A VC who made $200 million when Skype was acquired explains why Israel has become the 'Startup Nation'

Mangrove Capital PartnersMark Tluszcz is the CEO and cofounder of Mangrove Capital Partners.

For a country with a population of just 8 million people, Israel certainly packs a punch when it comes to creating world-class technology companies — several of which have been acquired by Apple, Google, Facebook, and other US tech giants for hundreds of millions.

Mark Tluszcz, a man that claims to be the first investor in Skype, told Business Insider in London why Israel is now referred to as the “Startup Nation.”

“You have an entrepreneur culture that’s extremely present in Israel,” said Tluszcz, who is CEO of Mangrove Capital Partners, a venture capital firm that has raised $650 million (£459 million) to invest in early-stage technology companies.

Tluszcz also thinks the compulsory national service that Israeli citizens go through is another contributing factor. The normal length of compulsory service in the Israeli Defence Force (IDF) is three years for men and around half that for women. “They all go through the military where they learn a lot of skills,” said Tluszcz. “When they’re there, they interact with a lot of great technology people. So there’s a force in function to get tech people together.”

Tluszcz also said the most intelligent people in Israel tend to go to one of three top-tier universities so the smartest entrepreneurs all get to know each other as they study.

The investor, whose VC firm made $200 million (£140 million) from a $2 million (£1.4 million) early investment into Skype, claimed there is a “very vibrant financing community” for startups in Israel, who can now access Silicon Valley investors more easily thanks to a new direct flight between Tel Aviv, the main tech hub in Israel, and San Francisco, in California.

Tluszcz has backed a number of Israeli companies, including web development platform Wix, which became Israel’s largest tech IPO when it listed on New York’s Nasdaq market at $650 million (£465 million) in 2013.

Google, Apple, and Facebook have all set up engineering operations in Israel in a bid to hire technically talented Israelis that aren’t interested in running their own startup.

The US tech giants have also acquired a number of Israeli startups. Navigation service Waze, for example, was acquired by Google for $996 million (£693 million) in 2013, while Facebook bought Face.com, an Israeli company with face recognition technology, for $100 million (£69 million) in 2012.

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