Spanish research policy – is that the real problem?

In a recent article published by the Guardian, the sad story of the last two years in the life of Spanish Research are being told, with the recommendation: " Spain urgently needs an internationally credible science policy", which also serves as the title for the article. The gist of the article by Amaya Moro-Martín, is the following: 1. Spanish research funding has been cut severely, Spain is failing to meet EU research investment standards; 2. Promised funds have not been forwarded; 3. Research institute reserves have been used for daily expanses instead of investment in research; 4. Research positions are being lost and the research community is aging; 5. A credible research policy combined with a restructuring in government and a national research agency will solve most problems. The article raises a serious issue one that could, due to damage to international standing Spain in research, brain-drain to other countries and reduction in R&D investment damage the economy to an extent that will take a long time to recover. The article ignores to a certain level the EU commitments of Spain and the impact the events described have on the EU general goals. In Barcelona (part of Spain?) the EU declared the Knowledge Based Society as it target, and set quantitative goals for it. The picture described in the article gives the impression that Spain at least may have given up on the Barcelona Declaration. I would like to contest the title of the article. Why is an international credible policy required? The international aspect is a small issue compared to the national credibility issue discussed in the article. Brain drain, lack of R&D investment, delaying projects etc. are firstly a national problem. There is more, a policy is only good if you can make sure it is implemented. Regarding R&D, EU policies and member states included, do not have a shining history when it comes to implementation. The R&D goals have been moved due to none compliance of member states. So what will change? What will permanently change so that future governments restructure and changes in the freedom of councils cannot change? The article offers going back to the situation of 2009, and what from there? How would you prevent 2013 from happening again? Unlike the Guardian I do not think that policy making with or without financial power is the long term answer. But there is another issue that I wish to discuss, how could the government do it? Not morally, but in fact, how could they get away with it? Living in a country with a fuzzy if at all research policy, such a thing could not happen here as both research organizations and the industry would not allow the government to do it. The strongest friend of Research in Israel is the industry. It feeds on it, it requires it for the industry's future development, and it is these sectors which will not allow such a decline. Moreover, over 70% of Israeli R&D investment is private. Therefore, at least to some extent, any government reduction in R&D funding would be taken up by the industry. This is the long term answer. The Spanish research sector has failed to integrate itself with the industry, make it its partner in economic development. Any of the steps mentioned in the article would probably solve the current situation and allow some respite, but unless the Spanish research community finds its way to cooperate and make itself indispensable to the Spanish and EU industry, it will remain open to danger from restructuring, government cuts etc., the respite the steps mentioned can bring is dangerous as it may tempt the research community in Spain to think all is well and not prepare for the future.

Basically Flawed

The New York Times published an article regarding the Irish bank bailout  in which it states:" The Irish bank bailout in the fall of 2008 was the first one to hit a euro zone country during the credit crisis, and it set some unfortunate precedents. Now we learn that it was based in no small part on manipulative lies by venal bankers."

While the article raises some interesting question regarding the specific case, I would rather discuss the more general case of disaster decision making process.

In the above mentioned case it would seem that there is a mix of hindsight and indignation regarding the action of the government. There were many things that were not known or were misrepresented to the government. However, that does not make the decision taken at the time wrong or even irrational. Based on the information available at the time, the way it was represented and the context of world events it would seem that the decision may have had some merit.

The second point relates to the infrastructure. In the article it states:" Regulators were clueless, or worse, about what was actually happening. There seems to have been no one in the government who was truly familiar with the bank. Outside experts were called in, but it is not easy during a crisis to evaluate something from scratch."

The fact that the government and specifically the national bank was not familiar and could not itself get the necessary information in time and clearly to be able to assess independently the real risk, its origins and recommend a course of action, is the main problem.

