The Startups of Nazareth

By Drake Bennett November 26, 2014

Photograph by Guy Martin for Bloomberg Businessweek

In the northern Israel city of Nazareth, around the corner from the
Basilica of the Annunciation and its crowds of Christian pilgrims, is a
centuries-old building, formerly a roadside inn. The stables off the
courtyard where pack animals once bedded down are empty, and the
rooms above, where traveling merchants used to sleep, are offices.
When the windows are open, the amplified voice of the imam at a
nearby mosque cuts through at prayer time. On a Friday morning in
October, Jamil Mazzawi, the founder of Optima Design Automation, sits
in one of the cheaply furnished, fluorescent-lit workspaces, explaining
what his startup does. He gives the 15-second pitch he has perfected
for investors: The chip companies are spending billions of dollars to
protect their chips from soft errors. These are errors caused by
particles coming from space, mostly from the sun, which disrupt the
operation of electronic chips. We at Optima are providing a solution for
chip companies to solve this problem at very low cost, he says, then
asks: How many seconds?
A few hundred yards from the spot where Catholics believe the angel
Gabriel appeared to tell Mary of her divine pregnancy, Mazzawi worries
about a different kind of heavenly visitor: the protons and alpha
particles bombarding us from distant stars. The relentless shrinking of
computer chips has created circuits tiny enough that the impact of a
projectile a millionth of a nanometer across can cause a temporary
malfunction.
Photograph by Guy Martin for Bloomberg BusinessweekCompetitors at
a 36-hour Makeathon hacking competition in Nazareth
If the computer containing that chip is running a stock exchange, or
your car, even a momentary error can have dire consequences.
Optimas software lets chipmakers calculate exactly where they need
to build redundancy into their designs to make their chips less
vulnerable. The product is in beta now, and Mazzawi hopes to one day
sell it to chip giants such as Broadcom (BRCM), Intel (INTC), and
Qualcomm (QCOM).
Mazzawi, 44, is an experienced engineer with top Israeli and
international tech companies on his rsum, and a graduate of the

Technion, Israels preeminent technology university. In a nation that in

the past decade has gone startup crazy, that makes him a natural
candidate for entrepreneurship. Mazzawi is also an Arab, though, and
that makes everything harder. He grew up in a working-class
neighborhood in Nazareth, a mostly Arab city culturally remote from
Israels social and financial capitals. Having battled his way into the
Technion from a largely vocational high school, he struggled to keep up
with his better-prepared classmates. When he graduated and first sent
out applications for jobs he felt well qualified for, he didnt hear back
from a single employera story common among Arab engineers. Since
starting his company, hes found it difficult to find advice and funding.
If I was Jewish, he says, I would have two or three uncles or friends
who have money and who are willing to invest and risk money in order
to maybe make money. In Arab society, this culture doesnt exist of
Lets invest in high tech to make money. Hes still learning to
negotiate the dynamics of conversations with venture capital funds.
Theyll ask certain questions, and to get answers you need to talk to
people. With my limited network, its harder to get this information,
he says. Thats what Im missing.
A 2009 bestseller dubbed Israel Start-Up Nation, and the name has
stuck. A country founded by socialists, Israel boasts the second-largest
collection of fledgling tech companies in the world, after Silicon Valley.
Israeli programmers and engineersand the security software,
biomedical devices, and agricultural technologies they createenjoy a
reputation for ambition and technological ingenuity. Check Point
Software Technologies (CHKP), based in Tel Aviv, has over the past two
decades grown into one of the worlds top network security companies,
valued at $14.5 billion. Medinol is a leading producer of heart stents.
Last year the mobile navigation startup Waze was bought by Google
(GOOG) for just under $1 billion, and IBM (IBM) reportedly paid about
as much for the security software company Trusteer.
Israels tech sector has grown despite intense conflict. This summer,
4,500 Hamas rockets were launched at Israel, the Israeli Defense
Forces invaded the Gaza Strip, and more than 2,000 Palestinians and
70 Israelis were killed. During this bloody time, the pace of investment
in Israeli startups actually increased over the same period the year
before, according to the research company IVC-Online. In July, the
Jerusalem-based company Mobileye (MBLY), which makes driver
assistance software to help prevent car accidents, raised $890 million
in its initial public offering, a record for an Israeli company.
A fifth of the population, however, Israels 1.7 million Arabs, are only
marginal participants in Start-Up Nation. Only 2 percent of Israeli
technology workers are Arab. The major social challenge of the

