Overcoming National and Personal Crises Through Entrepreneurship and Innovation Entrepreneurship and Innovation in Israel – GEM 2019/2020 National Research Report

Overcoming National and Personal Crises through Entrepreneurship and Innovation Entrepreneurship and Innovation in Israel – GEM 2019/2020 National Research Report

Prof. Emeritus Ehud Menipaz Yoash Avrahami, M.Sc.

Global Entrepreneurship Monitor Global Entrepreneurship Monitor

Overcoming National and Personal Crises through Entrepreneurship and Innovation Entrepreneurship and Innovation in Israel – GEM 2019/2020 National Research Report

Prof. Emeritus Ehud Menipaz Yoash Avrahami, M.Sc. Ira Center for Business, Technology and Society Ben-Gurion University

All rights reserved. Do not duplicate any portion of this publication without the prior written consent of the Research Team, except for the purpose of citing short sections in reviews and similar publications, while explicitly quoting the source.

When quoting from this report, please use the following: Menipaz, E., Avrahami, Y., Entrepreneurship and Innovation in Israel - GEM 2019/2020: National Research Report, Beer Sheva, Israel: Ben Gurion University. 2

Contents

Introduction...... 6

Executive Summary...... 8

1..Introduction...... 10 1.1. GEM 2019 Terminology...... 10 1.2. GEM Participating Countries and Classification - 2019...... 12

2.. Methodology of the 2019 Study...... 13 2.1. GEM Study Model (Source: GEM Global 2016)...... 13 2.2. Survey of the Adult Population in Israel and Experts Survey in Israel...... 14

3.. Characteristics of Entrepreneurship in Israel by Level, Sector, Gender, Age, Income, Motivations, and Aspirations...... 16 3.1. TEAs in the Forming Stage up to 3.5 Years...... 16 3.2. Perception of Business Opportunities among the Israeli population by Sector, 2019...... 18 3.3. Knowledge of Entrepreneurs Who Started New Businesses in Israel in the Last Two Years, GEM 2019...... 20 3.4. Ratio between Women and Men in TEAs in Israel Compared to Other Countries, GEM 2019...... 22 3.5. Forecast of Employment Growth in TEAs and EBs in Israel, 2019...... 24 3.6. Difficulty Starting a Business in Israel, 2019, and in Comparison with GEM Countries...... 27 3.7. Perception of Skills and Capabilities to Start and Manage a Business in Israel’s Population and in GEM Countries, 2019 ...... 28 3.8. Fear of Failure Starting a Business among the Adult Population as a Deterrent of Entrepreneurship in Israel, 2019...... 30 3.9. Entrepreneurial Intentions in the Adult Population in Israel to Start a New Business within the Next Three Years, 2019...... 31

4.. EB Characteristics in Israel, 2019...... 32

5.. EEA Level and Characteristics in Israel, 2019...... 40

6.. Activity of Informal Investors (Angels) in Israel, 2019...... 45

7.. Technological Entrepreneurship in Israel, 2019...... 48

8.. Index of Perception of Desired Equality in Israel and in GEM 2019 Countries...... 49

9.. NECI in GEM 2019 Countries GEM 2019...... 51 9.1. Factors that Limit Entrepreneurship in Israel according to the Experts’ Survey, 2019...... 55 9.2. Recommendations of the GEM 2019 Study for the Executive Branch in Israel...... 57

Bibliography...... 59 3

List of Figures

Figure 1: Distribution of the samples population in Israel by sector and query method, 2019...... 14 Figure 1: Distribution of the sample population in Israel by sector and query method, 2019...... 14 Figure 2: Distribution of the samples population in Israel by sector and query method, 2018...... 14 Figure 3: TEA in Israel by sector and gender, 2019...... 16 Figure 3(a): TEA levels in the adult population in the participating countries, GEM 2019...... 17 Figure 4: Perception of business opportunities among the population in Israel, 2019...... 18 Figure 4(a): Finding and seizing business opportunities, level of implementation of profitable opportunities and perception of innovation levels by others, GEM 2019...... 19 Figure 5: Level of knowledge of entrepreneurs in the population sectors in Israel, 2019...... 20 Figure 6: Knowledge of entrepreneurs who established a business in the last two years, all countries GEM 2019...... 21 Figure 7: Ratio between male and female entrepreneurship in the TEA stage in Israel, 2015-2019...... 22 Figure 7(a): Ratio between male and female entrepreneurship in the TEA stage in GEM countries, 2019...... 23 Figure 8: Percentage of TEAs and EBs by age groups in Israel, 2019...... 24 Figure 9: TEA by gender and sector, Israel, 2019 - forecast of 19+ people employed within five years...... 24 Figure 10: TEA by gender and sector, Israel, 2019 - forecast for 10+ people employed and more than 50% growth within five years...... 25 Figure 11: Difficulty starting a new business in Israel, GEM 2019...... 27 Figure 12: Ease of establishing a new business in Israel, GEM 2019...... 28 Figure 13: Perception of the level of knowledge, skills and abilities in the adult population in developed countries regarding the establishment and management of a new business, GEM 2019...... 29 Figure 14: Skills to start and manage a new business, by sector and gender (nonentrepreneurs), Israel 2019...... 29 Figure 15: Fear of failure starting a business among the adult population as a deterrent of entrepreneurship in Israel, 2019...... 30 Figure 16: Entrepreneurial intentions in the adult population in Israel to start a new business within the next three years, 2019...... 31 Figure 17: Level of EBs in Israel by sector and gender, Israel 2019...... 32 Figure 18: Forecast of 19+ people employed in five years among EBs, Israel 2019...... 33 Figure 19: Forecast of 10 or more people employed above 50% growth among EBs, Israel 2019...... 34 Figure 20: Comparison of changes in TEA and EB levels in Israel, 2007-2019...... 35 Figure 21: Trends in the development of young TEAs and veteran EBs, and intention to start new businesses within three years among the nonentrepreneur population in Israel, 2007-2019...... 36 Figure 22: Level of EBs by sector and income tertiary, Israel 2019...... 37 4

Figure 23: Reasons for entrepreneurs closing businesses, Israel 2018-2019...... 39 Figure 24: Level of EEA by sector and gender in the adult population, Israel 2019...... 40 Figure 25: Level of EEAs by sector and gender, Israel 2016-2019 ...... 41 Figure 25(a): Education level of EEAs compared to the nonentrepreneurial adult population, 2019...... 42 Figure 26: EEA level in 31 developed countries, 2019 ...... 43 Figure 27: Entrepreneurial motivation in GEM countries - ‘leaving a mark in the world’, 2019...... 43 Figure 28: Motivation to generate wealth and high income, especially among entrepreneurs in GEM countries, 2019...... 44 Figure 29: Informal investors by sector and gender, Israel 2019...... 45 Figure 30: Informal investors in developed countries, GEM 2019...... 46 Figure 30(a): Median investments in dollars by informal investors in businesses of others in developed countries, GEM 2019 ...... 46 Figure 30(b): Rating of informal investors in GEM countries, 2019...... 47 Figure 31: Relationship between informal investors and investment recipients, Israel 2019...... 47 Figure 32: TEA technological entrepreneurs by sector, Israel 2019...... 48 Figure 33: Perception of equality in the general population in Israel compared to TEAs, 2019...... 50 Figure 34: National Entrepreneurship Context Index (NECI) in GEM 2019 countries...... 52 Figure 35: NECI of 54 countries, GEM 2019...... 52 Figure 36: National entrepreneurial index - 12 elements of the entrepreneurial ecosystem in Israel...... 53 Figure 37: National entrepreneurial index - 12 elements of the entrepreneurial ecosystem in Israel...... 54 5

List of Tables

Table 1: Forecast of additional employed persons and growth of more than 50% in TEAs and EBs in Israel, 2015-2019...... 26 Table 2: Level of development of young TEAs and veteran EBs, intention to start new businesses, and closure of businesses, 2010-2019...... 38 Table 3: Index of perception of desired equality among the adult nonentrepreneurial population of Israel, 2007-2019...... 49 Table 4: Factors that limit entrepreneurship in Israel according to the experts’ survey, 2019...... 55 Table 5: Recommendations of the Israel Experts - Stage 1 for Improving and Encouraging Entrepreneurship in Israel, 2019...... 56 6

Introduction In my capacity of outgoing President of the Association of GEM National Teams (Global Entrepreneurship Monitor, GEM), Head of the GEM Research Program in Israel, and Chair of the Ira Center for Business, Technology and Society, I am pleased to submit Israel’s report for Overcoming National and Personal Crises through Entrepreneurship and Innovation for the years 2019/2020. Israel is one of the ten countries that established the GEM International Research Program in 1999, and since then it has participated in it continuously. GEM is an international, comparative, multiannual study of entrepreneurship and economic growth. In 2019/2020, 50 countries participated in the study. 100 countries participated in the study since its inception as a multinational coordinated study, with the objective of providing assessments and annual metrics about emerging entrepreneurship and the relevant ecosystem in these countries. The uniqueness of the study stems, inter alia, from the advancement of entrepreneurial behavior of individual entrepreneurs and not in organizations. The GEM consortium has a large and up-to-date repository of data about emerging entrepreneurship. At present, the entire world and Israel face the challenges of the Covid-19 pandemic, which appears to be significantly affecting world economy and is expected to change the way countries approach entrepreneurship and innovation. The government of Israel and other governments consider entrepreneurship and innovation as the means for overcoming national and personal crises. It is noted that the national and international study team is completing the development of a methodology that will enable to study the effects of the pandemic on relevant phenomena and translate them into objectives for the 2020-2021 study. The GEM study in Israel is conducted at the Ira Center for Business, Technology and Society, Ben-Gurion University, which provides academic and economic sponsorship. The Agency for Small and Medium-Sized Businesses of the Ministry of Economy and Industry has been supporting the study for many years. Among the most salient findings this year is the improvement in the ecosystem of entrepreneurship and innovation, especially in respect of financing of university education, which affect the strength of TEAs and EEAs. These findings are interesting because the study indicates that EEAs positively contribute to the growth of the Gross National Product (GNP) of countries. For example, the acquisition, a few years back, of Mobileye by Intel enables a company rich in resources like Intel to leverage Mobileye's intellectual property and lead to a significant increase in GNP in countries around the world, including Israel, in the autonomous vehicles vertical. Some of the main findings of this year’s study are of particular interest. The level of entrepreneurship in Israel doubled in the last decade, especially among women; at the same time, the level of fear of failure decreased compared to last year. The level of EEAs decreased slightly compared to last year, and Israel ranks in 12th place out of the 31 developed countries in GEM 2019 compared to 6th place last year. Finally, more people believe that it is easy to establish a new business in Israel compared to last year, and less businesses were closed. We would like to thank the Ministry of Economy and Industry; the Director of the Israel Small and Medium Enterprises Authority, Mr. Ran Kiviti; Dr. Nir Ben-Aharon and the ministry's team. We would also like to thank Ben-Gurion University of the Negev; the Ira Center, named after fighter pilot, pilot instructor and engineer Captain Ira Lahat-Gertzberg; and the Ira Center for Business, Technology and Society for their continued support during this study and for more than 13 years. We extend our thanks also to the thousands of people who participated and participate in the surveys, and to the dozens of key economy and industry executives in Israel who contributed their opinion about the Israeli ecosystem of innovation and entrepreneurship. 7

I would like to thank Israel's GEM Coordinator, Mr. Yoash Avrahami, who has been fulfilling his role loyally and professionally since the beginning of the research. We thank our families, who had to miss out on spending quality time with us so that we could devote ourselves to this project. We appreciate the opportunity to contribute to the advancement of innovation and entrepreneurship in Israel and around the world over the years, and hope to continue endorsing this important economic, national and academic endeavor.

