Par IsraelValley Desk
Rubrique: Innovation
Publié le 31 octobre 2007 à 06:18

IsraelValley will publish each week a part of the thesis “Israel the new ‘Silicon Valley’” wrote by Karen Vainunska and Yael Rosenberg. You can download the whole thesis here

ISRAEL’S FACTORS OF SUCCESS

The factors that can explain the Israeli cluster:

• Technology and knowledge transfer
• Highly skilled immigrants
• Venture capital, risk management, and investment
• Government role
• Formal networking/linking organizations, business associations, and philanthropies
• The role of educational institutions as sources of knowledge workers
• Entrepreneurial spirit

We will group these factors in five main categories.

GOVERNMENT SUPPORT & TECHNOLOGY INCUBATORS

a- The fostering and facilitating role of the Israeli government

Israel is characterized by strong state support for the R&D and capital spending sectors in general as well as start-up creation. A unique phenomenon is the office of the chief scientist at the Ministry of Industry and Trade, which distributes grants totaling nearly $400 million to various R&D projects. The projects that succeed are expected to pay royalties to the chief assistant’s office for a number of years.

Through The Office of the Chief Scientist (OCS) in the Industry and Trade Ministry, the Israeli government fosters high-tech development by granting substantial support to high-tech companies. Companies may obtain financial support of 30% to 60% of total development costs. The OCS recoups about $100 million per year in royalties’ payments from subsequent sales of successful products. During the last few years, the Scientific Office has financed more than 1,000 projects per year with a budget of $400 million, and subsidized more than 200 seed companies located in 26 incubators spread all over the country. Therefore, thanks to this proactive government policy, Israel is in the first rank worldwide for R&D investments as a percentage of GDP.

R&D represents almost 5% of the country’s Gross National Product, compared with the OECD average of 2.5%.

In addition, the Investment Center at the Ministry of Industry and Trade provides subsidies for capital spending on new and expanded industrial plants. The rate of these subsidies varies according to region, with the outlying zones qualifying for the highest levels. High-tech companies, which more often than not have low capital spending requirements, often opt to take the assistance in the form of tax incentives.

According to Daniel Rouach:
“The Israeli Silicon Valley is located around Tel-Aviv. It is characterized by an important government support and national union concerning the questions of technological development, regardless of the different political parties. Since the creation of the State, the government invested and took risks. Thus, the venture-capital industry became very strong. It is also important to know that a large number of Israeli companies are listed on the NASDAQ and technologically speaking, Israel is permanently related to the USA.”

According to Nachum Shamir, President and Chief Executive of Given Imaging Ltd, there is a direct connection between government support and the number of start-ups in Israel: “The government is a strong supporter of the growth of high-tech industry and provides incentives to encourage capital investment and scientific research and development. As a result, 285 medical device companies (557 life sciences companies in total) including Given Imaging, have been able to bring their technologies to market over the past years.”

b- Incubators for Technological Entrepreneurship: an asset for new Israeli companies

In the belief that the country’s economic future is largely dependent on the success of its technological industry, the government launched a technological-incubator program in 1991.
This program enables any entrepreneur with an innovative technological idea to turn the idea into a product.

Technological-entrepreneurship incubators are supportive frameworks that enable beginning entrepreneurs – whether they are residents, returning residents, or immigrants – to take innovative technological ideas in the preliminary stages of development, turn them into commercial products for export, and establish factories for this purpose in Israel.

The preliminary stage naturally involves high economic risks, which sometimes deter entrepreneurs from taking the next step. The state assumes this risk by funding the first stage. A successful start-up will repay this loan; one that never makes it off the ground will not pay back anything. By means of the technological incubators, the entrepreneur receives the space, financial resources, tools, professional guidance and administrative assistance needed to turn a vague idea into a product that will prove itself in the global marketplace.

The period spent in the incubator provides the entrepreneur with chances to attract an investor, link up with a strategic partner and leave the incubator as an independent business that can stand on its own two feet from an economic-marketing standpoint. For starting entrepreneurs, this is essentially the only real opportunity to survive the fearful preliminary stage and to extract the appropriate economic viability from their initiatives, ideas, or inventions.

By the end of the incubation period, the project is expected to have contacted a commercial investor or a strategic partner at the end of the two years, entrepreneurs must continue on their own, with or without help from the regular governmental assistance tracks or outside investors.

The rational here is that, in order to keep good ideas from falling, the state assumes the risks in the incubator program that commercial investors are loath to take, by funding the riskiest stage of their development.

Today, with 26 incubators operating all over Israel, with over 750 projects lunched, more than 63% have completed the incubator program. And 60% of them continued as independent companies. With a total of $233 million invested in 217 projects by the capital market and industry, 52 are at the sales stage. More than $76 million of products have been sold, of which $65 millions were in exports. In addition, the ‘graduate’ companies now employ over 1,780 people. Thus, we can see that, from an Israeli perspective, the Israeli incubator system is a success story.

One of the best known incubator is the TEIC – Technion Entrepreneurial Incubator Company Ltd., in Haïfa. Established in 1991, the TEIC is a wholly owned subsidiary of the Technion Israel Institute of Technology. Half of the start-ups in the incubator are in the medical field. Within the incubator, proximity affords many occasions for entrepreneurs to exchange ideas and information across technologies and businesses, as well as on issues concerning early internationalization or intellectual property.

Source: Karen Vainunska & Yael Rosenberg