success of high tech in Israel is that its just created bigger gaps, says
Yossi Vardi, an investor and central figure in Israels tech sector. And
today relations between Israels Arabs and Jews are as tense as theyve
been in yearsin recent weeks young Arab men from East Jerusalem
have carried out a series of lethal terrorist attacks in the holy city, and
right-wing Jewish activists have called on companies employing Israeli
Arabs to fire them. The mayor of the southern Israeli city of Ashkelon
has barred Arab workers from construction projects at local preschools,
citing security concerns.
Yet at the same time, an increasing number of Israels Arabs are
finding work in the countrys burgeoning tech economy, feeding its
appetite for programming talent. Arabs are represented at Israels top
universities in numbers commensurate with their percentage of the
population. The number of Arab engineers at the large Israeli branches
of multinational tech companies such as Cisco (CSCO), Google, Intel,
and Microsoft (MSFT) is climbing. In cities such as Nazareth in the
largely Arab Galilee, a small startup ecosystem has started to flower,
nurtured by a couple of Arab-focused venture capital funds and
incubatorsone of the latter, the Nazareth Business Incubator Center,
houses Optima. The potential for a boom is there, in a highly educated
generation of Arab scientists and engineers, and the fact that, after a
lag, hundreds of millions of Arabic speakers are making their way onto
the Internet, looking for things to read, watch, click, share, and buy.
Ask Israeli Arabs in high tech why there arent more of them, and you
get several answers. The most frequent is cultural: A young Israeli Arab
who shows promise in school is expected to become a doctor or,
perhaps, a lawyer. Arabs cant join high-tech companies because of
their parents, says Ahmad Soboh, a 24-year-old software engineer and
Muslim Arab participating in an October Makeathon, a 36-hour
programming and building competition at Nazareths St. Gabriel Hotel.
Sobohs team will win first place, creating a glove for the deaf that,
communicating with a smartphone, could translate a phrase in sign
language into text and spoken words. My parents wanted me to study
medicine; they thought that way Id be able to find work, he says, as a
teammate behind him tests the connections on a circuit board.
During a bloody period this summer, the pace of investment in Israeli
startups actually increased
This narrow vision of professional success isnt uniquely Arabits the
same path minority and immigrant parents push their children onto in
the U.S. and other wealthy nations. Medicine is safe. High tech is

unpredictable. And starting your own company, whoever you are, is a

little crazy.
Imad Telhami is an Israeli Arab success story, though his background is
not in technology. He is the former chief operating officer of Israeli
textile company Delta Galil, a leading global manufacturer of
underwear. After leaving Delta he started a call center company in
northern Israel that employs mostly Israeli Arabs, then began investing
in startups. He lives in Isfiya, a village high on Mt. Carmel that has
been home to his family for 240 years.
Sitting in his sunny living room in the late afternoon, with an
overflowing bowl of fruit on the table and a Parliament cigarette in his
hand, Telhami talks about the five fears that handicap Israeli Arab
entrepreneurs. Theres fear of failure, he says, which is greater among
Arabs than Jews. Theres fear of the government and whether it will
hinder Arab-owned businesses. Theres fear of banks and the sense
that they wont lend money to Arabs. Theres fear of being the first,
since there have yet to be any major Arab tech success stories. And
theres fear of being on ones own, without peers or mentors.
These anxieties arent unfounded. Something in the culture and history
of Zionism, or of Israel, may make Jews more comfortable with risk
than Arabs, but its also true that Israels Arabs are poorer and
therefore less able to absorb a setback. And while Israeli Arabs are full
citizens in the eyes of Israeli law and enjoy rights that the citizens of
most Arab countries lack, they also have endured private and public
discrimination in hiring and housing. Israeli Arab children go to schools
that are different from and usually inferior to those of their Jewish
peerswith the exception of Christian schools. The 10 percent of
Israels Arabs who are Christian actually perform better academically
than any other Israeli demographic and are comparatively prevalent
among the countrys Arab software engineers and entrepreneurs.
Then theres the simple fact of geography: Most Israeli Arabs, Muslim
and Christian, live in the north and the interior, not in greater Tel Aviv,
where the global tech companies, startups, and investors are
concentrated.
The single biggest disadvantage is that Israeli Arabs do not serve in
Israels compulsory military service, which has proved a powerful
machine for matching up young, entrepreneurial Israelis. A
disproportionate number of the nations startups have come out of
elite intelligence units, which select young men and women for their
smarts and technological skills, train them extensively, then release
them into the workforce in their mid-20s. Israeli Arabs are exempt from

the draft, and most dont volunteer, feeling that doing so would
effectively be taking up arms against their brethren in the occupied
territories and neighboring countries.
Institutions, both public and private, are trying to change the odds for
Arab entrepreneurs. Telhami, the former textile executive, along with
founders of two of Israels biggest venture capital fundsChemi Peres
of Pitango Venture Capital and Erel Margalit of Jerusalem Venture
Partnersrecently created an Arab startup incubator called Takwin
Labs in Haifa, the northern coast city thats home to the Technion.
Al Bawader, a $55 million fund founded in 2010, is run by a Jewish
partner, Jimmy Levy, and an Arab one, a Christian named Ehab Farah.
The funds name means early signs or buds in Arabic. Forty
percent of Al Bawaders money comes from the Israeli government, the
rest from banks and wealthy individuals. The fund invests in companies
majority-owned by Arabs, and most of its portfolio focuses on the
Arabic-language Internet. There are 360 million Arabic speakers in the
Middle East and North Africa and 100 million elsewhere, and they are
getting online at a rapid rate: By some counts, Arabic is the fastestgrowing language on the Internet. However, theres a relative scarcity
of content. According to Farah, while theres one English-language
website for every three English speakers, in Arabic that ratio is 1 to
250.
Peres, the son of former Israeli President Shimon Peres, is chairman of
Al Bawader. He declines to name any of the five Arab Internet
companies in which the fund has invested. It only puts the company
in jeopardy, he says. Theres enough hatred in the Middle East that
one doesnt need to help these negative forces. This is one of the
paradoxes of Israeli Arab tech. Being based in Israel has undoubted
advantages: the VC funds, the programming talent, the entrepreneurial
tradition. Yet an association with Israel is a terrible thing in the minds
of many of the Arab consumers these companies are trying to reach.
It only puts the company in jeopardy. Theres enough hatred in the
Middle East
There are also smaller efforts. New Generation Technology is hidden
among the maze of auto repair shops at the edge of Nazareth and
within sight of a gleaming new shopping mall. Like Takwin, NGT is an
incubator, providing startups with office and lab space, money and
guidance. It funds mostly Arab startups and focuses on biotech
companies. One is Metallo Therapy, founded by an Arab Muslim
physicist named Amal Ayoub. Showing visitors around the small lab she
shares with the other NGT startups, she explains her technology:

