Incubators provide high tech nourishment

Like software solution providor Eurikify, the program supports novice entrepreneurs at the earliest stage, and turn them into productive businesses with products for export.Standing in an elegant evening gown in a Tel Aviv hotel convention room, Rina Pridor glowed with …

Like software solution providor Eurikify, the program supports novice entrepreneurs at the earliest stage, and turn them into productive businesses with products for export.Standing in an elegant evening gown in a Tel Aviv hotel convention room, Rina Pridor glowed with pride last month as she handed out the awards for the most successful projects to come out of the Israeli Technological Incubators Program.

The incubator program is director Pridor’s baby – a unique model for helping creating new businesses which she herself began incubating 15 years ago. That idea has blossomed into the 23 technological incubators operating in Israel today, containing more than 200 projects in electronics and communication, software, medical devices, new materials and biotechnology.

More than 806 projects have ‘graduated’ from the incubators, and of these graduates, 45 percent have continued on their own steam as companies, attracting total private investment of more than $773 million.

An attorney by training, Pridor, spent a career in the public and private sector, involved in investment with a focus on new companies in their earliest stages. In the 1980s she worked for an American investment companies that funded new Israeli businesses – some of which evolved into some of Israel’s technology forces – Comverse, Teledata, Lannet and Technomatix.

In 1990, with the massive flood of immigration from the former Soviet Union beginning, the Israeli government started investigating the best way to utilize the high-quality scientific and technical expertise that these highly qualified immigrants were bringing with them to Israel.

The Office of the Chief Scientist – part of the Ministry of Industry and Trade – asked Pridor to create incubators in order to help them harness the most promising ideas and turn them into companies. An incubator is a support corporation designed to give new entrepreneurs a ‘home’ – an opportunity to develop their innovative technological ideas and set up new businesses in order to commercialize them. The program supports novice entrepreneurs at the earliest stage, and turn them into productive businesses with products for export.

“We adopted the existing model of the business incubators, but modified it a great deal,” she told ISRAEL21c. “What has resulted is something special and different – that is known and imitated throughout the world, in countries like Australia and Sweden.”

The amount of financial support and expertise that the Israeli program offers the new businesses was unique when it was created, and has proved highly successful, as evidence by many examples of thriving companies that began as incubator projects: companies such as Mango Software, Aeronautics and Nanomotion, companies that are developing products that Americans and people around the world are using on a daily basis.

The Israeli incubator model is completely original – and very specific in its goals, explained Pridor.

“There are incubators for all kinds of businesses around the world. From the beginning we decided that in Israel we would focus on the technological sphere, and to restrict our projects to those that are completely new ideas,” said Pridor. “As a small country, with our limitations and cost of labor, we know that we have no chance of competing globally with larger entities if our products don?t bring something special that the customers can?t get anywhere else.”

Another key difference: “In the US, incubators develop new companies – that are already companies. We don’t take companies into our incubators, we take people with ideas. And we don’t just give them physical and administrative infrastructure as they do in the US – we give direct grants to the projects. The grant is a large-scale. And it doesn’t stop there – the management of the incubator is very involved in the new company in formation, down to the last detail.”

“the first day of the program, we developed it and opened it to everyone, not just the new immigrants. This was very important to me, and I had to resist lobbying attempts to make it an immigrant-only enterprise. I think that this was an important decision – we prevented a ghetto from developing and created a synergy between the immigrants and native Israelis. Our bottom line is that we pay attention to the idea – not to the origin of the person it comes from. The idea has to be new, interesting, have market potential. We don’t do mercy projects.”

The result is that Israel is getting a good return on its investment. The numbers, Pridor says, speak for themselves.

“In 2004, the state invested $25 million dollars in its incubator program. In the same year, the amount of private investment in companies that originated in the program exceeded $140 million.”

The winners of the awards for the best incubator projects for 2005 reflected the diversity. First place went to Biomor, a company that provides economical and environmentally solutions for that combat common plant diseases.

Second prize was given to Cellvine, a company that designs and develops solutions for the
wireless telecommunications industry, enabling improved signal coverage and enhanced reception.

Third place was awarded to Eurekify, a provider of software solutions for role-based management in large enterprises.

Essentially, the incubator program turns the Israeli government into a new company’s first major investor, supplying the infant organization with what it needs to get started – giving it a workplace, tools, resources and professional guidance and administrative support.
This earliest stage of business development – when an idea becomes a company, is when the risk is highest. Most private investors are not willing to take this kind of risk, and so, through the incubator program, the government takes the risks that commercial investors won’t.

Through the 23 technological incubators situated throughout the country – from the Negev to the Galilee – the government provides the new entrepreneurs with offices and laboratories, financial resources, tools, professional guidance, and administrative assistance – so that, during their stay in the incubator, they may turn their abstract ideas into real products for the international marketplace.

The projects are funded and supported for two years, with a government grant that usually runs approximately $300,000 – $500,000. The project company is then, essentially co-owned by the entrepreneur and the incubator.

Each technological incubator is run and managed by a professional salaried director, a policymaking management, and a projects committee that selects and monitors projects. The committees 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.

As they have matured, some of the individual incubators have become further specialized – some attracting only software companies or medical device or biotechnology companies, for example. Others, such as those located near to academic institutions, focus on new ideas coming out of those universities and research institutes.

After two years in the incubators, the entrepreneur is expected to have carried their idea to the stage of explicit product definition and proven technological and marketing feasibility. There should be a prototype or working model and an orderly business plan.
It is hoped, that at this point, private investors will take notice and move the new companies forward. The vote of confidence by the government by accepting the company into in the incubator raises their profile and improves their prospects of raising the financial investment they need from venture capitalists, finding strategic partners, and emerging from the incubator with businesses that can stand alone.

“We don’t compete with venture capital firms,” emphasizes Pridor. “We prepare the ground for them.”

With the private sector taking notice of the program’s success, some incubators have been privatized, and turned over to investors who have decided that the risk of growing new businesses ultimately pays off.

Companies that grow and flourish into profitability are obligated to return their grants to the government, as they would any investor – but unlike private investors, the government doesn’t share directly in the profits.
There is also political capital created by the program in the regard that its success has had around the world.

Speaking at the festive awards ceremony over which Pridor presided, Israel’s Industry and Trade Minister Ehud Olmert revealed that he has a secret weapon he uses when he is having a particularly difficult meeting with a counterpart from a country with whom Israel is having a trade dispute.

Sometimes, he and his foreign official have clashed on an issue, and he has had to be tough and uncompromising. But he wants to end the meeting on an upbeat note, and give the official he has been speaking to the sense that they have walked away with something valuable.

“When I need to do this, I offer to send over the people who founded and created our incubator program to teach their people how it was done,” Olmert told the audience. “Immediately, the tone changes, and they are happy and excited.”

The incubator program and its contribution to Israeli high tech success, he said, is an “unprecedented objective accomplishment and our readiness to share this information is a key to helping us improve our business relationships overseas.”

This effort to share the Israeli experience is not only apparent when foreign representatives visit Israel – it has Pridor flying around the world to various conferences and conferring with countries interested in setting up similar programs.

When Pridor was invited to a conference in Mexico on incubator programs, Dr. Alejandro Gonzalez Hernandez, the Mexican Director General for Technological Innovation wrote: “We consider Israel’s technological incubators policy as the most successful around the world. For us, any discussion on technological incubators is irrelevant, unless we take into account the most outstanding model: the Israeli one.”