Incubation in Israel: Model and Performance

Extent  24 incubators  About 10 projects per incubator Typically between 8-12 projects  Grant of $ per year for up two years. After two years a firm graduates  Up to 85% of the approved project budget  Budget half a million per incubator. 40% by the government

The Incubator Finance Sources  Government (OSC) 38%  Projects payments for services 14%  Royalties, Shares and dividends 24.5%  Strategic Partners 20.5%  Local Authorities 3%

Entrepreneurs  Education Degree –63% Doctors (MD or PhD) –21% MA –11% BA  Area of Education –Engineering 40% –Life Sciences 38%  More than 2/3 from either the academia or from R&D department in the Industry

Project Areas  Biotechnology 15.5%  Drugs 11%  Medical instruments 15.5%  Chemicals and new materials 11%  Mechanical Engineering 14%  Optical and exact Instrumens 7%  Energy and Ecology 11%  Computer hardware and software 15%

Steering Committee on Technological Incubators  The Chief Scientist (OSC) of the Ministry of Industry and Trade – Chairman  Public representatives from high-tech industry  Representatives of the incubator "graduates"  The Director for Technological Incubators — Office of the Chief Scientist, Ministry of Industry and. Trade.

Incubator Legal Role  Because the State provides most of the budget during a project's incubator phase, it holds the management of the incubator responsible for sound and efficient professional operation of each project in the incubator, including budget management and commercialization of the product being developed.  The incubator management is the State's trustee in running the incubator projects.

Incubator Functions  1. Assistance in determining the technological and marketing applicability of the idea and drawing up an R&D plan; 2. Assistance in obtaining the financial resources needed to carry out the project; 3. Assistance in forming and organizing an R&D team; 4. Professional and administrative counseling, guidance, and supervision; 5. Secretarial and administrative services, maintenance, procurements, accounting, and legal advice; 6. Assistance in raising capital and preparing for marketing.

Incubator Organization  incubator is an autonomous nonprofit corporation.  It is run and managed by: – a professional salaried director –a policymaking management –a projects committee that selects and monitors projects.

Policy Making and Project Committees  The last two governing institutions, are composed of professionals of the highest caliber from industry, business, and science—corporate and industrial executives, R&D managers in high- tech enterprises, professors, heads of faculty in research institutes, and public figures.  All of them work on a voluntary basis, devoting their time as well as their valuable experience, contacts, and infrastructures of their enterprises and institutions.

Incubator Selection Committee  Membership –The incubator manager –Academic Experts –Industry experts –Businessmen and finance professionals  Size –3-12 members  In 1/3 also an ad hock committee based on the project specialty  Acceptance is strictly based on full consensus

Project Selection Criteria  New Product  Export oriented  Based on R&D  Feasible with available resources

Selection  Idea Probing 100%  Submitted business plan 56%  Selection by the incubator manager 37%  Incubator Selection committee 11%  Selection by Chief Scientist committee 6%  Acceptance of project to the Incubator 5%  In a typical incubator  345 projects are probed and 18 accepted in 3 years

Graduation  In –86% Graduation Rate –78% Gained independent financial support after graduation  Long Term Perspective –By the end of 2002, over 800 projects had left the incubators (in addition to the 240 that remained). –Of these "graduates," 53 percent have continued on their own steam and 47 percent have been discontinued. –Most of the ongoing projects have managed to attract private investments – The total private investment obtained thus far is in excess of US $525 million

Ownership  Initial ownership in the Project Company is as follows:  At least 50 percent— the developer/entrepreneur;  At least 10 percent— key staff members other than developers/entrepreneurs;  Up to 20 percent— the provider of supplementary financing (i.e., additional to the State grant) for project implementation.  Up to 20 percent— the incubator.  Further investment that becomes necessary in the future is worked out in unrestricted business negotiations. These investments dilute the original shareholders ownership in the company proportionately.

Strengths and Weaknesses  Strengths –Ability to accomplish technologically at a high standard –Ability to learn in a sustained way technological developments and trends  Weaknesses (according to incubatees) –Identification and access to capital sources –Marketing planning, access to international distribution channels and strategic partners

Recommendation for Improved Selection  Increased incubator budget  Preparing of a good well supported business plan before acceptance  Evaluation of plan by larger number of experts  Preparation of Strategic business plan for guiding the project from the initial stage  Closer examination of the fitness of the personality of the entrepreneur