Prof. Emeritus Ehud Menipaz Yoash Avrahami, M.Sc. Outgoing President, Association of GEM National Teams (AGNT) Coordinator, Research Program, GEM Israel Chair, Ira Center for Business, Technology and Society [email protected] Founding Director, Young Entrepreneurs Israel [email protected] Founding Director, World Science Literacy Organization [email protected] Head of the Israel Team +972-54-4517946 Chair, Board of Governors, AEAI Research Program, GEM Israel [email protected] +972-52-2598276 8

Executive Summary

GEM is an international multiannual study of entrepreneurship and economic growth. The study assesses the contribution of entrepreneurship to economic growth in participating countries, and the social impact on entrepreneurs and the ecosystem. The study provides a comparison between the countries, facilitating the continuous study of how innovation processes lead the way in the participating countries. 50 countries participated in the 2019 study. The study began in 1998, and Israel has been participating since its inception. The study is a consolidated multinational research program in which more than 100 countries participated to date. The study focuses on the entrepreneurial behavior of individuals, not organizations. The global GEM consortium has a large and up-to-date repository of data about emerging and young entrepreneurship. The GEM study in Israel is conducted at the Ira Center for Business, Technology and Society, Ben-Gurion University. The study is supported by the university, the Ira Foundation, and the Israel Small and Medium Enterprises Authority of the Ministry of Economy and Industry.

Objectives

• Characterize the entrepreneurship process in Israel and worldwide, from emerging ventures all the way to an established and sustainable businesses. • Examine the differences between countries in level of activity, aptitude and entrepreneurial aspirations. • Identify and analyze the factors and differences in the scope and nature of entrepreneurship between different countries, and understand what makes a country an entrepreneurial country. • Recommend, to political and government representatives, a policy aimed at encouraging and promoting entrepreneurship as a vital component of the country’s economic, technological and professional development.

Methodology of the 2019 Study

The study sample includes 2,036 people 18-64 years of age from four population sectors: Veteran Jewish sector with 1,242 participants (61.0%), the Arab sector with 387 participants (19.0%), Immigrants from CIS with 224 participants (11.0%), and the Jewish Orthodox sector with 183 participants (9.0%). The survey was conducted via fixed-line phones, mobile phones, and an Internet panel in proportions that were adapted to the sample populations. The samples were complemented with a National Experts Survey (NES) in Israel, including 36 experts, four from each of the nine areas defined by the GEM’s study model as essential for the entrepreneurial ecosystem. The analysis of variables was conducted separately from the large population survey and the experts survey.

Main Findings of the 2019 Study

Note: The findings of the study do not reflect the world crisis as a result of the Covid-19 pandemic. While preparing this report, efforts are being made to include the effects of the pandemic in the findings of the 2020/2021 study. 1. In 2019, TEA level increased from 10.93% to 12.7% and returned to the level of 2017 (12.7%) - see Figure 1. 2. TEA among women increased from 9.14% to 10.37%, and among men from 12.76% to 15.08%. 9

3. EB activity among businesses 3.5 years old and above increased from 4.15% among men to 7.31%, and from 3.17% to 3.63% among women. Total EB activity in 2019 was 5.5%. 4. The EEA level decreased from 7.2% in 2018 to 5.7% in 2019. In the orthodox, Arab and CIS immigrants sectors, the data for women are higher than the data for men. There is a unique deviation among the women in the Orthodox sector for which we found no explanation, except their interpretation of a specific question (see Figure 24). The reduction in the level of EEA in Israel in 2019 is manifested by a decrease in the GEM ranking, from 6th to 12th place (Figure 26). The counties that overtook Israel and ranged lower in 2018 were Slovenia, Luxembourg, Germany, Greece, Croatia, the United Arab Emirates and Sweden. 5. Fear from failure in the Israeli population decreased in 2019 from 60.2% to 53.51%. Among men, it decreased to 50.63% and to 56.3% among women. This is a particularly interesting finding in a year that was problematic in terms of the behavior of government institutions. 6. The index of desired equality in Israel's population increased to a level of 46.3% from 43.8% in 2018. The increase in the desired equality index among the nonentrepreneurial adult population points to discontent with the current social situation and the possibility that such underground process will lead to social change. A similar situation was observed in 2011. The sharp increase in inequality in Israeli society apparently affect this index. 7. 21.8% of the sample population believes that it is easy to start new businesses in Israel in 2019 compared to 17.8% in 2018. 78.2% of the sample population believes that it is not easy to start new businesses in Israel. The difficulty in starting new businesses in Israel is an important conscious factor for the majority of the public in Israel, despite the fact that the Arab sector is much smaller. 8. In 2019, businesses closed by entrepreneurs decreased relative to 2018. 3.77% of entrepreneurs closed a business and 1.46% of the businesses that closed continued with a different ownership (compared to 5.0% businesses closed and 1.9% of businesses that continued with a different ownership in 2018). 9. The estimation of good conditions to start new businesses in Israel in the next six months decreased in 2019 to 46.0% compared to 56.2% in 2018. Israel moved in this regard from place 12 in GEM out of 49 countries, to place 34 among 50 countries. 10. The intention to start a new business within three years in the population in Israel decreased from 31.9% in 2018 to 30.4% in 2019. The fear of failure establishing a business level among those who declared that they plan to start a business within three years is 55.4%. 11. The percentage of informal investors (angels) decreased slightly in 2019 to a level of 5.06% compared to 5.57% in 2018. 12. The level of knowledge of entrepreneurs who started new businesses in the last two years among the population increased substantially in 2019 to 72.6% of the population. This increase was common to both men and women. The increase among women reached 72.4% and among men 72.8%. Israel ranks second among the 50 participating countries in GEM 2019. 13. Out of all young and veteran businesses in the 2019 sample (TEAs and EBs), 70.3% are businesses with no income from exports. Israel ranks 32 among 50 GEM countries. Businesses with an income of 1%-25% from exports represent 15.5% of the businesses and rank 15 in GEM. Businesses with exports of 25%-75% represent 8.7% of the businesses and rank 20 in GEM. Businesses with exports of 75%-100% represent 5.6% of the businesses and rank 19 in the 50 GEM countries. 10

1. Introduction

1.1 GEM 2019 Terminology

Entrepreneurship: Any activity aimed towards the formation of an enterprise or a business organization, expansion or transformation of an existing business or the creation of independent employment of an individual or a team through a business organization.

Total Early Stage Entrepreneurial Activity Rate (TEA):

The percentage of entrepreneurs among the adult population, ages 18-64, who are at one of the first two stages of forming a business:

a. The Creation and Formation stage, during which the new enterprise has not paid out wages of any kind for over three months (Nascent).

b. The Young Business stage – salary or wages have been paid out for between 3-42 months (Baby Business).

Established Businesses (EB): Entrepreneurs who are managing a business they own, which was founded 3.5 years previously or more.

Entrepreneurial Employee Activity (EEA): The rate of individuals ages 18-64 in the population that are currently employed leading new developments or business ideas, or implementing new activities for the employer. This includes developing or launching new goods or services, or setting up a new subsidiary.

Opportunity-Driven Entrepreneurs: Entrepreneurs who establish a business, whose main motivation is autonomy and self-management.

Necessity-Driven Entrepreneurs: Entrepreneurs who found a business as a result of the lack of other options for work and sustenance.

IDO Index: The index compares improvement in opportunity-driven entrepreneurship and assesses the key motivations among entrepreneurs when choosing to start a new business. The study's assumption was that the motivations for opportunity-driven entrepreneurship are aspirations to independence and nonreliance, and to increase income ('making more money', getting richer).

Rapid-Growth Entrepreneurship: Percentage of entrepreneurs in the adult population who declare their ambition to employ 19 or more employees within five years of the research period (and, conversely, employing ten or more employees and growth of over 50% within five years).

Entrepreneurial Intentions in the Adult Population: The number of respondents within the adult population, ages 18-64 (not including actual entrepreneurs) who stated their intentions of forming a new business in the next three years.

Fear of failure as a factor that prevents starting a business: The number of respondents within the adult population, ages 64-18 (not including actual entrepreneurs) who stated that fear of failure will prevent them from starting a business.

Equality Perception Index among the adult population (not including actual entrepreneurs): The number of respondents among the adult population, ages 18-64, that answered “Yes” to the question: “In Israel, most people would prefer that everyone have a similar quality of life.” 11

1.2 GEM Participating Countries and Classification - 2019

Low-Income Middle-Income High-Income Middle East and Africa Egypt Iran Israel Madagascar Jordan Oman Morocco South Africa Qatar Saudi Arabia United Arab Emirates Asia & Pacific India Armenia Australia Pakistan China Japan Republic of Korea Taiwan Latin America and Brazil Chile Caribbean Ecuador Colombia Guatemala Panama Mexico Puerto Rico Europe and North Belarus Canada America North Macedonia Croatia Russian Federation Cyprus Germany Greece Ireland Italy Latvia Luxembourg Netherlands Poland Portugal Slovak Republic Slovenia Spain Sweden Switzerland United Kingdom United States

Source: 2019-2020 GEM Global Report 13

2. Methodology of the 2019 Study

2.1 GEM Study Model (Source: GEM Global 2016)

Basic Conditions Required: Veteran Firms -.Institutions Intraorganizational -.Infrastructures entrepreneurship of employees -.Financial stability -.Health -.Basic education Data from other Efficiency Coefficients: Entrepreneurship Profile sources -.Higher education and training Perceptions/Conceptions: -.Effective markets Perception of opportunities -.Effective labor market and skills, fear of failure, Economic- -.Advanced financial market entrepreneurship status -.Technological readiness and social Social, market Entrepreneurial Activity: openness economic Opportunity-driven and political Innovation and versus necessity-driven Creating factors Entrepreneurship: entrepreneurship, scope of jobs, -.Financing young businesses, industry, -.Government policy innovation, closing businesses -.Government programs for social value entrepreneurship -.Entrepreneurship education Entrepreneurial Aspirations Data from and training Growth, innovation, global Research and development orientation/exports.- ׳the experts survey -.Internal market openness Creating social value and flexibility -.Physical infrastructures for new businesses -.Commercial and legal infrastructures, professionalism and legislation for entrepreneurship -.Cultural and social norms that support entrepreneurship

