Technological Incubators
NURTURING NEW IDEAS
The technological incubators program was set up in 1991 following mass
immigration from the countries of the former Soviet Union. Established by
the Office of the Chief Scientist (OCS) of the Ministry of Industry and
Trade, the aim of the program is to provide a sheltered environment in
which scientists who have potentially marketable new inventions, both new
immigrants and veteran Israelis, can nurture their innovative ideas, while
receiving financial support, expert business advice, subsidized office
resources and exposure to interested investors.
There are today 26 technological incubators from Kiryat Shemona and
Katzrin in the north to Dimona and Sde Boker in the south. In accordance
with government policy to encourage Israelis to settle in peripheral
regions, 13 of the incubators are in the Galilee and Negev. Three
incubators are in Jerusalem, including one privately funded technological
incubator.
During 1996 the 26 incubators of the OCS housed 200 research projects
which received funding of $32 million. Although the incubators were not
designed specifically for new immigrants, it has turned out that about
half of these projects are based on the ideas of new immigrants and the
other half on ideas of veteran Israelis. Virtually all of the projects are
export-oriented and the ultimate aim of the incubators is to boost the
nearly $20 billion worth of goods (of which 70% has high-tech or
technological components) that Israel exports annually. The projects
underway in the incubators reflect the country's traditional technological
strengths.
The incubators, although they belong to the OCS network, are each
individually-owned non-profit organizations. Public bodies participate
alongside the government in the expenses of running the incubators. In
addition, private donors, local authorities, universities and high-tech
business enterprises are involved.
About 50% of these projects "succeed." The OCS's definition of success is
the ability of the fledgling project to attract outside investors and thus
be able to leave the protective environment of the incubator after two
years. It is too early to predict what percentage of incubator-bred
start-ups will ultimately enjoy commercial success, but indications are
that it will be considerably higher than the 10% success rate registered
in high-tech startups in the United States.
SHARING THE RISKS
Israel's technological incubators are a unique adaptation of the American
model, where incubators serve as community self-help programs in which
budding local inventors receive aid and advice from entrepreneurial
professionals. In the Israeli model the government is a full partner in
the incubator process. Within the framework of the technological
incubators the entrepreneurs are provided with subsidized premises,
financial resources, project tools, professional guidance and
administrative assistance. During its tenure in the enclosed environment
of the incubator, a start-up company is meant to turn its abstract ideas
into products of proven feasibility, innovative advantage and
competitiveness in the international marketplace.
The entrepreneur's stay in the technological incubator gives him a sense
of legitimacy, and considerably enhances his prospects of raising the
financial investment required for locating strategic partners and emerging
from the incubator with a viable business. Most importantly, the OCS
provides financial grants, including 85 percent of the inventor's approved
budget, up to a ceiling of $145,000 annually for a period of two years.
In return, the OCS allows the incubator to take up to 20 percent of the
shares in the start-up company and receives royalties of 3 percent of
eventual sales or consulting fees, which are reinvested in the incubator.
If the start-up never makes it off the ground, the entrepreneur is not
required to pay back anything. Seventy percent of the start-up's shares
are owned by the developer/entrepreneur and 10 percent by project team
employees. By sharing the risks involved in the pursuit of R&D, the
government has enabled start-ups to flourish. The effectiveness of the
policy is evident, as many of these companies have found major investors
from both Israel and abroad.
Rigorous acceptance procedures keep success rates high. Each project is
first looked over by an expert in the relevant scientific field to
investigate its feasibility. Then business experts examine every aspect of
the project's commercial implications, including potential markets,
pricing, investment overheads and competitors. The inventor must also
undergo extensive interviews to check that he or she has the type of
personality conducive to success. Applicants must ultimately be approved
by both the steering committee of each individual incubator and a national
coordinating committee of the OCS. Applicants thought to have serious
potential are accepted for two years and, in certain circumstances, the
project remains in the incubator for a third year. After leaving the
incubators, companies may qualify for other government incentives, such as
the regular OCS programs, which offer R&D support for start-ups, with a
ceiling of $250,000 for each of two years; the government's export
promotion funding; grants from the Israel-US Binational Industrial
Research and Development Fund (BIRD) and other binational R&D funds; and
the services of the Israel Export Institute.
THE INVOLVEMENT OF ACADEMIA AND INDUSTRY
Some technological incubators are also strategically located near the
country's universities, where researchers work hand in hand with the
budding entrepreneurs at the incubators and the university graduates are
often the inventors whose patents are being developed. Most of the
universities in Israel have developed or are partners in technological
incubators.
Israel's high-tech industry has also been supportive of the program. The
Rad-Ramot incubator is partly owned by the Rad Data Communications
Company, while the ELTAM - Technology Incubator was set up and is partly
owned by Elron Industries, Israel's largest high-tech holding company,
which owns Elbit and Elscint, manufacturers of leading-edge medical
electronics equipment.
Israel's only non-OCS incubator, the HiTEC-Technology Entrepreneurship
Center at Har Hotzvim in Jerusalem, was established in 1992 by Intel
Israel and Teva Pharmaceuticals. Eleven more local businesses, as well as
the Hadassah Medical Organization, have also lent their support.
So far, more than 300 projects have left the OCS incubators. Of these
graduates, 165 (56%) have continued under their own steam. Over
three-quarters of these successful projects have attracted outside
investments from both Israel and abroad, ranging in size from $100,000 to
$8 million. On the average, projects attract investments of $500,000. The
total investment in projects that have left the incubators today stand at
more than $80 million. Moreover, nearly 800 professionals serve on the
project teams at the incubators. Most of them are recent immigrants with
academic training, often master's or doctoral degrees. In addition, some
700 new immigrants, also academics including many postgraduates, are
employed by those project companies that have left the incubators.
Sources: Israeli Ministry of Foreign Affairs |