The Israeli Technology Incubator program which started in the early 1990 (first one was owned by the Technion - started in 1989) as a program initially intended to assist in absorbing the new immigrants from the former USSR, is considered a raw model, worthy of study and copying attempts by different countries. As mentioned in an earlier post there was a Finnish delegation here last month which was interested in checking and adapting the model for their needs. Together with the development of the VC market here the two formed two of the founding stones of the myth of Israel the entrepreneurial state, the homeland of innovation.
Recent set-backs to the VC market in Israel have exposed that founding stone of the myth, as a myth by itself. The fact that the VC in Israel could find investment was true enough, that they could make these investments pay-back enough to sustain the industry was not. More than that, it would seem that the damage the VC's and their strategy have done to the Israel economy could be fully understood only at a much later date. Their policy of sale to large multi-nationals that moved the core out side the country and negated the formation of an employment center has had a negative impact on the employment rate and growth, that only with time could be accurately estimated. The damage from VC and their capitalization or return on investment strategy can be seen in Prof. Maital's Lecture.
Recent publication regarding the Technology Incubators and their loan from the Ministry of Finance in 2003, seem to start peeling the myth from that founding stone as well.
In 2003, as it was decided that the incubators should be set to be financially independent. New agreements were made, the incubators' ownership changed hands in many cases and a new era began. Based on the change and a part of the agreement, was that Ministry of Finance fronted as a loan to the incubators over 80 million NIS. They were supposed to return the loan from the proceeds on the sales of their shares in the firms. These shares were the collateral for the loans. Now as according to publication less than 15 Million NIS have been returned so far, MoF which according to the agreement owns the shares, is considering its next move.
The original concept was, that in the post high-tech crisis the incubators would be set on a footing similar to that of VC's and that they could sustain their own operations based on the sale of their holdings. The market was estimated to be ready for such action. If the program worked, the government would be free from supporting the incubators, and could focus on supporting just the firms, and later on release more funds due to their income for investment in firms and projects.
While some may say that the market is at fault as it could not allow the sale of the firms held by the incubators generate enough income to sustain the incubators and more than that make them profitable enough to return the loans and become independent. My personal view is that the model is at fault. If the government is no longer looking at Technology Incubators as a means for absorbing technologically enhance immigration, but as a growth engine than the out look should change completely.
When I was CEO of a company in a Technology Incubator in the 1990's we managed to complete the development of a first generation of products and do some sample sales. While the sales were commencing only, we received from the Incubator's authority in the Chief Scientist a caution that if we start sales they would reduce our loan by the amount we raise by sales. So we labeled the sales we did as experimental sales and stopped, moving instead to the development of the second generation of products.
In the current state of affairs I think that firms in incubators should be encouraged to become economically independent asap, this should differentiate them from firms outside the incubator. It would allow them to generate income for the incubator, and perhaps also if sales are expected allow them to get better prices. It would also increase the chances of sustaining here the employment center.
While is seems that other countries envy us for our "achievements" in innovation, which seem to vanish with time, we could learn from our experience and try and make the legend come true.
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