Italian Israeli Conference – regarding Technology Transfer

The workshop taking place last week 23-24 of November 2010 was a most interesting event.
The conference opened (following the usual political speeches) with a discussion regarding the transfer from the lab to the industry of research results. The panel composition was most interesting. While the Israeli part was represented by Technology Transfer Companies managers and CEOs (Bar-Ilan R&D, BGN Technologies, Ramot at Tel Aviv University, Yeda etc.), the Italian part was represented by managers and Presidents of National Research Institutes (CNR, ISS, ISA ENEA etc.).
There were other very significant differences between the two country models. It seemed that the Israeli companies represented smaller organizations in comparison to the Italian organizations represented in the panels, the numbers of invention disclosed; patent applied for and approved, were larger for the Israeli firms. It would also seem that in most cases the Israeli Technology Transfer firms have been active for a longer period than the Italian counter parts.

Another interesting difference was regarding the performance data of the organizations. The Israeli Technology Transfer Companies, are private organizations, and their financial and therefore performance reports are confidential. The workshop served as an opportunity to discover some of the performance data. The Italian National Institutes are public organizations and their information is therefore public.

The Italian organization cited proudly the number of spin-offs they accumulated over the years, and lamented the scarcity of venture capital, which was, according to them, a barrier to further increasing the number of spin-offs. The Israeli technology Transfer companies while citing similar data mentioned (Yeda) preference to licensing over spin-offs.
That point was not discussed (I had asked the question, but Dr. Naiberg from Yeda was not given the chance to answer), but what is the difference between the two venues?
The biggest difference is in the overall employment impact. A spin-off creates measurable new employment positions. Licensing to a large organization, while it may add employment opportunities is harder to measure as a result of the TT effort. Thus governments and government organizations prefer this option. For commercial organizations, licensing has less risk embedded and can generate a cash flow more rapidly than spin-offs.

The Israeli VC market – a change?

Calcalist published on November 1st the results of a survey performed by DeLoitte in Israel. The survey checked the attitudes of Israeli VCs towards the finance ministry intention to guaranty institutional investors investments in VCs. The finance ministry intends to assure insurance companies, and pensions funds against losses up to 200 million NIS of their investments in the Israeli VCs.
The article emphasizes the fact that while 70% of the VCs asked were for the move, 15% were against it. And that when the VC sector's plight is well known.
While this step may seem radical and even innovative, this was in fact one of the steps taken in the early 1990's in order to allow the sector, just newly formed to grow. The government than guaranteed the investments of private investors and allowed the new VCs to raise funds from the general public (so called Inbal funds). After two decades of impressive growth into a diversified and mature market the move back to such measures is an indication of the sectors difficult position.
Would that be enough to put it right?
The reasons for the sector's weakened position stem from different sources – the first is exogenous, relating to the general world financial situation, the reduction in available funds, and reduced tendency for risk. The Israeli VC market has been from inception involved in the world market and is affected in two ways. Difficulties in raising funds, and reduced return on selling the firms it invested in. Another reason is endogenous and relates to the performance of the sector compared to other investment possibilities. The VCs have not performed spectacularly. There are some successes but the sector failed to produce the vast riches it promised.
What may happen?
The sector may downsize in two main ways, it may reduce the number of VCs, while keeping their size more or less the same. This will create a mature and stable sector. However, another possibility is that the reduction in number will be small, but the size of the VCs will be smaller. Small VCs enter the trap of not being able to count on the large numbers averages. That is to say that they will need to focus on investing more funds, but in a smaller number of firms, trying to reduce risk. This will of course reduce their profitability, and may lead to further reduction in size and the creation of a downsizing spiral.
Will the measures the ministry offers suffice?
If by chance they measures coincide with an improvement in world economics, increased return of sales of firms, more funds available for VCs – it may work. But if the measures stand alone, without solving the investment issues of the VCs, we may find ourselves at the same spot in two to three years, only without the institutional investors in the wings.

Bibliography:

1) Calcalist article - Delloitte survey (November 1st 2010)
2) Calcalist article - VCs fund raising (October 13th 2010)