The GEM study model represents the overall perception of the social, political and economic environment where individual entrepreneurs can and do establish, manage and cement new businesses. This is manifested by the creation of jobs for them and other people. The study collects and analyzes data from representative population surveys from countries that participate in the study, conducts expert surveys in different areas, and interviews them to obtain their assessments of the entrepreneurial ecosystem in their country. The model describes the interaction between social, economic and political institutions, and the basic conditions required to create new businesses, nurture innovation and creativity, and leverage new technologies to promote all businesses in the economy. The model also addresses the results of the process of economic development, increase of the national wealth, generation of employment opportunities, innovation, and sustainable social value. 14

2.2 Survey of the Adult Population in Israel and Experts Survey in Israel

Large-scale survey of 2,036 people 18-64 years of age from four population sectors: Veteran Jewish sector with 1,242 participants (61.0%), the Arab sector with 387 participants (19.0%), Immigrants from CIS with 224 participants (11.0%), and the Jewish Orthodox sector with 183 participants (9.0%). The surveys were conducted via fixed-line phones, mobile phones, and an Internet panel in proportions that were adapted to the response characteristics of the various sample populations. A National Experts Survey (NES) in Israel was also conducted, including 36 experts, according to the entrepreneurial conditions that together constitute the 12 pillars of the ecosystem as per the GEM study. The analysis of variables was conducted separately for each of the surveys: the population survey and the experts sample.

FigureFigure 1:1: DistributionDistribution ofof thethe samplessample populationpopulation inin IsraelIsrael by sector and query method, 2019 79.7% 76.2%

59.0% 55.1% 50.4% 38.6% 27.3% 21.1% 23.8% 21.0% 18.2% 13.7% 11.0% 2.8% 2.2%

rthodo ras Veteran C ota es mmirants

Fixed-line phone Mobile phone Web panel

Figure 2: Distribution of the samples population in Israel by sector and query method, 2018

92.7% 80.5% 68.2% 64.4% 67.3%

29.4% 31.8% 25.9% 19.5%

6.3% 4.2% 6.8% 0.0% 3.1% 0.0%

Orthodox Arabs Veteran Jews CIS Total Immigrants Fixed-line phone Mobile phone Web panel 15

The comparison of the distribution of queries between the sectors points to a significant variance in each of the query methods. In 2019, the overall queries via fixed-line phones decreased from 25.9% to 13.7%, via mobile phones it increased from 6.8% to 27.3%, and the Internet panel decreased from 67.3% to 59.0%. The sample in the Arab sector was queried by an Internet panel for the first time with 11%. The query level over fixed-line phones increased from 19.5% in 2018 to 38.6% at the expense of respondents via mobile phones whose level decreased from 80.5% to 50.4%. These changes present a balanced picture of the rate of respondents and the representation of the various sectors. 16

3. Characteristics of Entrepreneurship in Israel by Level, Sector, Gender, Age, Income, Motivations, and Aspirations

3.1 TEAs in the Forming Stage up to 3.5 Years

Figure 3: TEA in Israel by sector and gender, 2019

19.3% 15.9% 15.0% 12.6% 13.3% 12.4% 13.0% 12.4% 12.7% 11.2% 11.5% 10.2% 9.9% 10.4% 7.0%

Orthodox Arabs Veteran Jews CIS Immigrants Total

Men Women Total

The evaluation of the levels of entrepreneurship by sector and gender in 2019 points to a marked ratio between men and women in the orthodox sector, where one of every five men defines himself as an entrepreneur compared to one woman every 14. The rate of orthodox men that define themselves as entrepreneurs is the highest in all sectors. A certain deviation from the strength of men’s entrepreneurship was observed in the orthodox sector. Perhaps the generalized perception of orthodox men about entrepreneurship according to which the entrepreneurship of their wives is attributed to them creates an upward deviation in the sector and, as a result, there are less women entrepreneurs. In the Arab and veteran Jewish sectors, the level of entrepreneurship among men is higher than among women, but the ratio between genders is more moderate. Out of the ordinary was the immigrants sector, in which the level of women entrepreneurship is higher than among men. 17

Figure 3(a): TEA levels in the adult population in the participating countries, GEM 2019

2.8% Italy 5.4% Japan 5.4% Poland 6.2% Spain 6.9% Oman 7.6% Germany 7.8% Slovenia 8.2% Greece 8.3% Sweden 8.4% Norway 8.4% Taiwan 9.3% United Kingdom 9.8% Switzerland 10.2% Luxembourg 10.4% Netherlands 10.5% Croa�a 10.5% Australia 12.2% Cyprus Title Axis 12.4% Ireland 12.7% Israel 12.9% Portugal 13.3% Slovak Republic 13.4% Puerto Rico 14.0% Saudi Arabia 14.7% Qatar 14.9% Republic of Korea 15.4% Latvia 16.4% United Arab Emirates 17.4% United States 18.2% Canada 22.7% Panama 36.7% Chile 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%

Israel ranks 13 out of 32 developed countries in GEM 2019. Three of the oil-rich countries (the United Arab Emirates, Qatar and Saudi Arabia) rank before Israel, whereas their GNP levels enable them to make investments that promote them in entrepreneurship. The government purposely supports entrepreneurs and the creation of an ecosystem that encourages entrepreneurship much easier than other countries whose efforts are more limited. 18

3.2 Perception of Business Opportunities among the Israeli population by Sector, 2019

Figure 4: Perception of business opportunities among the population in Israel, 2019

59.10% 56.90%

54.40% 54.20%

51.60%

Orthodox Arabs Veteran Jews CIS Total Immigrants

Figure 4 shows that the perception of business opportunities among the orthodox sector is the lowest of all sectors in Israel. This finding somewhat contradicts the level of entrepreneurship declared by men in the orthodox sector. Despite the fact that the rate of business opportunities is lower than in other sectors in Israel, they show a high level of entrepreneurship among men in Israel. Figure 4 depicts the characteristics of the population in the various sectors in terms of finding entrepreneurial business opportunities and forming new businesses. The questions are aimed at the level of awareness and motivation in the population when they identify business opportunities and make decisions to implement such opportunities. In addition, the study evaluates the self-perception of the respondent about the appreciation of their environment towards their personal innovation level. An average of 56.9% of the adult population in Israel stumble upon business opportunities rarely, despite the fact that they are familiar with a field that interests them. The variance between the sectors ranges from 51.6% in the orthodox sector to 59.1% in the veteran Jewish sector. The second question refers to the intention to implement profitable business opportunities identified by the population. An average of 68.4% of the population implemented the business opportunity only rarely! The variance between the sectors in this question ranges from 74.2% in the veteran Jewish sector to 54.2% in the Arab sector. The intention to implement a business opportunity in each sector refers to the readiness level in a specific population to take a chance and take advantage of a profitable opportunity. In the veteran Jewish sector, the tendency to reject risks is higher compared to the other sectors. In the Arab sector, there is a higher tendency to take risks and take advantage of business opportunities. This goes hand in hand with the Israeli population, which goes hand in hand with the level of appreciation of personal skills in the Arab sector to create and manage a new business. This finding does not refer at all to the type of enterprise, the level and sophistication of innovation or its technology. 19

An interesting finding was found in the analysis of the answers to the third question regarding the self-perception of the population; in other words, whether it is highly appreciated by the environment as innovative. In this question too, the Arab sector has the lead compared to the other sectors with 75.6% compared to 74.6% in the veteran Jewish sector. The immigrants sector showed the lowest result with 69.4%.

Figure 4(a): Finding and seizing business opportunities, level of implementation of profitable opportunities and perception of innovation levels by others, GEM 2019

74.20% 68.40% 56.90% TOTAL

69.40% 67.10% 54.20% CIS IMMIGRANTS

74.60% 74.20% 59.10% VETERAN JEWS

75.60% 54.20% 54.40% ARABS

73.70% 62.90% 51.60% ORTHODOX

Even when you find a profitable You find business opportunities rarely, opportunity, you take it only rarely despite the fact that you are familiar with the field/area People think that your innovation level is high 20

3.3 Knowledge of Entrepreneurs Who Started New Businesses in Israel in the Last Two Years, GEM 2019.

Figure 5: Level of knowledge of entrepreneurs in the population sectors in Israel, 2019 74.8% 73.7% 64.9% 57.3% 54.8%

37.4% 34.5%

24.8% 25.2% 26.0% 22.5% 20.1% 11.4% 10.3% 8.8% 4.8%

Knows 1 Knows 2-4 Knows 5+ Total entrepreneur entrepreneurs entrepreneurs

Orthodox Arabs Veteran Jews CIS Immigrants

The highest level of knowledge of entrepreneurs who started a business in the last two years was found in the Arab sector, which reached 74.8%, which is an interesting finding. The gap between women and men in the Arab sector in the level of knowledge of entrepreneurs is 0.5% only in favor of men. The gap between women and men in the veteran Jewish sector is 0.6% in favor of men, whereas in the immigrants sector the gap is 10.1% in favor of women. This sector is the lowest between the sectors in their knowledge of entrepreneurs. 21

Figure 6 shows the distribution of GEM 2019 countries by the level of personal knowledge among the adult population with entrepreneurs that started new businesses in the last two years. Israel ranks high in second place in GEM 2019, with 72.6% of entrepreneurs knowing one or more entrepreneurs who started a new business recently. There is no doubt that such level of knowledge with active entrepreneurs has a positive and motivating effect on people who are interested in starting their own business. They have the possibility to gain knowledge and information that will enable them to realize their plans, having a direct or indirect effect on their willingness to take a risk that entrepreneurs they know took before them.

Figure 6: Knowledge of entrepreneurs who established a business in the last two years, all countries GEM 2019

Source: GEM Global Report. 22

3.4 Ratio between Women and Men in TEAs in Israel Compared to Other Countries, GEM 2019

Figure 7 shows the changes in ratio between TEAs in men and women in the adult population in Israel in 2015- 2019. This ratio ranges from 64.5% women to 100% among men, to 72.5% women and 100% men. This ratio reached this level after a decade in which the percentage of women represented a third of the entrepreneurship level observed in Israel in the first decade of the study.

