Why Israel Can't Build Tech Giants

And is that even the right metric of success?

Here’s a guest post by my friend and former Start-Up Nation Central colleague Meir Valman who writes the interesting “Pioneers of Israeli High Tech” Substack, a series that covers the biographies of some of the great people who helped build the industry.

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Is Scale‑Up Nation a Mirage? Why Israel Struggles to Build Very Large Tech Companies

For more than a decade, Israel has been celebrated as the “Start‑Up Nation,” a global outlier in entrepreneurial density, venture capital activity, and technological innovation. In recent years, however, policymakers, investors, and founders have increasingly argued that the next stage of evolution must be a transition from start‑ups to scale‑ups: fewer early exits, more independent growth, and the creation of very large, enduring technology companies headquartered in Israel.

The ambition is understandable. Yet the persistent difficulty Israeli companies face in scaling beyond a certain size suggests that this challenge is not merely a failure of will or imagination. Rather, Israel’s struggle to produce very large tech companies is the predictable outcome of structural incentives, capital‑market dynamics, and geographic realities that consistently favor early exits over long‑term scale.

The Ceiling Problem

Israel has produced many successful technology companies with market capitalizations of $1 billion or more. Far fewer, however, have managed to grow beyond that point. Only a small number have crossed the $10 billion threshold for any sustained period, and none have meaningfully broken through a ceiling that appears to sit around $30 billion. This pattern has remained remarkably consistent over decades, despite repeated calls for change.

The debate itself is not new. As early as the late 1990s, critics argued that Israeli founders were selling too early and should instead pursue long‑term growth and independence. Decades later, the same concerns persist. Why do relatively few Israeli companies pursue IPOs or late‑stage growth financing? Why do promising firms accept acquisition offers rather than attempt to become global category leaders? These questions are often framed as matters of ambition, but the answer lies deeper.

Capital Markets and the Incentive to Exit

One of the most important forces shaping Israeli outcomes is the structure of its venture capital ecosystem. Since the 1990s, Israel has been one of the world’s largest venture capital markets in absolute terms. This was not driven solely by local talent. International investors were drawn by the unusually high volume of exits, particularly IPOs on Nasdaq followed by a wave of acquisitions during the same period.

For venture capitalists, Israel offered an attractive proposition: a steady pipeline of technically strong companies capable of delivering relatively fast and predictable exits. Over time, this expectation became self‑reinforcing. Capital flowed in with the assumption that companies would be sold or listed within a reasonable timeframe, and founders built businesses accordingly.

The passage of the Sarbanes‑Oxley Act in 2002 fundamentally altered this dynamic. Going public became more expensive and complex, pushing IPOs further out of reach for smaller companies. As a result, acquisitions increasingly replaced IPOs as the dominant exit route. Israeli companies that accepted takeover offers did not undermine the ecosystem; they sustained it. The continued willingness to sell ensured that venture capital kept flowing, but it also entrenched a model in which long‑term independence was the exception rather than the norm.

Scaling Is Hard Everywhere—But Harder Outside the US

Turning a start‑up into a unicorn is difficult. Turning a mid‑sized company into a truly large one is far harder. It requires profound changes in management structure, corporate culture, governance, and global footprint. These challenges are not unique to Israel. Outside the United States—and, more recently, China—very few countries have managed to produce multiple technology companies with market capitalizations above $50 billion.

As former European Central Bank president Mario Draghi once observed, Europe has failed to create any new €100 billion companies over the last five decades, and has produced only a handful of tech firms exceeding €50 billion over that period. Israel’s experience, in this sense, reflects a broader global pattern rather than an isolated failure.

Geography and the Center of Gravity Problem

For Israeli companies, geography adds an additional layer of difficulty. Building a very large technology company almost always requires deep, sustained proximity to major customers. While Israeli firms excel at research and development, their markets are overwhelmingly international from day one. Sales, marketing, customer success, and partnerships must therefore be built close to customers, typically in the United States or other major hubs.

This dynamic gradually shifts a company’s center of gravity away from Israel. While R&D may remain local, non‑technical functions grow faster as the company scales. Over time, the organization becomes more American—or global—than Israeli. This process has repeated itself across generations of companies and often culminates in a leadership relocation abroad, as occurred when Mercury Interactive’s CEO moved to the United States in the mid‑1990s as the company expanded.

The Limits of Independence: Amdocs and Check Point

Two of Israel’s most iconic technology companies, Amdocs and Check Point, demonstrate both what is possible and what is difficult. Both went public in the 1990s, experienced dramatic growth, and briefly reached extraordinary market capitalizations—Amdocs exceeding $17 billion and Check Point surpassing $45 billion at their peaks.

Yet neither sustained those heights. Today, both remain significant global players, but far below their historic highs with share prices that have gone sideways for some time. Their trajectories underscore how challenging it is not only to reach scale, but to continue growing over long periods, particularly for companies headquartered outside the primary centers of global tech power.

Talent Scales Better Than Companies

While Israeli companies have struggled to scale, individual Israelis have not. Perhaps the clearest example is Nir Zuk. After leaving CheckPoint in 1999, Zuk set out to build a dominant, multi‑product cybersecurity company. To do so, he relocated to Silicon Valley, where he founded Palo Alto Networks in 2005. Through aggressive expansion and acquisition, the company eventually surpassed Check Point and became a $100 billion enterprise in 2023.

The contrast is telling. Israeli talent can clearly build global giants—but often only by doing so within ecosystems that are structurally optimized for scale.

Rethinking What “Scale‑Up Nation” Means

The aspiration to turn Israel into a Scale‑Up Nation is appealing, but it rests on assumptions that deserve reconsideration. Some of the obstacles Israeli companies face are universal, while others are deeply local. Incentives favor early exits, markets are far away, and the organizational demands of scaling pull companies abroad.

At the same time, Israel hosts over 400 multinational corporations running high‑level R&D operations in the country. These centers are not peripheral; they are deeply integrated into global innovation pipelines and have played a critical role in developing local talent and expertise. No other tech hub outside the United States hosts multinational R&D activity at this scale.

Perhaps, then, the question is not why Israel has failed to produce more very large independent companies, but whether this is the right metric of success. If global technology leadership increasingly takes the form of distributed organizations, Israel may already be far more central to the world’s largest companies than the “Scale‑Up Nation” debate admits.

Check out Meir’s upcoming book: The Network Effect: The Origins of Israeli High Tech, out July 7.