Promoting Israeli High-Tech Industries 2011 - 2012 Ministry of Finance משרד האוצר Competitive Advantage National Plan Promoting Israeli High-Tech Industries 2011 - 2012

~ Review ~ Summary ~ Appendices ~ The Program Program Highlights Basic information Strengths Weaknesses ~ Appendices ~ The Program Tool box

“Israel related” concept Program Highlights “Israel related” concept No Silver Bullet Integrated Program Continuous Process

Innovation Centers Start-ups Large companies High-Tech Industries Space Industry Biotechnology Nanotechnology Innovation Centers Start-ups Large companies Life Sciences Semiconductors Communications Security Industries Software / Hardware Internet Clean-Tech

Basic Information Israel’s High-Tech industries 41.2% of total exports in 2009 270,000 employees in 2008. c. 14% of total employees in Israel’s business sector 15% of Israel’s GDP

Industry’s Strengths

Signs of Weaknesses

THERE IS A SIGNIFICANT RISK OF IMPAIRMENT TO THE CONTINUED GROWTH OF THE INDUSTRY IN ISRAEL

~ Review ~ Summary ~ Appendices ~ The Program Program Highlights Basic information Strengths Weaknesses ~ Appendices ~ The Program Tool box

Tool Box Covers all phases of industry’s growth Uses a wide variety of additional tools

Industry Flow chart

Industry and Academic Partnership The Chief Scientist formulated a set of designated tools to enhance the relationships between Academy & Industry (marketing, financing, business training, etc.) Supporting basic research that has the potential to be commercialized Expanding existing programs ("Magneton", "Nofar," etc.) Tools 1-2 | Industry and Academic Partnership |Israeli scientists abroad

Israeli Scientists abroad The Problem: Loss of human capital as Israeli scientists move abroad (“brain drain”) Goal : To encourage Israeli scientists and entrepreneurs, that have the power to influence and promote the high-tech industries in Israel, to return home to Israel Solution : Tax deductions on income from royalties, stemming from research abroad, to scientists who have returned to Israel and commercialized the product 13 Tools 1-2 | Industry and Academic Partnership |Israeli scientists abroad

Updating the Chief Scientist’s Programs Changing the R & D Act regarding the transfer and sale of franchise knowledge Reducing uncertainty for investors Improving the effectiveness of the Technological Incubators program Matching the program to the industry's current characteristics Changing the loan repayment system of the incubator franchises Creating incentives to the franchises to reward excellence Tools 3-4 | Update of Chief Scientist Programs |R&D for the global financial industry

Developing R&D Centers for Global Financial Industries The Problem: Israeli high-tech is marginal in the global financial industry’s R&D, the biggest consumer of technology worldwide Solution : Government incentive to multinational financial entities to establish R&D centers in Israel Description: New program under the Chief Scientist Office to encourage R&D centers for global financial technology Tools 3-4 | Update of Chief Scientist Programs |R&D for the global financial industry

Development for Bio-Tech Industry The Problem: Over dependence on ICT and a lack of investment and limited knowledge in the bio-tech and Life Science area Solution: Significant encouragement for the bio-tech industry in Israel Description: 4 public-private funds for bio tech. Government’s $104m to be leveraged with a minimum of $304m private funds. Status: Status: 4 managers were selected for the funds in April 2010. 16 Tools 5-8 |Bio-Tech |Early stage capital |Institutional capital | Growing Large Companies

Incentives for Early Stage investments The Problem: Not enough money is raised by SEED-stage companies. SEED-stage companies raised approximately $39 million in 2009, a decrease of about 56% compared to 2008. Solution: Allowing investment in an R&D-focused company to be reported as an expense on “day one” Description: Deducting this investment as an expense against income from all sources, spread over three years Tools 5-8 |Bio-Tech |Early stage capital |Institutional capital | Growing Large Companies

Israeli Institutional Investment The Problem: There is a dramatic decline in the ability to raise capital in the Venture Capital industry in Israel from local Pension Funds The percentage of Israeli institutional investors investing domestically is significantly lower than abroad, 0.2% vs. 2% Solution: The State will participate in the investment risk of Israeli institutional investors Status: The State has a budgetary commitment of about NIS 200 million for this program 18 Tools 5-8 |Bio-Tech |Early stage capital |Institutional capital | Growing Large Companies