Figure 7: Ratio between male and female entrepreneurship in the TEA stage in Israel, 2015-2019

72.5% 69.3% 71.6% 70.5% 64.5%

15.08% 12.70% 14.82% 13.27% 14.41%

10.40% 9.14% 10.74% 9.36% 9.30%

2019 2018 2017 2016 2015

Percentage of women Men TEA Women TEA compared to men

Figure 7(a) shows Israel's place in terms of nascent entrepreneurship among women compared to men in 2019. Israel is in the center of the table, ranking 27 among 49 countries. It is interesting to note that among the countries that ranked higher than Israel in terms of men/women entrepreneurship, there are undeveloped countries in which the nature of women entrepreneurship shows a relatively high level of necessity-driven entrepreneurship. Women in these countries are characterized by having awareness to and creating a reality of deep female involvement in creating and managing their own business, which has important cultural and educational impact on these countries. 23

Figure 7(a): Ratio between male and female entrepreneurship in the TEA stage in GEM countries, 2019

0.3 Pakistan 0.36 North Macedonia 0.37 Japan 0.44 Egypt 0.44 Norway 0.51 Morocco 0.55 Sweden 0.56 Slovenia 0.57 Cyprus 0.57 Ireland 0.58 Latvia 0.59 Jordan 0.59 Switzerland 0.6 Germany 0.6 Italy 0.6 United Kingdom 0.61 Croa�a 0.62 Portugal 0.62 Republic of Korea 0.63 Iran 0.63 Slovak Republic 0.64 Armenia 0.67 Taiwan 0.69 Israel 0.69 Luxembourg 0.7 United Arab Emirates 0.71 Canada 0.72 Australia 0.72 Oman 0.74 Panama 0.74 Puerto Rico 0.75 India 0.79 Chile 0.8 Guatemala 0.8 Netherlands 0.82 Belarus 0.84 China 0.85 Russian Federa�on 0.86 Ecuador 0.87 Greece 0.88 Colombia 0.89 South Africa 0.9 Poland 0.91 Mexico 0.91 United States 0.94 Spain 0.98 Brazil 1 Qatar 1.02 Madagascar 1.09 Saudi Arabia 1.2 1 0.8 0.6 0.4 0.2 0

Figure 8: Percentage of TEAs and EBs by age groups in Israel, 2019

33.05% 31.75%

25.57% 24.87% 22.01% 18.63%

13.26% 11.49% 11.80%

7.57%

55-64 45-54 35-44 25-34 18-24

Percentage of TEAs, 19 Percentage of EB, 19

Figure 8 shows that TEA in the sample population in Israel in 2019 reaches its peak at ages 25-34. Among EBs, the highest entrepreneurship level is among ages 45-54. Ages 55-64 show a significant representation of veteran entrepreneurs and there is also representation of new businesses established by adult entrepreneurs, who are apparently additional businesses or alternatives to prior businesses that are crated at those ages. Veteran businesses shown among ages 18-24 are businesses that shows an activity of over 3.5 years and moved to the next level.

3.5 Forecast of Employment Growth in TEAs and EBs in Israel, 2019

Figure 9: TEA by gender and sector, Israel, 2019 - forecast of 19+ people employed within five years

2.3% 2.2% 2.0% 2.0% 2.0% 1.8% 1.7% 1.5% 1.4% 1.1% 1.0% 0.8%

0.4%

0.0% 0.0% Orthodox Arabs Veteran Jews CIS Immigrants Total Men 2.2% 2.0% 2.3% 0.0% 2.0% Women 0.0% 1.0% 1.8% 0.8% 1.4% Total 1.1% 1.5% 2.0% 0.4% 1.7%

Men Women Total 25

Figure 10: TEA by gender and sector, Israel, 2019 - forecast for 10+ people employed and more than 50% growth within five years 27.3%

23.8%

20.8% 20.6% 18.8% 18.4% 17.8% 16.7% 15.8%

12.0% 11.1%

6.7% 3.8%

0.0% 0.0%

Orthodox Arabs Veteran Jews CIS Immigrants Total

Men Women Total

Figures 9 and 10 show the expectations and forecast of employment growth and establishment of TEAs. Figure 9 evaluates the forecast of growth in the number of people employed 19+ in five years, and Figure 10 studies the integration of an additional 10 employees with a growth above 50% in the next five years. In Figure 9, the total forecast of entrepreneurs for growth in the scope of people employed reached 1.7% among the respondents. In the orthodox sector, there is no female entrepreneur that expects growth in the next five years, and in the immigrants sector there is no male that expect such growth. These results point to a low level of entrepreneurs that expect rapid growth that is manifested by the creation of new employment and rapid economic growth. Figure 10 refers to a lower number of employees, but asks about a growth of 50% or more in the next five years in three sectors. This finding is interesting because it reveals an orientation towards growth among women and less of an orientation towards adding employees. Perhaps the commitment to increase the number of employees is perceived by them as more difficult or intimidating than the possibility of growth with less employees depending on the business. The lack of growth-oriented men in the immigrants sector and the lack of women in the orthodox sector are also affected by the size of the samples in these sectors and the fact that total TEAs in the sample in 2019 is N=259. 26

Table 1: Forecast of additional employed persons and growth of more than 50% in TEAs and EBs in Israel, 2015-2019

2015 2016 2017 2018 2019

TEA HJG additional 19+ employees within five years 1.79% 1.56% 0.68% 1.20% 1.70%

TEA JOB additional 10 employees and growth of more 19.58% 17.39% 7.90% 16.00% 17.82% than 50% EB JOB additional 10 employees and growth of more 5.31 3.35% 1.34% 2.70% 3.69% than 50% Table 1 raises two important questions: 1. What is the significance of the difference between the forecast and the intention among young entrepreneurs to add employees and grow more than 50% and the forecast and intentions among established businesses? 2. What are the reasons for the sharp decrease in expectations for growth and expansion in the number of employees in 2017 compared to the years before and after? A possible explanation for the difference in expectations between TEAs and EBs may be the accumulated experience of entrepreneurs whose business had to wait several years until they stabilized and gained knowledge that tied them to an economic reality, their fluctuations and risks that make them more level-headed and moderate in their estimations of their expected rate of growth. Young TEAs that have less time in the business and less experience tend to provide higher estimates for a new developing business that is not yet established. Another factor that must be taken into consideration is the rate of survival of young businesses over the years of establishment, when only 30% of them will reach stabilization in the best case. This is also the reason why the growth of established businesses in Israel is slower compared to the expectations of the entrepreneurs. Another reason for the unusual decrease in EB data in 2017 is the decrease of 50% in the number of EBs sampled that year compared to 2016. 27

3.6 Difficulty Starting a Business in Israel, 2019, and in Comparison with GEM Countries

Figure 11: Difficulty starting a new business in Israel, GEM 2019

89.9% 86.8% 83.7% 82.5% 78.5% 77.1% 77.8% 78.2% 73.0% 73.7% 68.7% 64.4% 56.6% 52.5% 48.5%

Orthodox Arabs Veteran Jews CIS Immigrants Total

Men Women Total

Figure 11 shows the sectors in the adult population in Israel that experience difficulties forming a new business in Israel in 2019. The figure shows the position of women and men in each of the sectors. The Arab sector is the most significant in its most moderate perception among the sectors and estimates the difficulty forming a new business at 52.5%. Women in the Arab sector estimate the difficulty to form a new business at a rate 8% higher than men in the sector. The highest perception of difficulty to form a business is in the veteran Jewish sector (86.8%), with the perception of women in this sector 6% higher than among men. The orthodox sector shows a difficulty level of 77.8%, with women in this sector perceiving the difficulty forming a new business 1.5% more than men. The level of difficulty in the immigrants sector is 68.7%. Women in all sectors show a higher level of perception of difficulty than men by 8.8%. Figure 12 shows a mirror picture of the difficulty forming a new business in all GEM 2019 countries. Israel ranks 50 and last among GEM 2019 countries, with only 21.64% of the adult population believing that it is easy to form a new business in Israel. The awareness of the Israeli population points to an ambivalent attitude towards entrepreneurship. On the one hand, it attracts entrepreneurs to enter new and challenging fields and realize their dream of success, status and chances of getting rich. On the other, there is fear of personal failure, sense of loss of assets and investment, and frustration with the failure to realize the entrepreneurial dream. This requires a declared position and planned involvement of government institutions to encourage and support entrepreneurship in Israel. It is required to enable uninterrupted entrepreneurial activity, remove competitive and regulatory obstacles, and improve the possibility of entry of new businesses into the economy, their survival and stability. 28

Figure 12: Ease of establishing a new business in Israel, GEM 2019 Israel

3.7 Perception of Skills and Capabilities to Start and Manage a Business in Israel’s Population and in GEM Countries, 2019

Figure 13 shows the level of personal skills and aptitudes required to form and manage a new business in the adult population of developed GEM 2019 countries. Israel ranks 28 among the 33 developed GEM countries. This relatively low place points to a problem in the perception of skills and aptitudes of the nonentrepreneurial adult population in Israel to form and manage a new business and grow it into a developed and stable business. This underestimation by the population in Israel does not stem apparently from modesty and humility, but rather represents the difficulties encountered by Israeli entrepreneurs. The experience of the populations of other GEM countries is more positive. Israelis are relatively harsher when they appreciate their ability to overcome difficulties to form a business and penetrate local and external markets. Among the reasons are entry obstacles and competition between similar businesses to survive and stabilize themselves, and lack of government, municipal and institutional support that could have helped with the obstacles into markets and stabilization. 29

Figure 13: Perception of the level of knowledge, skills and abilities in the adult population in developed countries regarding the establishment and management of a new business, GEM 2019 % % % % 83.00 % % % 75.54 75.47 72.90 % 72.37 % 71.19 % % % % % % % % 65.51 % 62.16 % % 61.43 % % % % % 58.16 57.46 56.97 56.80 56.32 % 56.04 55.70 55.18 % 53.05 % % % 51.70 51.64 50.82 50.69 50.41 % 49.15 48.49 48.09 45.79 43.34 42.00 41.97 % 41.92 31.52 % 13.98 Italy Chile Israel atar Spain Latvia Japan Oman Ireland Taiwan Poland Cyprus Croatia Greece Norway Canada Sweden Portugal Panama Slovakia Slovenia Auﬆralia Germany Colombia Switzerland Puerto Rico Luxembourg South orea Great Britain Saudi Arabia nited States The Netherlands nited Arab Emirates

Figure 14: Skills to start and manage a new business, by sector and gender (nonentrepreneurs), Israel 2019

71.90% 58.10% 51.30% 48.90% 45.70% 45.70% 45.10% 38.90% 37.60% 33.60% 37.20%

Orthodox Arabs Veteran CIS Total Total Jews Immigrants Popula�on

Men Women 30

There are two salient facts in Figure 14. One is that the self-confidence of men in all sectors about their entrepreneurial abilities is higher than women’s in the same category. The total average is 12.4%. The second fact is that the self-confidence of women and men in the Arab sector about their entrepreneurial abilities and skills is the highest among all sectors in Israel. This finding does coincide with the perception of the Arab sector about the ease of establishing new businesses in Israel. The other sectors consider the difficulty to establish new businesses a serious obstacle that hinders entrepreneurship. The estimation of skills and capabilities in the Arab sector increases the average in Israel. The veteran Jewish sector is the lowest of the sectors in the estimation of skills and aptitudes to form and manage new businesses, despite the fact that it leads in TEA levels in Israel compared to the other sectors throughout the study. The underestimation of women in this sectors along the years is also salient and must be addressed more specifically. The orthodox sector shows a high self-esteem compared to the veteran Jewish sector, both among women and men. This finding joins additional findings of high self-esteem in the orthodox sector that do not coincide with the concrete reality of the sector as we know it.

