Tom Friedman’s op-ed piece in the Sunday New York Times (subscription required) is worth a gander.  It sings an old tune - that of promising young innovators, and their financial backers, as economic growth drivers - against the unusual backdrop of Israel’s seat in the global tech engine.  Here’s the “money” quote:

If you want to know why Israel’s stock market and car sales are at record highs — while Israel’s government is paralyzed by scandals and war with Hamas and doesn’t even have a finance minister — it’s because of this ecosystem of young innovators and venture capitalists. Last year, VCs poured about $1.4 billion into Israeli start-ups, which puts Israel in a league with India and China.

In sum, Friedman contends that innovation-friendly countries, irrespective of geographic location, size, and political strife, e.g. Israel, stand to outperform in the ”flat” (i.e. increasingly globalized) world.  I (subjectively) concur.

One of Friedman’s references, however, gave me pause:

“We are not investing in products or business plans today, but in people who have the ability to imagine and connect dots,” said Nimrod Kozlovski, a top Israeli expert on Internet law who also works with start-ups. Israel is not good at building big companies, he explained, but it is very good at producing people who say, “Wouldn’t it be great if you could do this …,” then create a start-up to do it — which is later bought out and expanded by an Intel, Microsoft or Google.

Israel-focused VCs and entrepreneurs should take umbrage at the above.  In order to drive “venture-like” returns (think 3+ times invested capital in a fund) over the long haul, real operators driving profitable, arguably “big,” businesses need to be in place.  An R&D playpen only gets so far.  And Israel is more than that.

Here are a few good Israeli entrepreneurship/VC links for the curious reader:

• Mark Skapinker at Brightspark in Canada describes a visit to Israel
• Presentation from Yoram Oran at Vertex Venture Capital re “The Israeli VC Success Story” 
• Gemini Israel Funds’ website, one of the best designed VC sites in my opinion, notable for its emphasis on entrepreneur testimonials
• An Economic Outlook from the country’s Ministry of Finance, dated April 22, 1999, that covers “Israeli High-Tech Companies and Their Impact on Recorded GDP” - fascinating reading - skip to page 31

Photo credit: Proud, originally uploaded by chaim zvi