Israel's tech scene is growing so fast the country is called the 'Startup Nation,' but a local venture capitalist says it's in danger of losing its entrepreneurial edge

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Israel is often called the "Startup Nation" due to the sheer number of entrepreneurs and tech companies in the country of 9 million people.
Itzik Frid, a longtime Israeli tech entrepreneur and the CEO of a startup incubator focused on Arab-led startups, believes that the country will lose its edge if it can't better integrate its Arab minority into the tech industry.
While Arabs make up 21% of Israel's population, they currently only make up about 3% of the tech workforce.
Frid believes that bringing more Arabs into the tech workforce could alleviate the massive wage gap the population faces and improve the Israeli economy.
This post is part of Business Insider's ongoing series on Better Capitalism.

Israel produces an impressive number of highly successful tech companies for a country with just 9 million people, from social navigation app Waze, which sold to Google in 2013 for $1.15 billion, to autonomous driving company Mobileye, which sold to Intel last year for a whopping $15.3 billion.

Israelis have long lovingly referred to the Middle Eastern country as the "Startup Nation," thanks to the sheer number of entrepreneurs building businesses there, particularly in cities like Tel Aviv.

But some, like Itzik Frid, a longtime Israeli tech entrepreneur and venture capitalist, think the country will lose its edge if it can't better integrate its minorities into the tech scene. Frid is the CEO of Takwin Labs, a venture capital firm and startup incubator focusing on Arab-led startups.

"Honestly I love Israel ... but I'm so fed up with us being so self-content with us as 'the Startup Nation,'” Frid told Business Insider in a recent interview. "As much as we like to think ourselves as a 'startup nation,' everything in the startup scene is happening in the center of Israel."

Frid isn't the only one who thinks so. The Organization for Economic Cooperation and Development said in its 2018 report that Israel needs to better integrate its Arab-Israelis or risk economic stagnation and declining living standards for all of Israel.

While Arabs make up 21% of Israel's population, they currently make up only 3% of the workforce in the tech industry. And there is a huge wage gap between Jews and Arabs in Israel, with the average Arab making 58.6% of the average Jew in 2015.

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Much could be done to close that gap and improve the Israeli economy, Frid said, by getting tech companies to hire and cultivate Arab talent.

"Put aside the fact that they are a minority and we need to encourage them, Israel’s economy would benefit by around $60 billion a year. If we need an incentive to do this, that’s one," he said.

The government has taken steps to remedy the issue. As part of a law called Resolution 922, a $4.3 billion five-year plan for the Arab sector passed in 2015, funding was increased for Arab business centers and accelerators and the government plans to invest $25.6 million in small and medium-sized Arab businesses.

The government has also pledged to fund 30 months of salaries for Arab employees if a company hires five or more people from that population. The Innovation Authority, the office charged with developing the science and tech industries, said it was expanding grant and support programs for Arab entrepreneurs.

Nearly all of the tech companies in Takwin's portfolio have received grants or seed funds from the Innovation Authority. The larger problem, as it is for most startups, according to Frid, is the funding companies need a year or two down the line.

Fixing that issue, and the larger issue of bringing more Arabs into the tech workforce in general, will likely come down to the industry as a whole doing more to hire and cultivate Arab talent and to provide more funding to Arab-led startups.

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