From start-up nation to scale-up nation: A blueprint for Israel’s $1 trillion economy - opinion

Israel does not primarily have an innovation problem. It has an institutional problem. The country is exceptionally good at producing start-ups, but far less effective at financing, retaining, and compounding them into large, durable Israeli companies. It has built an economy optimized for creation, but not for scale or sustainment.

The evidence is increasingly difficult to ignore. Foreign capital is useful, but it is expensive in ways that rarely appear in headline figures. It arrives in dollars, creates conversion and hedging costs, and often comes with a preference for Delaware incorporation. The Israeli company then becomes a research subsidiary, while the intellectual property, taxable profits, and eventual exit sit abroad.

It is also procyclical. Investment fell sharply in 2023 as war began, before technology funding rebounded to $15.6 billion in 2025. Yet while capital returned, many companies did not. The share of new start-ups incorporating in Israel fell from roughly 80% in 2022 to about 55% in 2025. This is not a temporary fundraising problem; it is a migration of ownership.

The money required to change this already exists. In 2025, non-residents invested a net $39 billion in Israel while Israeli residents invested a net $56 billion abroad. Institutional assets under management exceed NIS 2.75 trillion, and the public’s financial portfolio is roughly NIS 7.4 trillion.

Israel has one of the region’s largest pools of long-term savings, yet much of it finances growth elsewhere.

When pension savings finance foreign growth while Israeli firms struggle to raise growth capital at home, the problem is not money. It is the architecture through which money moves.

The same distortion appears in Israel’s celebrated exits. The $32 billion acquisition of Wiz by Google and the $25 billion acquisition of CyberArk by Palo Alto Networks are extraordinary achievements. They are also transfers.

Companies that might have compounded in Israel for decades now compound on foreign balance sheets, while headquarters, listings, tax bases, and senior executive functions migrate with them.

Producing category leaders and then selling them is a sophisticated export business in intellectual property. It is not the same thing as building a trillion-dollar economy. Founders often sell because the domestic path to scale is harder and less certain than the offer in front of them.

That path begins with unnecessary friction. Registering an Israeli company costs thousands of shekels before legal verification. Every company then pays an annual fee, whether or not it has traded, and every limited company must file audited financial statements regardless of size.

Two founders with no revenue must therefore pay for audits, bookkeeping, and filings merely to hold an idea. Delaware costs a few hundred dollars a year and requires no statutory audit. A founder choosing between the two is not making a political statement. He is reading a price list.

Once the entity is incorporated abroad, the intellectual property, financing, legal work, governance, taxable profits, and eventual exit tend to follow. Israel keeps the payroll but exports ownership and the financial ecosystem around it.

The broader regulatory environment reinforces the pattern. The OECD has described Israel’s administrative and regulatory demands as among the most stringent in the organization, obstructing entry and growth. Barriers remain high in professional services, licensing is slow, and inefficient liquidation makes entrepreneurial failure unusually costly.

A country that makes failure expensive will receive less risk-taking. That is a tax on ambition.

ONE ZERO has operated for three years but remains a limited domestic challenger, with a weak user experience, a basic interface, and neither the scale nor the product breadth of global platforms such as Revolut. Revolut, despite serving more than 70 million customers worldwide, is still progressing through the Bank of Israel’s excruciating licensing process.

The fact that a proven global entrant remains outside the market while incumbent banks retain near-total control shows how far Israel remains from genuine banking competition.

Below the banks, the public market is thin. Average daily equity turnover on the Tel Aviv Stock Exchange was about NIS 2.5 billion in 2025. Between a bank loan and a trade sale, Israeli companies lack what mature firms need: deep growth equity, private credit, a credible domestic listing route, and secondary liquidity that allows early shareholders to realize value without selling the company.

This is the part of the American model Israel has never replicated. American firms are not more productive merely because start-ups raise more money. They are more productive because capital remains available throughout the corporate life cycle.

A new company can raise seed capital, while a mature company can raise billions through equity or debt and reinvest for decades. Productivity is the accumulated result of capital deployed per worker over time, not one successful funding round.

Israel’s funding curve peaks early and then falls away. The venture market is world-class for the first ten million dollars, but thinner above it. The corporate bond market is sizable, yet concentrated in real estate and finance.

Pension savings enter the system every month, but the instruments needed to channel them into long-term Israeli growth remain underdeveloped. A company that can raise capital only during its first five years will be managed for a five-year outcome.

The reform agenda should therefore focus on one objective: making Israel a place where companies can remain, scale, and compound.

Company registration should be unified online and completed within hours. Registration and annual fees should fall. Lawyer verification should not be mandatory for routine incorporation. Israel should adopt a small-company audit exemption.

Business licensing should use silence-is-consent rules when regulators miss deadlines, and bankruptcy procedures should allow failed founders to begin again within months rather than years.

Financial reform matters even more. Bank licensing should become tiered and proportional without weakening supervision, while clearing and payments infrastructure should not be controlled by incumbent banks.

Yozma should be abolished as a direct government investor. Taxpayers should not fund private businesses; the state should instead use targeted incentives, guarantees, and limited risk-sharing to encourage private investment in venture capital, growth equity, and private credit.

Israel does not lack financial institutions; it lacks institutions primarily oriented toward financing Israeli growth.

Policy should incentivize local investment houses, private-equity firms, lenders, and advisers to deploy more of their capital and expertise into Israeli companies across growth financing, acquisitions, listings, and secondary markets, rather than predominantly serving foreign markets.

It should also foster a genuine domestic investment-banking industry capable of underwriting Israeli listings, structuring major transactions, and supporting companies through successive stages of growth.

The corporate bond market should become more accessible to operating companies, institutional rules should be reviewed for biases against domestic exposure, and listing frameworks should offer Israeli companies a credible home-market option.

Israel should also become the preferred jurisdiction for investing in Israeli innovation through modern corporate law, faster dispute resolution, English-language commercial infrastructure, tax reform and, above all, regulatory certainty.

It will be created when Israeli companies can raise, scale, list, borrow, reinvest, and remain Israeli through every stage of their lives.

Creation is the problem Israel solved. Scale is the problem it has begun to confront. Sustainment is the problem it must take seriously.