Israel Science & Technology: 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