The EU is fond of identifying "Market Failures" – but here we have a "Governance Failure". For it would seem that there must be something wrong in the governance procedures that allow a bank to become so big, its failure would negatively impact the national economy, and yet there would be no effective control, or monitoring mechanisms in place allow the government to assess the situation. If you believe in the free market completely, and allow the market forces to play, than indeed you can claim there is no need to monitor, to control or to follow up. But then, you should not be expected to bailout the institution, but rather let the same market forces lead it to its destiny.

My claim is the following, if there is a potential danger to the public good, from a sector, or specific organizations, the government, as part of its responsibility to the public should ensure that there are procedures in place, that will allow it either to avert the danger or, (if not liberal enough) at least allow it, in times of crisis to identify the problems including their magnitude and potential impact, in order to take the right steps to protect the public. According to the article such procedures were not in place at the time (are there such procedures now in place?), and therefore the situation was skewed from the start.

The criminal aspect is not discussed here, and the real impact of what will happen now to the German support from that aspect is again not discussed here. However, while one cannot change the past, one can learn from it. I would imagine that procedures in place that would prevent such occurrence again would be more important than allocating blame.

Getting out from an economic slowdown and into growth

A recently published article placed Spain in the group of the top ten countries around the world (from 144 countries) regarding developed infrastructure. When considering the current economic situation in Spain and comparing to the economic situation on the other countries in the top ten (Honk-Kong, Singapore, Switzerland, Germany, France etc.) none of which has had a down grading in their national credit rating lately, this achievement is most remarkable.

In view of the recent slowdown and the downgrading of the national credit rating, one has to ask is that a way to get out of the slowdown?

It has long been known that one of the ways to get out of a slowdown is to increase government spending. Government spending fuels the economy, increases the GDP, and helps to increase the available cash in private hand thus leading in many cases for increased private spending and a further growth of the GDP.

The downside is of course that increased government spending will lead to increase in the national budget deficit, an increase in the national debt and later on inflation and other negative influences, and unwanted results.

An interesting solution would be to increase government spending in a way that will increase Government income so the budget deficit is short term and therefore most of the negative results can be avoided.

The Israeli case could be an interesting case. The current solution of getting out of the slowdown is a reduced budget, cut across the board, combined with increased taxation – just the opposite than what is needed in order to increase the DGP and create growth. However, we may be saved by luck. We are entering an election year, in which even with threatening budgetary cuts it is normal to have an increase both in government spending and in private sector spending, which may be our way out of the slowdown, but as it will not generate government income the long term results could be problematic. But is there another way?

How about increasing government spending in a way that will allow more companies to generate sales and market share, grow, and increase the number of their employees (a good result by itself), thus generating more taxes both from the employees and from the firms. as the Israeli economy is fueled by the high-tech industry, if the growth could be in that sector it could pull up the rest of the economy as it has been doing since the mid 1990’s.

So, we are looking for increasing government spending by investing in the high-tech sector in a way that will allow it to grow and increase its sales and market share in the world, is there such a way?

Could the Spanish solution be the answer? Not in the case of Israel, as investment in infrastructure would take too long to bear the relevant fruits in terms of economic growth, especially for the high-tech sector. There is already a significant infrastructure regarding communications, wireless and other high-tech relevant infrastructure, and investment in transportation and other “hard” infrastructure would have little impact on the high-tech sector in Israel.

There is another solution in the case of Israel. The Ministry of Industry, Trade and Labor has supported the high-tech sector for decades via the Office of the ChiefScientist (OCS) . The support has been given as R&D loans and grants. This mechanism could provide the desired income to government in several stages. The R&D support, would allow the high-tech sector to increase its competitiveness, as it has been doing for many years, thus increasing employment and tax income. It would also allow recuperation of some of the funds via the repayment of the loans back to the OCS – allowing for the funds to be reused, but also for the governmental section of the OCS budget to be reduced while keeping the overall OCS budget intact.

The increased government spending in this way, would allow the generation of the wished for results, and would allow the increase of government spending without the negative implications. This would be a better way of getting out of the slowdown than just election spending.