3.8 Fear of Failure Starting a Business among the Adult Population as a Deterrent of Entrepreneurship in Israel, 2019

Figure 15: Fear of failure starting a business among the adult population as a deterrent of entrepreneurship in Israel, 2019

66.6% 62.9% 61.4% 60.3% 59.8% 59.7% 58.8% 56.0% 58.0% 52.9% 56.3% 53.2% 41.9% 39.2% 40.6%

CIS Immigrants Veteran Jews Arabs Orthodox Total

Men Women Total

Fear of failure starting a new business among the adult population in Israel is an important awareness factor and a motivational element that affects the personal readiness of people to embark on an activity that they perceive to have a high personal and familiar risk level. There is a marked difference in the level of fear of failure between the sectors and between women and men in each sector. The lowest level of fear of failure to start a business is in the Arab sector, where men are more fearful than women, as opposed to the other three sectors, in which women fear business failure much more than men. A total of 53.2% of men and 58.8% of women in the nonentrepreneurial population of Israel fear business failure. The highest level of fear of failure among women coincides with the gap in their self-esteem and appreciation of their skills and aptitudes to start and manage a business, as shown in Figure 15. 31

3.9 Entrepreneurial Intentions in the Adult Population in Israel to Start a New Business within the Next Three Years, 2019

Figure 16: Entrepreneurial intentions in the adult population in Israel to start a new business within the next three years, 2019

37.5%

32.5% 29.2% 30.4%

21.1%

Orthodox Arabs Veteran Jews CIS Immigrants Total

4. EB Characteristics in Israel, 2019

Figure 17: Level of EBs in Israel by sector and gender, Israel 2019

10.3% 9.2%

7.3% 6.5% 6.3% 6.1% 5.4% 5.5% 4.9% 5.1% 4.3% 3.9% 3.3% 3.6% 2.6%

Orthodox Arabs Veteran Jews CIS Immigrants Total

Men Women Total

Figure 17 shows significant differences in EB levels among the population sectors. The differences between men and women in the orthodox sector are the lowest in the sample population. The ratio is 1:0.8. In other words, there are eight women for every 10 men entrepreneurs. In the Arab sector, there is one woman for every four men. In the veteran Jewish sector, there are six women for every 10 men. In the immigrants sector, women constitute more than one third of men (36%). In the total EB population, the ratio between women and men is 2:1, one woman for every two men. In both the orthodox and Arab sectors, there are deeper gaps between women and men in entrepreneurship in Israel. In the orthodox sector, the gap is the lowest whereas the Arab is the higher. These differences stem primarily from rooted cultural differences, in which there is a gradual cultural change in response to economic conditions and existential needs in both sectors. The two sectors have a high birthrate, as well as religious and normative limitations in respect of women in the workplace; the nature of male work is also different. These characteristics encourage the work of women in the orthodox sector more than the work of men; in the Arab sector, there is more work among men, with an emphasis on them being the only breadwinner. 33

Figure 18: Forecast of 19+ people employed in five years among EBs, Israel 2019

1.0% 1.0%

0.8%

0.5% 0.5% 0.4%

0 0 0 0 0 0 0 0 0.0%

Orthodox Arabs Veteran Jews CIS Immigrants Total

Men Women Total

An evaluation of the expectations among veteran entrepreneurs in Israel in 2019 to expand their business and increase their employees to 19 or more reveals a concerning picture of development of the entrepreneurial sector in Israel towards creating new employment in established businesses. This is reinforced even more in Figure 19, that assesses the intentions and expectations of 50% growth or more of businesses, with a more limited assumption of expansion to 10 employees or more. Figure 18 shows a low level of expectation of 0.4% among veteran entrepreneurs-business owners to reach the target of 19+ employees. The fact that there is no women representation in all sectors makes the problem even worse, and in the orthodox and immigrants sector there is no representation of not even one entrepreneur! This situation repeats itself in Figure 19, where there is no representation of women for the orthodox and immigrant sectors. 34

Figure 19: Forecast of 10 or more people employed above 50% growth among EBs, Israel 2019

7.9%

5.4% 4.8% 4.8%

3.8% 3.6%

0 0 0 0.0% 0.0% 0 0 0 0.0% Orthodox Arabs Veteran Jews CIS Immigrants Total Men 0 4.8% 7.9% 0 5.4% Women 0 0.0% 0.0% 0 0.0% Total 0 3.8% 4.8% 0 3.6%

Men Women Total

The partial representation of expectations to grow the business among veteran entrepreneurs can be explained in several ways. One such explanation is related to the entrepreneurial ecosystem in Israel, which does not leave a lot of room for optimistic expectations by entrepreneurs, especially female entrepreneurs, and a sufficiently high level of uncertainty that reduces the expectations of entrepreneurs for real growth. The data from previous years show that the rate of growth of EBs in Israel, that is, the aggregate annual growth in the scope of veteran businesses is very moderate and exposed to fluctuations stemming from local and global political, economic, and social changes. The Israeli market is not yet open and accessible compared to more competitive countries that enjoy less control by giant monopolistic corporations. Another factor that may affect the situation is under-representation in our sample, which replies on three question methods to collect the data (fixed-line phone, mobile phone and Internet panel), without known access to the national statistics of the National Bureau of Statistics. 35

Figure 20: Comparison of changes in TEA and EB levels in Israel, 2007-2019

12.7% 12.7% 11.9% 11.3% 10.9% 10.0%

6.5% 6.0% 5.4% 5.5% 5.0% 4.7% 4.0% 4.0% 3.3% 3.3% 3.6% 2.4%

2007 2010 2012 2013 2015 2016 2017 2018 2019

EB TEA

Figure 20 shows the almost parallel increase of new TEAs and EBs in 2007-2013, after the global economic crisis, which started to be felt in Israel in 2008 with its impact lasting until 2013. In 2013, a divergence began that led to a gap between an increase in the level of young businesses every year and the gradual decrease in veteran stabilized businesses until 2019. In 2019, there was a change in the level of EBs compared to the three previous years: there was an increase from a level of 3.3% to 4.7% to a level of 5.5% of EBs. This may be caused by the accumulated effect of high TEA levels in previous years. 36

Figure 21: Trends in the development of young TEAs and veteran EBs, and intention to start new businesses within three years among the nonentrepreneur population in Israel, 2007-2019 35.00% 31.90% 30.60% 30.40% 30.00% 26.50% 25.40% 24.00% 25.00%

20.00% 15.80% 15.30% 14.50% 12.70% 12.70% 15.00% 11.90% 11.30% 10.90% 10.00% 6.50% 10.00% 5.40% 5.50% 5.00% 6.00% 4.70% 4.00% 5.00% 4.00% 3.30% 3.60% 2.40% 3.25% 0.00% 2007 2010 2012 2013 2015 2016 2017 2018 2019

EB Characteristics Total Young and New Intentions to establish a business in Israel Businesses (TEA) within three years

The graph of intention to start a new business in the next three years clearly points to the effects of the global economic crisis of 2007-2012 until 2013, with an increase of 3.5% in TEA levels and 2% in EB levels. The graph of intentions to start a new business leaps by 9.5% and marks a change in awareness among the population about the possibilities and opportunities they have to start and succeed in a new business. The intention to start a new business leaps towards 30% and more, and remain there in 2019, before the COVID-19 pandemic. The annual increase in TEA levels from 2015 to 2019 takes place in parallel to the decrease in the rate of EBs. Israel ranks high in the level of intention to start a new business among the adult population in developed GEM countries. The trend of reinforcement among veteran businesses also increased in 2019, before the pandemic, and points to an optimistic climate. 37

Figure 22: Level of EBs by sector and income tertiary, Israel 2019

3.2% 1.5% 4.8% Orthodox

12.5% 6.2% 4.6% Arabs

7.8% 4.1% 1.9% Veteran Jews

7.9% 5.4% 2.3% CIS Immigrants

8.2% 4.4% 3.0% Total

Low Third Medium Third High Third

Figure 22 shows the levels of participation of entrepreneurs from the first, second and third income tertiaries in the sectors. The Arab sector is prominent with the largest participation in the three income tertiaries in the sector. The involvement of the lowest and medium tertiaries in the veteran Jewish sector, in the immigrants sector and in the Arab sector reaches almost the level of participation of the top tertiary. The orthodox sector is unusual, as the lowest tertiary is equal to the two tertiaries above, and in total it is the lowest in the sectors in the relative participation of the second and third tertiaries in EBs in Israel. In the three sectors, veteran Jewish, Arab and immigrants, the participation of the highest income tertiary is the prevalent one. In the orthodox sector, it is the opposite, the lowest income tertiary is the most dominant. 38

Table 2: Level of development of young TEAs and veteran EBs, intention to start new businesses, and closure of businesses, 2010-2019 Formation Total and Veteran Intention New Businesses Establishment Businesses to Establish Entrepreneurs Who Year of the Businesses in Stage (up to (42 Months a Business Closed a Business in Study (up to 42 Formation 3 Months and up) in the Next the Last 23 Months Months) and New Not Paying (EB) Three Years (TEA) Salaries) 5.3% closed a business 2019 8.8% 4.2% 12.7% 5.5% 30.4% 1.9% continued with a different owner 5.0% closed a business 2018 6.8% 4.1% 10.9 3.6% 31.9% 1.9% continued with a different owner 3.60% closed 2017 8.4% 5.1% 12.7% 3.3% 30.6% 1.6% continued with a different owner 3.15% closed 1.25% continued 2016 7.04% 4.45% 11.3% 4.7% 25.4% with a different owner 4.54% closed 1.04% continued 2015 8.4% 3.7% 11.9% 4.0% 21.7% with a different owner 4.8% closed 2013 5.3% 4.8% 10.0% 6.0% 24.0% 1.6% continued with a different owner 4.0% closed 2012 3.5% 3.0% 6.5% 4.0% 14.5% 1.5% continued with a different owner 3.5% closed 2010 3.1% 2.1% 5.0% 3.25% 15.3% 1.4% continued with a different owner