specially coated gold nanoparticles that improve the accuracy of CT

scans for cancer and will eventually, she hopes, sharpen the targeting
of chemotherapy and radiation treatment. Shes had trouble raising
funds, but shes optimistic that some American investors shes been
speaking with will come through.
These efforts have yet to produce success stories on the scale of Waze
or Check Point. Even if they do, nobody pretends it will do much to
solve the countrys political problems. In contrast to Silicon Valley,
where politics is often talked about as a quaint human activity soon to
be rendered superfluous by mobile technology and seamless social
networking, politics in Israel and the Palestinian territories is urgent
and inescapable. Everyones still waiting for Israel or Palestines first
big Arab exita major IPO or a billion-dollar acquisition. (So far, the
biggest Arab exit in the region was Yahoo!s (YHOO) 2009 purchase of
Maktoob, a Web portal founded in Jordan, for $164 million.) Its a
measure of the technological optimism and political pessimism of the
place that so many believe theyll see that before they see lasting
peace.
The late October Makeathon in Nazareth was hosted by a nonprofit
called Tsofen that tries to bring technology companies to Israels
majority Arab cities. The participants at the hotel, a former nunnery,
were mostly in their 20s and mostly Arab, and conversations jumped
from Arabic to Hebrew to English. A contingent from the West Bank had
been scheduled to come, but two days earlier a young Arab East
Jerusalemite had driven his car into a crowd of Jews at a train station in
the city and killed two, and Israel clamped down on travel from the
West Bank.
Mazzawi stopped by the event on Friday night, then Saturday, to see
friends, network a little, and scout for programming talent. At the
Saturday evening ceremony he sat in the audience and watched the
presentations: There was a smart flowerpot that could wheel itself into
the light and send mobile alerts when it needed water, a social network
to help young female Arab students find roommates (lack of willing
landlords in cities such as Tel Aviv is a common complaint among
young Arab tech workers), and a slipper with an alarm clock that
retreats from its owner to help him all the way out of bed in the
morning.
One of the judges was Reem Younis, co-founder of a company called
Alpha Omega Engineering. Younis is Arab and grew up Greek Orthodox.
She met her husband, Imad, an Arab Catholic, at the Technion, where
she studied civil engineering and he studied electrical engineering.

They had trouble finding work after graduation. For electrical engineers
it was particularly toughmost of the jobs were at defense-related
companies, which were closed to Arabs.
Then the Persian Gulf War broke out. Everything was going crazy and
all of these rockets were falling in Haifa and Tel Aviv, and Arabs and
Jews were at each others throats, Reem says. For reasons she cant
exactly explain, it felt like the time to take a huge risk. They quit their
jobs, moved back to Nazareth, and sold one of their cars, a Volkswagen
Jetta. Their parents were furious, but Imads father eventually gave
them four gold coins from the stash hed been given at his own
wedding. That, and the money from the car, was their capital for Alpha
Omega, which they founded in 1993 to make equipment for
neuroscience research.
The Younises big break came in 2000, when Medtronic (MDT), the
medical device giant, introduced a form of therapy for Parkinsons
disease that involved planting electrodes in the brain. The electrodes
had to be directed to just the right spot, and the couple realized that a
product they already made could do that. They cobbled together a
prototype, flew to the U.S., and drove across the country, hitting all the
top brain centers.
By the end of the year they had their first clients, and in 2003 the
Younises moved to Atlanta for two years to be closer to the American
hospitals that were their primary market. It wasnt a foregone
conclusion that they would move back. But the idea of basing their
company in Nazareth was important. I decided we were doing it the
hard way, Reem says with a laugh. We were going through the little
door, not the wide door.
The door, in Nazareth, is now wider, thanks in part to the Younises.
Today the company takes up one floor of a hulking new office building
on an otherwise bare hilltop outside Nazareth. It employs 60 people,
and as in the city itself, most are Arab. The companys GPS systems
for neurosurgeons are in 500 research labs and hospitals around the
world. And, as Reem points out with pride, several former employees
have left and started three companies of their own.