Promoting M&A activity Encouraging high-tech Israeli companies to acquire small Israeli high-tech companies Encouraging the creation of clusters Allowing the amortization of goodwill for tax purposes 19 Tools 5-8 |Bio-Tech |Early stage capital |Institutional capital | Growing Large Companies

Minorities & Industry The Problem: Solution: Description: Low rate of Arab minority and Ultra-orthodox employees in the high-tech industries Solution: Incentives for high-tech employers to employ underrepresented communities Description: Adjusting the Ministry of Industry’s support programs, which subsidize the cost of salaries for the high-tech industry Examining other options to encourage employment via the Chief Scientist’s programs 20 Tools 6-9 | Encouraging Underrepresented Communities | Dual R&D | CIO | Science / Technology Education

Appointment of a Government CIO The government purchases more than a billion shekels worth of technology and services each year from the high-tech industry The CIO will see all the needs of the government, set strategy and work to create standardized tools and infrastructure The CIO will have direct responsibility to initiate, lead and operate all horizontal projects for the government The CIO will create a supportive environment to promote innovation in Israeli industry 21 Tools 6-9 | Encouraging Underrepresented Communities | Dual R&D | CIO | Science / Technology Education

Strengthening Technological Education Structured combination of high-tech industry retirees /young people Retraining program by the Ministry of Education for teaching technological subjects Shortage of teachers in technological education Industry Ministry of Finance Ministry of Education 22 Tools 6-9 | Encouraging Underrepresented Communities | Dual R&D | CIO | Science / Technology Education

Governmental Focus on R & D Clean-Tech? Homeland Security ? Bio-Tech? תעדוף The Problem: No preference or system for integrated national R&D efforts The Solution: a body responsible for: recommendations for research focus areas, formulating an action plan and coordinating between governmental bodies Members of the Body: various government bodies that are in charge of investment in research and development 23 Tools 10-11 | Bringing Back Israeli Scientists | Governmental Focus on R&D

~ Review ~ Summary ~ Appendices ~ The Program Program Highlights High-tech Industries Strengths Signs of Weakness ~ Appendices ~ The Program Tool box

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~ Review ~ Summary ~ Appendices ~ The Program Program Highlights High-tech Industries Strengths Signs of Weakness ~ Appendices ~ The Program Tool box

Exports of High-Tech Industries as a % of Exports In 2009, the share of exports of high-tech industries in Israel was 41.2% Emerging markets Developed economies

Export of High-tech Industries Average Growth Rate 2004 - 2006 Developed countries Emerging markets Source: EuroStat, CBS. 29 29 29

High-Tech Employees by Sub-Branches 2008, thousands 85% 15% Source: Central Bureau of Statistics, Manpower Survey

Innovative Patents Registered by Emerging Markets in the U.S. in 2008 (Patents per million people) Source: USPTO. 31 31 31

U.S. Patent Applications by Country of Source 2008 32 32

University Degrees by Field of Study 1987-2008 Source: CBS.

Israeli Requests for Patents in the U.S. From 1995-2008

Students Studying Abroad Vs. Students Studying Domestically, 2002-2007 Source: OECD - education at glance.

Israeli Students in the U. S. After Receiving a Ph. D Israeli Students in the U.S. After Receiving a Ph.D. (% Staying and Returning) *לפי תוכניותיהם בשנה לאחר קבלת התואר

Forecast in Venture Capital Investment Activity in 2010 הסקר בוצע בתאריכים 30 בנובמבר – 8 בדצמבר 2009, בקרב 325 קרנות הון סיכון ברחבי ארה"ב. יש לזכור שמרבית קרנות ההון סיכון בישראל אינן קרנות ישראליות. Source: NVCA. 37 37 37

Failure of Large Company Development Large companies Over 450 employees >$100 M 1% companies 25% employees 5 9% companies 30% employees Growth companies Sales >$10 M 90% companies 45% employees “Start-Ups” According to CBS: There are 36 companies with sales greater than $100M There are 12 companies which were established after 1992 4 companies were established after 1995 Source: IVC. 38

Expenditure on IT by Sector הסקר בוצע בתאריכים 30 בנובמבר – 8 בדצמבר 2009, בקרב 325 קרנות הון סיכון ברחבי ארה"ב. יש לזכור שמרבית קרנות ההון סיכון בישראל אינן קרנות ישראליות. Source: Gartner. 39 39 39

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