Table 2 provides an 8-year comparison of levels of establishing TEAs in the two stages of this phase: businesses that did not pay salaries or provided benefits more than three months, and businesses beyond this stage with up to 42 months of activity. The combination of these two phases creates the TEA concept, which is the level of young businesses that are being established. EBs are businesses that have been in existence 42 months or more. These are businesses that survived the first years and stabilized their operation. The ratio between TEAs and EBs shows the rate of survivability of TEAs as well as the rate of survivability of EBs that cease operating, close or change ownership and business direction. The strength of a TEA does not ensure the aggregate growth expected from established businesses. To allow veteran and economically established businesses in Israel to rise from their current level, the rate of survivability of TEAs must increase a notch, and the level of competition in the economy must be higher, and freer of obstacles that prevent competition between new businesses and monopolistic giant companies. 39

Figure 23: Reasons for entrepreneurs closing businesses, Israel 2018-2019

Business not profitable, 28.4% Opportunity for another 5.3% 3.1% occupation, 17.9% 5.3% 6.3% 28.4% Other undefined reasons, 14.8% 8.4% Personal/family reasons, 10.5% 10.5% Opportunity to sell the business, 8.4% 17.9% Government policy/tax bureaucracy, 6.3% 14.8% Difficulty obtaining financing, 5.3% Preplanned closure, 5.3% Accident, 3.1% 40

5. EEA Level and Characteristics in Israel, 2019

Figure 24: Level of EEA by sector and gender in the adult population, Israel 2019

9.0%

6.8% 6.5% 6.6% 5.7% 5.1% 4.7% 4.9% 4.3% 4.0% 4.1% 3.7% 3.9% 3.0% 2.2%

Orthodox Arabs Veteran Jews CIS Immigrants Total

Men Women Total

EEA level in Israel in 2016-2019 was 4.8% in 2016, 6.1% in 2017, 7.2% in 2018 and 5.7% in 2019 (see also Figure 25). Figure 24 shows that in the three sectors, the rate of EEA among women was higher than among men. Only in the veteran Jewish sector the rate of men is almost double than that of women. In 2019, Israel ranked 12 out of 31 developed GEM countries. In 2018, it was the opposite: the level of EEA among men in the three sectors was higher than that of women, and only the immigrants sector showed an opposite picture that year. In the orthodox sector, there were unusual differences among men in 2017-2018 (10.2% and 14.7% respectively). The very extraordinary differences in the orthodox sector point to a problem in how EEA is approached by the respondents and lead to unreasonable results in the level of EEA in the orthodox sector that includes both men and women (see Figure 24). 41

Figure 25: Level of EEAs by sector and gender, Israel 2016-2019 14.7 % % 10.2 % % % 9.4 % 9.0 8.9 % 8.4 8.1 % % % % 7.4 7.3 % % % % 7.2 7.2 % % % % 6.6 6.6 6.6 6.5 % % 6.1 6.1 6.1 % 6.0 % % % 5.7 5.6 % % % % % % % 5.3 5.3 5.1 5.0 4.9 4.9 4.9 % 4.8 4.8 4.8 % % 4.7 % % 4.2 4.1 4.1 % 3.8 3.7 % % 3.2 3.0 3.0 2.2 % 2.2 % % % 1.5 1.1

Men Women Men Women Men Women Men Women 2016 2017 2018 2019 Orthodox 5.3% 6.1% 10.2% 5.0% 14.7% 2.2% 2.2% 6.5% Arabs 3.0% 1.5% 3.2% 1.1% 6.6% 3.8% 3.0% 5.1% Veteran Jews 7.3% 5.3% 7.4% 4.8% 4.8% 6.1% 3.7% 4.1% CIS Immigrants 6.6% 4.9% 9.4% 4.9% 8.9% 7.2% 9.0% 4.7% Total 5.6% 4.1% 8.1% 4.2% 8.4% 6.0% 6.6% 4.9% Total 4.8% 6.1% 7.2% 5.7% 42

Figure 25(a): Education level of EEAs compared to the nonentrepreneurial adult population, 2019

52.6% 52.2%

43.4% 41.2%

33.3% 30.6% 30.5% 27.2%26.2% 28.8% 26.3% 26.9% 26.0% 26.1%

16.7% 14.2% 14.6% 15.1% 13.9%

2.7%

Orthodox Arabs Veteran Jews CIS Immigrants Total Nonentrepreneurs, academic educa�on 2.7% 14.2% 13.9% 27.2% 14.6% Nonentrepreneurs, high-school educa�on 15.1% 30.6% 30.5% 26.2% 28.8% EEA, academic educa�on 16.7% 26.3% 26.9% 26.1% 26.0% EEA, high-school educa�on 33.3% 52.6% 41.2% 52.2% 43.4%

One of the salient characteristics in the comparison between the EEA and the nonentrepreneurial population is the higher level of education of entrepreneurs. In the level of higher, nonacademic education, the differences are significant and noticeable. There is apparently an advantage to professional training and knowledge that enable people with skills and professional knowledge who have no economic security or human capital (for example, management and marketing skills), that together with fear of failure and taking personal and family risks gives them a safer entrepreneurial path that provides them and their organization with an advantage. Academic education also gives a salient advantage to EEA compared to nonentrepreneurs. Only in the immigrants sector the level of academic education among nonentrepreneurs is 1% higher than among EEAs. This finding can explain an important aspect of entrepreneurs’ preference towards EEA, which gives them business and economic security and stability to partner with an active entrepreneur and/or organization with means and the willingness to invest in R&D. 43

Figure 26: EEA level in 31 developed countries, 2019

8.08 8.24 8.28 7.47 7.00 6.65 6.26 6.47 5.99 6.21 5.75 5.93 5.24 5.35 5.40

4.13 4.33 3.60 3.64 3.10 3.19 2.64 2.10 2.30 1.68 1.73 1.87 1.90 1.35 0.72 0.39 Italy Israel Spain Chile Qatar Japan Latvia Poland Taiwan Ireland Greece Greece Croa�a Canada Norway Sweden Panama Slovakia Slovenia Portugal Australia Germany Puerto Rico Puerto Switzerland South Korea Luxembourg Saudi Arabia

Britain Great United States United

The Netherlands United Arab Emirates Arab United

Figure 27: Entrepreneurial motivation in GEM countries - ‘leaving a mark in the world’, 2019 Agree or strongly agree (% TEA) Iran Italy India Chile Israel Brazil atar Egypt Spain China Latvia Oman Japan Jordan Ireland Poland Cyprus Mexico Taiwan Croatia Greece Norway Belarus Canada Sweden Armenia Portugal Panama Ecuador Morocco Pakistan Slovenia Australia Germany Colombia Guatemala Switzerland Puerto Rico Netherlands South Africa Madagascar Luxembourg Saudi Arabia nited States nited ingdom Slovak Republic North Macedonia Republic of orea Russian Federation nited Arab Emirates Asia & Paciﬁc Europe North America Latin America Caribbean Middle East Africa

Source: Global GEM 2019. 44

Figure 28: Motivation to generate wealth and high income, especially among entrepreneurs in GEM countries, 2019 Agree or strongly agree (% TEA) Iran Italy India Chile Israel Brazil atar Egypt Spain China Latvia Oman Japan Jordan Ireland Poland Mexico Cyprus Taiwan Croatia Greece Norway Belarus Canada Sweden Portugal Panama Armenia Ecuador Morocco Slovenia Pakistan Australia Germany Colombia Guatemala Switzerland Puerto Rico Netherlands South Africa Madagascar Luxembourg Saudi Arabia nited States nited ingdom Slovak Republic North Macedonia Republic of orea Russian Federation nited Arab Emirates Asia Paciﬁc Europe North America Latin America Caribbean Middle East Africa

Source: Global GEM 2019. 45

6. Activity of Informal Investors (Angels) in Israel, 2019

Figure 29: Informal investors by sector and gender, Israel 2019

7.7%

6.2% 5.4% 4.8% 4.4% 4.5% 4.4% 3.8% 3.3% 4.1% 2.8%

1.1%

Orthodox Arabs Veteran Jews CIS Immigrants

Men Women Total

The percentage of informal investors in Israel in 2019 that provided data of their investments was 2.2%. This is lower than in previous years. In the global GEM study, this element was taken to represent the investments by angels in all participating countries. While the percentage of angels that reported investments in the business of others in Israel was 5.1% (ranking 32 among 50 participants), the classification of these investors showed that only 44 provided the amount of their investment, which represent 56.4% of the investors that declared having invested in others. This high rate of people refusing to reveal the amount of their investment points to their fear to reveal themselves in any manner to the income authorities and other institutions for fear of being damaged. The details of the study’s participants are confidential and not transferred to any outside entity. The gap between angels that report their investment and those that agree to report on the amount of their investment was not studied separately in any GEM country. Out of 78 respondents that identified themselves as angels, there were seven men in the orthodox sector and one woman, 9 men and 12 women in the Arab sector, 22 men and 17 women in the orthodox sector, and 5 men and 5 women in the immigrant sector. The Arab sector was the highest in the percentage of angels, and the rate of women was higher than men. In the remainder of the sectors, the percentage of male investors was higher than among women. The rate of relative investors in the veteran Jewish sector was the lowest of the sectors, but it represents 50% of the investors. 46

Figure 30: Informal investors in developed countries, GEM 2019

Italy Chile Israel atar Spain Latvia Japan Oman Ireland Taiwan Poland Cyprus Croatia Greece Norway Canada Sweden Portugal Panama Slovenia Auﬆralia Emirates Slovakia Germany Colombia Switzerland Puerto Rico nited Arab nited South orea Luxembourg Great Britain Saudi Arabia nited States The Netherlands

An analysis of informal (angel) investors among developed countries according to the self-reporting of investments is shown below, with no reference to their report about their actual investment amount. According to this calculation, Israel ranks 22 with 5.1% among the 33 developed GEM countries, and 32 out of the 50 participating countries in 2019.

