of the cleantech sector.
- Necessity as the mother of innovation. Due to its location and terrain, Israel is a country that has had extremely limited natural resources since its inception. Israelis have therefore become experts at getting the most out of limited natural resources. Confronting adversity has trained Israelis to think outside of the box. “Israel is poor in natural resources and rich in brain capital. Clean energy bridges that gap. What Israel lacks in the ground it makes up with its people,” says David Anthony from 21 Ventures.
- Leveragability of tech expertise to cleantech. As Glen Schwaber, Partner at Israel Cleantech Ventures, wrote in his article The Quest for Smarts, “Israel’s tech sector has flourished through the creation of core technology competencies that are world leading. These include, but are not limited to digital printing, semiconductors, power electronics, optics and software. Over the last two decades, multiple billions of VC dollars have poured into Israeli companies in these sectors, market leaders have emerged, and many of the world’s largest multinationals have bought companies and set up shop in Israel as a result. Israel’s ability to compete globally in cleantech markets will depend largely on our success in leveraging all this know-how … Israeli excellence in advanced optics and systems has spawned a number of very interesting utility scale solar companies.”
- Capital. Just about every major US VC firm in Silicon Valley, from Battery Ventures to Greylock to USVP to Sequoia Capital, is prospecting across Israel for cleantech investments. All told, at least 40 venture funds, several of them American, manage more than $10 billion in Israel, with an increasing share of their allocations devoted to cleantech companies. We are also seeing strong players driving alliances between US VCs and Israel cleantech ecosystem with organizations like CICC and its Cleantech Initiative, which is acting as a conduit and catalyst for US Israeli technology transfer.
- The Better Place factor. Better Place is Israel’s best known cleantech company, and it recently raised a further $350 million. Founded by Israeli entrepreneur Shai Agassi, the company is developing electric vehicle battery swapping infrastructure. Israel was the first country to sign on with Better Place, Since then, Denmark, San Francisco, Canada, Australia and Hawaii have also begun working with the firm. Better Place accomplished significant milestones in 2009, including debuting the a first compatible EV in partnership with Renault at the Frankfurt Auto Show.
- The sun shines brightly over Israel. The solar radiation Israel receives is a driver of solar thermal companies. Siemens bought Israeli solar thermal pioneer Solel for $418 million, while BrightSource Energy has raised more than $160 million from investors, including U.S.-based VantagePoint Venture Partners, Google, BP's investment arm, Morgan Stanley, and JPMorgan Chase. Other notable solar thermal companies include Heliofocus , ZenithSolar, and AORA.
- Kibbutz Pioneers. The foundation of Israel's cleantech industry was laid with the beginning of the kibbutz (collective communities) movement at the start of the 20th century. At that time, the land was mostly semi-arid, with a scarcity of water and pockmarked by mosquito infested swamps, so principles of sustainability and self-sufficiency were adopted from the outset so as to "make the desert bloom".
- Home grown Israeli VC community. Israel has a vibrant local VC community which includes Israel Cleantech Ventures, AquaAgro and Terra Ventures—three firms dedicated to investing in Israel’s cleantech sector. Having a vibrant local VC community also draws foreign money.
- Momentum. Israel is fast becoming the cleantech incubator to the world. In proportion to its population, it now has the largest number of startup companies than any other country in the world except the U.S., with 3,500 companies, mostly in hi-tech.
As Al Gore stated in a recent visit, “the people of Israel can lead the way to renewable energy. With its unique geographical position, and cleantech know how, Israel is a natural leader in the field.”
Cleantech could well become Israel's biggest export market. Other countries should take note.