Fierce Medical Devices recently reported that medical device industry venture investment is rising in Israel, showing a 4 percent rise from the previous quarter and a 3 percent increase over the same period in 2012. With Israel rated 2nd in the world as an advanced medical solutions provider and 4th in the development of innovative medical technologies, this steady growth should come as no surprise.

The message from Israel regarding innovation and technology has been consistent for many years now. Innovation initially concentrated in homeland security technologies, moved into communications and computers, then expanded into other sectors such as biotechnology and medical devices. At the moment, there are nearly 700 medical device companies in Israel—one- third of the total number of companies in the world! Beyond that, half of these companies were established in the last 5 years and 40% are already reporting earnings. In fact, Israel leads the world in medical device patents per capita.

Having following optimal ingredients in place, it’s easy to see how Israel has become such an important hub for medical devices:

Military influence and thinking: With security being one of the country’s largest concerns, Israel has one of the best-funded military outfits in the world. Between an extremely large budget for both weapons R&D and training, and mandatory service for 18-year-olds, Israel churns out thousands of engineers every year.  Upon leaving the service, these highly educated, young engineers are not afraid to think or act outside of the box.

Government support: Although Israel lacks the natural resources to which many other countries are accustomed, the country prides itself on what it considers its best resource—intellectual capital. The government has shown its support in two ways:

  • In the early 1990s, Israel established business incubator programs that provided cash, lab space, tax incentives and so forth to its fledgling tech industry. Such programs have been proven to increase the likelihood of a start-up company to stay in business for the long term.
  • The country is also quick to subsidize R&D processes for promising high-tech companies. In fact, according to Reuters, Israel’s Office of the Chief Scientist, an arm of the Ministry of Economy, has recently increased its budget to support the life sciences industry by 30%, encouraging multinational device and drug companies to test Israel’s R&D waters.

Outside investment: The global medical technology industry has recognized the innovative potential in Israel, and to show support, it has provided extensive investments, venture capital and more. A 2012 study, commissioned by the Ministry of Industry, Trade and Labor, revealed that 35 medical device companies are publicly traded and 18 are owned by foreign companies, which suggests a strong international interest in the medical start-up sector. And many investors continue to be on the lookout for new opportunities revolving around device companies or device-related technology programs.

The Israelis have proven to be early adopters capable of learning to utilize new technologies rapidly. This is also one of the reasons why US and European medical device companies include Israeli medical centers and investigators in their device development by default. In fact, analysts forecast that Israel will be in the leading position in the medical device frontier for the next 10 years.