Figure 30(a): Median investments in dollars by informal investors in businesses of others in developed countries, GEM 2019 21,081.25 20,176.36 $ $ 19,049.86 $ 16,006.00 $ 11,205.80 $ 9,528.61 $ 8,964.64 $ 7,532.55 7,283.77 7,224.82 $ 6,912.87 $ $ $ 5,725.61 5,617.88 5,602.90 5,602.90 5,224.17 $ 5,194.87 $ $ $ 5,000.00 $ $ 4,625.19 $ $ 3,361.74 $ 2,600.07 2,115.66 $ 1,860.39 1,821.51 $ 1,500.00 $ $ 1,037.65 1,000.00 $ 910.50 720.00 597.60 573.55 $ 521.04 $ 453.33 $ $ 103.98 $ $ $ $ $

Source: Global GEM 2019. 47

Figure 30(b): Rating of informal investors in GEM countries, 2019

1.01 China 1.39 Slovenia 1.41 Guatemala 1.43 Jordan 1.71 Switzerland 1.8 Slovak Republic 1.82 Norway 1.83 Brazil 1.86 Ecuador 2.08 Panama 2.12 Netherlands 2.84 Cyprus 2.89 Spain 3.01 Italy 3.17 India 3.7 Sweden 3.76 Qatar 3.9 Portugal 3.9 Canada 4.14 Israel 4.17 Luxembourg 4.51 United Kingdom 4.55 Germany 4.6 Puerto Rico 4.65 Australia 4.68 Greece 4.92 Iran 5.19 Saudi Arabia 5.35 Japan 5.42 Latvia 5.5 Croa�a 5.62 Poland 5.93 Chile 5.96 United Arab Emirates 6.06 Republic of Korea 7.69 Taiwan 8.92 Oman 10.35 United States 14.92 Ireland 16 14 12 10 8 6 4 2 0

Figure 31: Relationship between informal investors and investment recipients, Israel 2019

Other, 4.2% Stranger with a good idea, 8.3% Immediate family member, 34.7% Friend or neighbor, 30.6%

Other family rela�ve, 12.5% Coworker, 9.7%

Figure 31 shows the distribution of angel investments in Israel in 2019. There is a difference in the distribution of investments. Close relatives received less than in previous years, 48& of the investments compared to 64% in 2016. There is an interesting finding - a friend or neighbor received 30.6% compared to 17% in 2016. In the orthodox sector, 62.5% invested in family members compared to 40%-50% in other sectors. 10% of all sectors invested in a stranger with a good business idea compared to 16% in 2016. 48

7. Technological Entrepreneurship in Israel, 2019

Figure 32: TEA technological entrepreneurs by sector, Israel 2019

15.4% 15.4%

12.0% 12.0%

7.3% 6.3% 5.4% 4.0% 3.8% 2.0%2.0% 2.5% 1.9% 0.0% 0.0%

Orthodox Arabs Veteran Jews CIS Immigrants Total

Mid-tech High-tech Total population

The rate of technological TEA in Israel in 2019 shows a significant drop from 11.5% to 7.3% only. This is a small number of entrepreneurs from all TEAs that are high and mid-tech together. This is the lowest number of 19 entrepreneurs out of 259 that established technological businesses. In the veteran Jewish sector, which leads in technological entrepreneurship in Israel, there was a decrease to a level of 6.3% in 2019, much lower than in previous years. The increase in the orthodox and immigrants sectors is marginal in terms of the number of participating entrepreneurs. This trend must be further studied in 2020-2021. 49

8. Index of Perception of Desired Equality in Israel and in GEM 2019 Countries Table 3: Index of perception of desired equality among the adult nonentrepreneurial population of Israel, 2007-2019 2007 2008 2009 2010 2012 2013 2015 2016 2017 2018 2019

Equality index: Percentage of respondents in the population: "Yes, 40.6% 46.5% 48.2% 48.5% 55.6% 47.3% 44.5% 42.3% 42.4% 43.9% 46.3% people prefer a standard of living similar to everyone else's" Rank among GEM countries (the number 41 out 42 out 44 out 55 out 43 out 52 out 46 out 55 out 49 out 40 out 45 out of participants varies of 42 of 43 of 51 of 58 of 54 of 67 of 60 of 65 of 54 of 49 of 50 every year)

The desired/aspired equality index among the nonentrepreneurial adult population is studied every year. It expresses the level of desired equality perceived by the population according to its values, social norms and understanding of the gap between the norms and the social/economic reality in the country. In the first years of the study, several assumptions were implied that linked between a low level of desired equality perception and a higher level of economic efficiency, competition and productivity. As time went by, and with the participation of countries with different geographical, ethnographic, religious, social and political characteristics, assumptions for which it was not possible to consolidate a reliable theoretical foundation were discarded. Throughout the years of the study, since 1999, Israel ranked among the developed countries with the lowest desired equality index. In parallel to Israel’s economic and technological development in those years, the level of inequality increased gradually while the increase in the level of expected productivity did not materialize. An interesting change took place after the global economic crisis in 2008. Table 3 shows the continuous increase in desired equality perception up to its peak in 2012, after the social demonstration of 2011. The significant change in the opinion of the Israeli public led to a marked increase in the level of desired and aspired economic-social equality. Failure to address the claims of the public that were brought in an organized manner to the government’s Trachtenberg Commission, and the understanding that there were no real intentions to modify the situation led to a drop in the desired equality level in Israel from 2013 to 2018. In 2019, the level of desired equality in Israel began to rise again. This increase hints to the possibility that perhaps dissatisfaction with the political work of the current government and the divided national emergency government that has many heads that convened recently will also be expressed in an increase of the next desired equality index. 50

Figure 33: Perception of equality in the general population in Israel compared to TEAs, 2019

66.0% 57.7%

49.3% 47.1% 48.6% 45.0% 43.8% 41.1%

32.0% 25.0%

Orthodox Arabs Veteran CIS Total Jews immigrant

Nonentrepreneurs TEA

The perception of desired equality among the nonentrepreneurial adult population in Israel compared to the entrepreneurial population in 2019 points to several interesting differences: 1. The lowest percentage of desired/aspired equality is in the orthodox and immigrants sectors in Israel. In both sectors, the rate of nonentrepreneurs is significantly higher compared to entrepreneurs that desire more equality. This is an interesting finding because it shows that entrepreneurs in these sectors require a high inequality level that supports the status they reached by being the owners of businesses that generate a high income in their sector. 2. In the level of desired equality in their own sector, the rate of entrepreneurs with businesses in the Arab and veteran Jewish sector is substantially higher than among nonentrepreneurs. This is a reversal of the trend compared to the orthodox and immigrants sectors. In these sectors, entrepreneurs manifest a positive, inclusive approach towards more social and economic equality among Israeli citizens. Throughout the study, entrepreneurs from the Arab sector express a clear and continuous desire for more social/economic equality, which is very important to them as a sector that is excluded from a substantial portion of the economic/civil activity and the benefits and support the government provides to Jewish citizens. 51

9. NECI in GEM 2019 Countries GEM 2019

National Entrepreneur Context Index (NECI): A new index introduced in 2018 that is based on the National Experts Survey (NES) of each country that participates in the study. The index is based on 12 pillars of entrepreneurial framework, and enables to assess environmental conditions that facilitate entrepreneurship in the economy being measured. The index also evaluates the country’s entrepreneurial strengths and weaknesses, provides guidelines for corrective actions, and contributes to the development and growth of entrepreneurship in the country. It ranks countries according to the score obtained in their NES in that country in the year of the study. In 2019, GEM established an improved methodology according to which each expert ranked the 12 pillars of entrepreneurial frameworks using a score of 1 to 10 by their importance and impact; an average weighted score was calculated for each country (see Figure 37). To the 50 countries that participated in the study in 2019, four countries were added which did not participate in the population survey: Bulgaria, Paraguay, Thailand and Indonesia. The GEM experts survey is an attempt to consolidate a national evaluation of the core topics of the entrepreneurial ecosystem. It takes advantage of the wisdom of experts in various areas, who have experience, knowledge and information about Israeli reality and are familiar with the data from both a macro and micro point of view. The experts present the 12 pillars that form the framework in Israel, which enable entrepreneurial development and growth in a relative tempestuous social, economic, international and political system. The assessments of the experts are subjective and personal, and manifest the variety of their opinions and evaluations. This contributes to consolidating a picture at the national level that defines characteristics of success and innovation on the one hand, and national deficiencies and failures on the other. Figures 35 and 36 show the place of Israel among the developed countries that participated in GEM 2019, and its place among all countries that participated in the study in 2019. It is recommended to observe the overall score of the various developed and developing countries to understand where Israel is placed in terms of the perception of the importance of promoting entrepreneurship and growth among the experts in the various countries. For example, among the developed countries, China, India, Russia, Indonesia, Jordan and Thailand are not included, whose experts rank them higher than Israel. This means that in countries with a per-capita income and technological development level that is not higher than Israel’s, the entrepreneurial climate and the encouragement and support by the government exceed that of Israel and give these countries more competitive options. Another example is the countries of the Persian Gulf, which are rich in resources: Qatar, the United Arab Emirates and Saudi Arabia precede Israel with a climate that supports and enables entrepreneurship. 52

Figure 34: National Entrepreneurship Context Index (NECI) in GEM 2019 countries

Israel ranks 17 among the developed countries included in the 2019 index.

Figure 35: NECI of 54 countries, GEM 2019 6.05 6.04 5.91 5.89 5.84 5.80 5.73 5.69 5.52 5.31 5.24 5.24 5.17 5.16 5.13 5.04 5.04 4.99 4.92 4.91 4.83 4.81 4.72 4.71 4.71 4.65 4.63 4.61 4.61 4.49 4.48 4.33 4.31 4.24 4.24 4.24 4.21 4.21 4.19 4.10 4.04 4.03 3.98 3.98 3.95 3.95 3.84 3.69 3.63 3.57 3.56 3.43 3.18 3.15 IRAN ITALY CHILE INDIA SPAIN OMAN EGYPT CHINA JAPAN QATAR ISRAEL BRAZIL LATVIA GREECE CYPRUS MEXICO JORDAN TAIWAN POLAND CANADA SWEDEN IRELAND PANAMA NORWAY CROATIA BELARUS ARMENIA ECUADOR PAKISTAN GERMANY SLOVENIA BULGARIA THAILAND MOROCCO PORTUGAL COLOMBIA PARAGUAY AUSTRALIA INDONESIA GUATEMALA PUERTO RICO LUXEMBOURG MADAGASCAR SWITZERLAND NETHERLANDS SAUDI ARABIA SAUDI SOUTH AFRICA UNITED STATES UNITED KINGDOM SLOVAK REPUBLIC NORTH MACEDONIA NORTH REPUBLIC OF KOREA RUSSIAN FEDERATION UNITED ARAB EMIRATES

Source: Global GEM Study 2019-2020. Israel ranks 22 among the 54 countries in the GEM 2019 countries (out of which 33 are developed countries). 53

Figure 36: National entrepreneurial index - 12 elements of the entrepreneurial ecosystem in Israel

Social and cultural norms and social support 7.60 Physical infrastructures and Educa�on for access to services 8.00 entrepreneurship in 7.08 elementary and high school Ease of access to professional 6.00 and commercial Government policy, infrastructures 4.00 2.97 bureaucracy, taxa�on, 5.62 regula�on 2.00 3.05 Financial climate compared to entrepreneurs and Government policy - support, entrepreneurships 5.11 0.00 4.06 priorities, encouragement

Dynamics of the internal 4.15 Internal market loads on market (ﬂexibility, openness) 4.80 entrepreneurs

4.15 4.67 R&D implementa�on and 4.40 Government programs for transfer entrepreneurship Professional educa�on and qualiﬁca�on for entrepreneurship, high

Figures 37 and 38 show the strengths and weaknesses of the entrepreneurial ecosystem in Israel in 2019 according to the Israeli experts. Israel's strengths: 1. Social and cultural norms, social support, and estimation towards entrepreneurship and innovation. 2. Physical infrastructures and access to the services required by entrepreneurs. 3. Easy access to professional and professional infrastructures (accountants, lawyers/legal advisors, consultants in technology management, and more). 4. The financial climate is improving in the ratio between male and female entrepreneurs. 5. Dynamics of the internal market - medium-level of openness and flexibility. 6. The level of R&D transfer and implementation that was high in the past shows a sharp weakening. 54

Israel's weaknesses: 1. Education and qualification for competitive entrepreneurship and modern economic management in the framework of elementary and high-school education. 2. Government policy, bureaucracy, taxation and regulation that are not oriented to entrepreneurship as a national goal. 3. The government policy towards providing support and encouragement and giving priority to entrepreneurs is not consolidated and does not allow for real competition. 4. Too high market loads on entrepreneurs. 5. Insufficient government programs for entrepreneurship. 6. Insufficient education and professional qualification towards entrepreneurship in professional and academic framework.

