Start-up Nation

But, Medved told us, the graph also illustrates the performance of Israel’s economy, which also rose steeply in the first half of the decade. He then pulled out another slide that was virtually identical to the first (figure 9.2 ).

FIGURE 9.2

The vertical y-axis on this next slide was labeled “Foreign Investment in Israeli High Tech.” Remarkably, during the same period, there was an increase in investments coming in as the rocket attacks were increasing.

In fact, as we researched other economic metrics, we found that a number of sets of data would fit roughly along this generic graph structure. For example, foreign direct investment (FDI)—another macroeconomic metric—measures the total amount of overseas direct investment in any form that comes into a country. During the period from 2000 to 2005, Israel’s FDI tripled, and Israel’s share of the global venture dollars invested inside Israel doubled.

Medved was not suggesting that there was a correlation between violence in Israel and its attractiveness to investors. Rather, he believes that Israel has managed to divorce the security threat from its economic growth opportunities. In other words, Israelis are confident that their start-ups will survive during war and turbulence. And Israeli entrepreneurs have managed to convince investors of this, too.

Alice Schroeder, the author of The Snowball, is the only authorized biographer of Warren Buffett. We asked her about the perceived risk of investing in Israel. “Warren has been in the insurance business for a long time, and looks at every investment decision through that lens,” she told us. “It’s all about assessing risk like you would in an insurance policy. The things you really worry about are the potential for earthquakes and hurricanes. Warren asks: What kind of catastrophic risk is there, and can I live with it?”⁵

Iscar, the Israeli company Buffett bought, has its main factory and R&D facilities in the northern part of Israel and was twice threatened by missile attacks—in 1991, when the whole country was targeted by Iraq’s Saddam Hussein during the Gulf War, and during the 2006 Lebanon war, when Hezbollah fired thousands of missiles at Israel’s northern towns. “Doesn’t this constitute catastrophic risk?” we asked her.

Buffett’s view, she told us, is that if Iscar’s facilities are bombed, it can go build another plant. The plant does not represent the value of the company. It is the talent of the employees and management, the international base of loyal customers, and the brand that constitute Iscar’s value. So missiles, even if they can destroy factories, do not, in Buffett’s eyes, represent catastrophic risk.

During the 2006 Lebanon war, just two months after Buffett acquired Iscar, 4,228 missiles landed in Israel’s north.⁶ Located less than eight miles from the Lebanese border, Iscar was a prime target for rocket fire.

Eitan Wertheimer, chairman of Iscar, who’d made the sale to Buffett, told us that he called his new boss on the first day of the war. “Our sole concern was for the welfare of our people, since wrecked machines and shattered windows can always be replaced,” Wertheimer recalled of his conversation with Buffett. “ ‘But I am not sure that you understand our mind-set,’ I told him. ‘We’re going to carry on with half the workforce, but we will ensure that all the customers get their orders on time or even earlier.”⁷

One rocket did slam into Tefen Industrial Park, which was founded by the Wertheimer family and centered around Iscar, and a slew of rockets landed nearby. And though, during the war, many workers did temporarily relocate, with their families, to the southern part of the country, Iscar’s customers would never have known it. “It took us a brief time to adjust, but we didn’t miss a single shipment,” Wertheimer said. “For our customers around the world, there was no war.”

By responding to the threat this way, Wertheimer and others have transformed the very dangers that may make Israel seem risky into evidence of Israel’s inviolable assets—the same assets that attracted Buffett, Google, Microsoft, and so many others in the first place.