National Innovation infrastructure

Last week I spent some time at the University of Algarve in Faro (Portugal). It was a Conference on Sustainable Innovation, and the presentations were most interesting. It was my first visit to Portugal in over five years, and I was most interested in two aspects – the current economic situation; and the Innovation atmosphere in the country.
One of the presentation dealt with the spin-off activity of the university research results. It was most interesting to compare the roles of the Technology Transfer unit in Portugal with that of a Technology Transfer Company in Israel. The unit in Portugal has to run a competition in order to stimulate ideas and to find ideas or technologies to be commercialized. It than trains the entrepreneurs and helps them raise the funds, hosts them (for a fee) and when ready lunches them into the world. The unit does not hold equity in the firms. Of course such close mentoring means that the number of firms that can be taken care off is limited.
The Israeli TTC gets the ideas reported by the scientists in the university, it has to filter them, if ready for spinning, than it recruits a team leader, let him raise the funds or helps the team get into a technology incubator. The TTC will hold equity, an if possible also license the technology to the firm it span-off. Theoretically the TTC can Spin-off as many firms as there are ideas.
Why do the two entities follow different models? The obvious answer has two parts: on the one hand the natural tendency to seek commercialization of research results or of ideas is probably higher in Israel; on the other hand the infrastructure is more diversified, the technology incubators, the VC sector and other assisting tools are more prevalent in Israel allowing the TTC to focus on its main function.
The natural tendency is misleading, it is only partly natural. A major part of it lies in the local culture and education. Encouraging individualism, free thinking and non conservative solutions has been dominant in Israeli culture. Admiring the ability to improvise rather than plan, to give all you have to reach a goal is a basic characteristic of the culture. Portugal has stressed conformism and order, accuracy and planning.
If one goes back in time to the late 1980's, Israel was not much different. Small number of entrepreneurs, little supportive infrastructure etc., that means that the transformation of the Portuguese current situation to one more resembling Israel's can be achieved. How?
I would suggest the following:
It is important to recall that creating an infrastructure requires enough potential projects in the pipeline otherwise a sense of misfit is felt, which could lead to negative results. If you create a 100 venture capital funds that will not have enough projects, the failure to return the investment would assure that it would take a long time for the venture capital market to recover. Therefore there is no need to copy entire systems but rather let them evolve. First create the demand, educate for innovation, encourage project creation, than invite the assistive "tools" or build them according to demand.
What type of education? How can it be done?
For that in the next post…….

Regional Development - inter region cooperation

Yesterday I had the honor to participate in the signatory ceremony of twin regions between the region of Emeq-Hefer (where I am a council member) and the Heilongjiang province in China. The agreement is the first step towards increased cooperation between the two regions.
All that is very nice, and creates a lot of good will - especially if there are mission exchanged between the regions and people get to travel. But in the practical world we live in what does it really mean?
In the regional level there is little significance, there are donations, links between institutes and some missions, political, educational and others. But what more can you expect when the regional level of government is limited in scope of action, budget and legal powers to act?
Can there really be a significant advantage created by cooperation between regions?
The EU seems to think so, but seems to think that such cooperation needs encouragement - and it does so financially. The EU concept is based on the fact that beyond trading between regions, there are practical lessons regions can learn from each other and that the cooperation can lead to improvement, economically in both participating regions.
The basis is to find the means for cooperation that will allow the relatively small and entrepreneurial region on one side to learn and teach from the larger bigger region, which operates on a different scale. The key would seem to be intensive and continuous communication between the two regions - a committee to identify the areas for cooperation, allocate the means and plan ahead. Topics for cooperation change with time therefore only lasting communication can provide for real cooperation with time.Although distance may seem as a problem - once personal acquaintance has been established the daily communication can be done electronically.

Technology Incubators - a Sad Story

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.