Figure 37: National entrepreneurial index - 12 elements of the entrepreneurial ecosystem in Israel

2.97 Educa�on for entrepreneurship in elementary and high school

3.05 Government policy, bureaucracy, taxa�on, regula�on

4.06 Government policy - support, priori�es, encouragement

4.15 Internal market loads on entrepreneurs

4.15 Government programs for entrepreneurship Professional educa�on and qualiﬁcation for entrepreneurship, high 4.40 school and academic education 4.67 R&D implementa�on and transfer

4.80 Dynamics of the internal market (ﬂexibility, openness)

5.11 Financial climate compared to entrepreneurs and entrepreneurships

5.62 Ease of access to professional and commercial infrastructures

7.08 Physical infrastructures and access to services

7.60 Social and cultural norms and social support 55

9.1 Factors that Limit Entrepreneurship in Israel according to the Experts’ Survey, 2019 Table 4: Factors that limit entrepreneurship in Israel according to the experts’ survey, 2019 Percentage of experts Area that indicated Finance: Lack of availability, lack of government support, avarice on the part of angels and venture-capital funds, lack of 42.0% investments in the early stages. Noncompetitive bank systems that benefit from government protection. Bureaucratic central and municipal governments, division 16.7% between many authorities Education from elementary school, professional training, education towards a market economy and entrepreneurship at 14.0% all levels Small internal market 8.2% Government regulation makes it difficult for new businesses to 5.5% succeed and for markets to open Recruitment of professional personnel and level of wages 5.5% Taxation in terms of government policies 2.7% Physical infrastructures and accessibility 2.7% Other 2.7% Total 100.0% 56

Table 5: Recommendations of the Israel Experts - Stage 1 for Improving and Encouraging Entrepreneurship in Israel, 2019 Recommendations of the Israel Experts for Improving Entrepreneurship in Israel, Aggregated 2019 Frequency Percentage Percentage First Set of Recommendations In-depth improvement of educational systems in preparation for a national, advanced 1 2.8 2.8 technological system that enables access to high-level entrepreneurship. Zero regulation 1 2.8 5.6 Credit with convenient conditions 1 2.8 8.3 Plan for young entrepreneurs (overall plan from idea to business creation) under 30 1 2.8 11.1 years of age with professional guidance and mentoring Curriculum for entrepreneurship as of kindergarten age 1 2.8 13.9 Substantial increase in government credit for starting businesses 1 2.8 16.7 Training at an earlier stage (university, high school, etc.) 1 2.8 19.4 Lower taxation 1 2.8 22.2 Implementation of entrepreneurial and creative learning beginning with formal 1 2.8 25.0 education Lower taxation 1 2.8 27.8 Less government bureaucracy in the support being provided 1 2.8 30.6 Establishment of entrepreneurship centers 1 2.8 33.3 Establishment of impact funds in the periphery 1 2.8 36.1 Establishment of training programs in high schools and industry 1 2.8 38.9 Investment in education for entrepreneurship 1 2.8 41.7 Investments at earlier stages 1 2.8 44.4 Education for entrepreneurship at younger ages 1 2.8 47.2 Education for entrepreneurship 1 2.8 50.0 Education for entrepreneurship and creativity from a young age 1 2.8 52.8 Education for entrepreneurship from a young age 1 2.8 55.6 More education for entrepreneurship from a young age 1 2.8 58.3 More money from successful entrepreneurs for smarter initial investment 1 2.8 61.1 Proper education for entrepreneurship and financial management from high school - 1 2.8 63.9 educating people to think like business owners, not like factory workers Encouragement to create more investment funds, especially in the early stages of 1 2.8 66.7 enterprises, even when the risk is high Dedicated financing (not loans guaranteed by the state) 1 2.8 69.4 Accessible government financing sources 1 2.8 72.2 Dramatic change in the education system 1 2.8 75.0 Focus on the core at schools: Hebrew, English, mathematics, science Quality teachers Encouraging independent thought Today, schools are mostly babysitting services for 12 years focusing extremely on unimportant issues Help for entrepreneurs dealing with the authorities to receive permits 1 2.8 77.8 More government encouragement in new areas 1 2.8 80.6 Focus on education for technology and entrepreneurship 1 2.8 83.3 Shorter investment times; more government funds taking risks 1 2.8 86.1 Changes in the Chief Scientist so that they approve access to government programs 1 2.8 88.9 with more rapid treatment Technological education improvements 1 2.8 91.7 Support for inclusive innovation 1 2.8 94.4 Better availability and efficiency of government support 1 2.8 97.2 Expanding basic research and its implementation 1 2.8 100.0 Total 36 100.0 57

9.2 Recommendations of the GEM 2019 Study for the Executive Branch in Israel

An analysis of the factors that restrict entrepreneurship in Israel as collected and studied in this report shows that the government plays a crucial role in its impact on the country’s ability to face the challenges of sustainability, education, science and security. The study shows that the government contributes to the promotion and development of entrepreneurship and establishment of new businesses in all areas; to increased high-level employment; to technological developments; and to elementary, high-school, academic and scientific education. The Israeli experts attribute 80% of the factors that affect entrepreneurship employment growth in Israel to activities directed, controlled and enabled by the government and its dedicated agencies. An analysis of Israel’s weaknesses and failures portrays a picture that endangers sustainable successes - successes that characterized Israel and were built over decades of national effort. These efforts rely on educational infrastructures, advanced R&D, academic achievements, mandatory military service for the majority of the population, and national and civilian awareness of high moral values. One of the most important assets that led and advanced Israel is a national leadership that has a clear vision, instills moral values in all its citizens, admires excellence and clarity of thought, embraces self-criticism and is characterized by the Israeli chutzpah that goes beyond the limits of the imagination. The possible current setback is apparently not related to the COVID-19 pandemic but to a weakening leadership that is almost reaching a crisis, due to its inability to lead and engage the citizens of Israel in a common alternative vision based on the dream of the Declaration of Independence of the State of Israel, which is fused into the wisdom of the Jewish people. 1. Financial-budgetary priorities in government programs for the promotion of new enterprises-employment and technologies. The financial arena in 2019 is again a problematic and restricting factor that obstructs new entrepreneurship in the economy, same as in previous years studied by GEM. Very few changes made by the banks, government regulation and new financing entities that entered the market have improved the situation somewhat. In 2019, more fundamental and aggressive actions are needed to increase competition in the Israeli economy and reduce the control by monopolistic large companies that, with the support of the state, limit growth in the local economy. Despite the downfall of large companies controlled by Israeli and foreign ‘tycoons”, the latter have been replaced by others that imitated and still imitate their predecessors. Some of these are currently facing bankruptcy that may erase a great deal of value for those investing in them, and for the general public that does not have proper representation by the government and the regulators. 2020 may bring many more complex difficulties. The emergency government formed in the name of the COVID-19 pandemic has already led to high losses for the economy and for the majority of the residents of Israel. This emergency government will apparently continue with the daily struggles between competing ministries that are not coordinated, and which cannot make critical decisions to take the economy and the society out of its current crisis. The current crisis led to an unheard-of number of unemployed who need suitable basic living conditions to be provided by the government. This is a social and economic crisis of grave magnitude that demands optimum management with a common national vision fit for a developed democratic country. Entrepreneurs who have already established new businesses and have survived so far are expected to go through a tough period. Those who plan to establish an independent business are expected to experience difficulties and many obstacles, which will put their chances of success at risk. Financial supervision and arrangements are required from all sectors in the economy, including banks (which already failed when requested to provide 58 loans with government guarantees to businesses whose operation closed or was reduced due to the Corona virus), and insurance and financial companies that hold and invest the pension funds of all citizens. The challenge of the emergency government is enormous and it must prove itself and succeed in its tasks. 2. Education - technological, professional and management education and training in all levels. Professional, technological and scientific education and training have a great effect on the level of human capital in the country and on its future development over time. “What you prepare in the infrastructure, what you sow, grow and nurture, you expect to reap in success.” Education and training in Israel and their effect on the level of entrepreneurship, innovation and motivation that build the economy have been powerless for years. Educators do not receive the respect they deserve, and political and sectoral bias deprive a large portion of the students from the opportunity to be prepared to live in a modern, democratic, open country with developed critical thinking, creativity and deserving employment. The Israeli experts emphasized these topics, and their recommendations include organizing educational systems in Israel such that they challenge students and prepare them as well as possible according to their wishes and capabilities. Their recommendations refer to changes in the education system more than to any other subject, including finance (see Table 5). Additional research material about the changes necessary in educational and training systems in Israel was prepared by the Shoresh Institute of Socioeconomic Research, headed by Professor Dan Ben-David of Tel Aviv University. The findings in this report and the recommendations of the Israeli experts in 2019 in respect of entrepreneurship and the entrepreneurial ecosystem in Israel support the conclusions of the Shoresh research and its recommendations. 3. Government policy and programs for entrepreneurship. The government must plan and execute a program of education for entrepreneurship in elementary school, junior high school and high schools. It should include topics relating to business management in a modern state, how to implement new technologies in the industry and business, how to conduct R&D and develop of entrepreneurs, all in age-appropriate programs beginning with elementary education. Coordination and cooperation between government ministries, local authorities, the industry and academy are necessary to enable a better understanding and true collaboration of all parties for the success of such an endeavor. In addition to changes in the entire education system, this is a national objective of the highest priority. The budgeting and implementation of programs of education for entrepreneurship from a young age will convey a message of national importance, and will challenge the young from an early age to think creatively and conduct themselves in a manner suitable for a modern, democratic, open and competitive country that looks into the future. Previous reports referred to individual recommendations in various areas. However, from the conclusions of 20 years of such studies, it emerges that the most decisive factor that impacts entrepreneurship in Israel and programs for innovation and entrepreneurship is the political-national list of priorities, and the allocation of resources to preferred topics, out of consideration and proper planning that take place even in times of crisis or deviations from the original plan. 59

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