Israeli kibbutz tries a new crop: high-tech startups

Once a bold experiment in communal living, Israel's kibbutzim have been in decline. Now some hope the farming collectives can provide fertile ground for the startup culture.

Focus

When this desert farming commune cleared out its old chicken hatchery two years ago, Lion David had a vision about what else could be spawned there. Over lunch in the Revivim dining hall, he pitched the kibbutz business director on the idea.

“I said, ‘Wouldn’t it be cool if it were a startup hub,’ ” says Mr. David, who last year inaugurated a technology accelerator at Revivim dubbed, appropriately, the “Madgera” – Hebrew for “hatchery.”

The 73-year-old kibbutz in the northern Negev Desert has since given birth to four fledgling Internet ventures that it owns a stake in, and is sizing up applicants for a new class of entrepreneur teams that will eventually move into the old chicken hatchery.

“We want to be a factory for startups. The Hatchery is going to be a very big business,” says David. “We are going to make hundreds of millions for the kibbutz.”

The four ventures that have now flown the coop, so to speak, include a wedding planning phone app and a website that's an online platform for sharing indie music.

Revivim’s foray into technology businesses and venture capital is part of a growing embrace of startup culture within Israel’s kibbutz movement that might have caused its founding fathers profound consternation. But now the movement – the political umbrella organization that guides member communities’ policies and promotes their economic well-being – has come to see startups as a way to bolster their finances and attract new members.

More than just a stretch from agriculture to high tech – for decades kibbutzim already had embraced non-agricultural enterprises – it is an attempt by a collectivist community to participate in a branch of the economy associated with individual inventors and risk-takers.

Israel’s egalitarian kibbutz was one of the novel social and economic creations of the 20th century. The socialist communes were instrumental in helping build the nascent and impoverished Jewish state, cultivate its land, and define its borders. Kibbutzniks were celebrated as part of the country’s vanguard of pioneers and dominated Israel’s politics, culture and military. Thousands of volunteers were drawn from the United States and Europe to experience the life of the commune and work shifts in the kibbutz cow sheds.

Reinvention to reverse long decline

But for decades, now, the collective community model has been in steep decline: socialist idealism has long since cooled; kibbutzim suffered from a long-term debt crisis; and the communities have struggled to retain their youth, who sought independence and opportunity in Israel’s rapidly modernizing and growing economy. Now, it’s local technology startups that have replaced the kibbutz as a brand for the Israeli economy and drawn interns and entrepreneurs from abroad.

Kibbutzim have experimented with modified collective models: some 75 percent of the 270 communities allow individuals to keep the income from their labor rather than give them set living allowances. Some have built neighborhoods of villas on kibbutz grounds and sold the homes to non-members. But even those dramatic changes aren’t enough to ensure financial stability, says one senior kibbutz official, and the embrace of startups marks the most recent effort at reinvention.

“There is definitely a change in the kibbutz attitude toward startups,” says Udi Orenstein, the chief executive of the Kibbutz Industries Association, an umbrella group for kibbutz-based businesses.

Kibbutzim account for just 1.6 percent of Israel’s population but nine percent of its total exports, according to a 2012 report. But nearly all those exports come from heavy industry rather than the technology businesses for which Israel has become renown.

Last year, the kibbutz association announced a plan to invest kibbutz movement capital in new startups, and took several promising companies on a tour of individual kibbutzim to generate interest in the investments.

New ideas for conservative farm

The shift is still in its initial stages. Mr. Orenstein, who is a member of Revivim, says kibbutzim invested some $20 million over the last year in technology startups – a pittance among tech venture capitalists, but a significant sum for the kibbutzim.

“High tech currently has a minor share in our portfolio, not like the rest of Israel,” says Orenstein. “We think it doesn’t make sense that the kibbutzim won’t be part of the high-tech locomotive of the economy.”

In the last few years, a handful of kibbutzim like Ketura, in Israel’s remote southern desert, have raised eyebrows by selling ownership stakes in successful home-grown technology businesses to foreign investors for tens of millions of dollars.

Revivim, where residents still walk around in ill-fitted, drab work clothes, has a successful automobile valve export business that has generated enough money to continue operating as a collective. Still, it is the first kibbutz to dabble in business accelerators, which host and support small teams of entrepreneurs trying to get startups off the ground in return for an equity stake. Other kibbutzim are taking note and mulling setting up their own startup incubators.

“The kibbutz is something that is very conservative,” says Revivim’s secretary general, Tzachi Lavim. “It’s hard to accept new ideas. They’re used to being involved in agriculture, industry, and services. But just as the world has become a global village, the kibbutz is opening up to the outside world.”

Competing for young Israelis

Sitting behind a desk with a stack of business cards and a business plan for a mobile phone app, accelerator co-founder David says kibbutzim were left out of the startup wave in part because of their distance from Israel’s urban center. However, he says, the appeal of the Revivim startup hub for entrepreneurs is its isolation from the distractions, pace, and high costs of city living.

For a community where 70-somethings gathered in the dining hall lament the departure of kibbutz children to live in Israel’s big cities or abroad, the accelerator is an opportunity to compete for the hearts and minds of young Israelis and attract them to relatively underdeveloped areas in southern Israel.

“The kibbutz has to create some kind of value,” says David, who moved to Revivim several years ago from cosmopolitan Tel Aviv, an hour-and-a-half north. “There’s a need to have something that is challenging, a path to a career and personal growth.”

Even though kibbutzim helped set up the factories that industrialized Israel in the ‘60s and ‘70s, the scars from a nationwide financial crisis dampened the appetite for new risky ventures in technology businesses that few understood.

“Today the expected risk of startups is that 90 percent of them fail. Kibbutzim are not used to statistics like that,’’ says Jacob Ner David, a technology entrepreneur who moved from Jerusalem to Kibbutz Hanaton in northern Israel’s Galilee mountains.  There is risk when you plant a field or build a factory, he says, “but it won’t be a complete failure.”

Collectivism versus individualism

Kibbutzim have lagged the rest of the country in embracing startups because the old collectivist ways of the kibbutz don’t support the culture of the modern day startup entrepreneur, say kibbutz residents involved in technology businesses.

“It’s a sharing culture which worked well in the '70s and '80s.…  If you look at kibbutzim, the spirit is ‘Hey, we are all equal,’ ” says Eden Shochat, a partner at the Tel Aviv-based Aleph venture capital fund who grew up on a kibbutz near Revivim. “A startup is anything but equal…. Entrepreneurial spirit isn’t something that kibbutz produces.”

Despite Revivim’s new focus on venture capital and individual enterprise, David says the spirit of shared community and even shared profits still endures on the kibbutz, whose members stand to benefit if the startups become so profitable they go public or get snapped up by a multi-national.

“I’d rather be rich with a lot of people, than a lonely rich man,” he says. “Better to be with a good community. We want people to come and say, ‘Let’s make millions of dollars together.’ And we don’t have to sell our soul for it in the city by ourselves.”