TTC models the agglomerate or single companies?

In my last post regarding the Israeli Technology Transfer Company (TTC) and the potential change due to the recent call for tender for a TTC to attend the needs of the colleges in Israel, the discussion ended with the question regarding the universities’ TTCs, should they unite or not.

In order to discuss this point in a meaningful way one has to consider the following points regarding academy- industry commercialization:

·         Academic knowledge is seldom “ready for use” for the intended industrial purposes and requires additional development and sometime complementing technologies.

·         Due to the nature of academic competition, competing technologies will be found at different research groups. That knowledge if packaged together could present a valuable IP block for the industry.

·         Locating the required academic knowledge can be problematic as a result of the complexity of research interests that do not necessarily fit faculty division. A single point of contact could help the industry locate the knowledge faster and easier.

·         Ethics – all research center technologies should get an even chance to be protected and marketed – there should be not preference to competing technologies, unless from the market side.  Different institutes may demand preferences.

·         Centralizing the activity would reduce overhead, duplication and infrastructural cost (e.g. annual accountant audit, administration etc.).

·         In Israel the TTCs are funded by university funds which are public funds, so the organizational structure of the TTCs in all universities is a matter of public interest. Same applies to the revenues gathered by the TTCs on behalf of the universities using the knowledge developed by university trained and paid for personnel and using university infra-structure.

The points regarding distances, distribution of expertise etc. are very general and in any case would not have a big influence in specific regions or small countries.

Reviewing the points above it would seem that the universities in Israel would only benefit from the merger of their TTCs. The administrative, management and general costs would be reduced, the knowledge could be packaged containing complementary knowledge from several universities, and the management and ethical questions could be resolved (e.g. TLB solution, or the French SATT). The main benefit would not be the saving in my opinion, as there would be travels and offices etc. in each campus, but the ability to form a joint commercialization strategy and package the knowledge better.

The main obstacle would be the sunk cost each university has in its TTC and the complex agreements and exclusivity issues stemming from about 50 years of activity.

Changing the Technology Transfer model?

The Technology Transfer operating model in Israel for the last decades has been that of a Technology Transfer Company (TTC) a commercial separate legal entity – a company limited by share, fully owned by a single university.

That model has shown a good fit for the special circumstances in Israel. The universities have managed to support their TTC and allow them to evolve to the stage of financial independence, to employ personal outside the limitation of public institutions and to act as business oriented entities with certain academic limitations.

However, a few months ago a new idea appeared on stage with potential interesting circumstances. The Council for Higher Education  (CHE) has published a call for proposal (tender) for forming a TTC for the colleges it sponsors. The CHE was responding to a recommendation of the prime minister to do something for the colleges.

That move signaled two interesting points; the first being that the CHE recognizes the need of the colleges to enhance their research activities and to become more than just teaching institutes. The second, by suggesting a single firm for several colleges, they were introducing a new model for TTC operation in Israel.

The first point will be referred to at another time. However the introduction of the new model of TTC operation in Israel may have interesting implications. Israel has at the moment seven research universities, each with its own TTC. The justification of that model has been based on the direct support that each university gave to its TTC in its formation stages, and on the claim that a TTC of two universities may be presented with a conflict of interests when having to decide between competing technologies originating from different universities regarding their protection and commercialization.

However, both these arguments loose a lot of their credibility when looked into in depth. The first claim regarding the financial backing, the universities have been supported in their budget by the government (through the financial arm of the CHE) since each was established by law (or in the case off these preceding the state since its formation). Therefore the "internal funds" in most cases came from the public, and therefore could in theory be managed jointly….

The second argument may seem both practical and ethical but in fact that chances that in a single university with a strong research center focused on a sector (e.g. nano-science) there would be several research groups working on closely related topics that would from time to time come up with competing technologies for protection and commercialization, and the TTCs have evolved an internal system to overcome that in-house conflict of interests. Furthermore the German model seems to have found some solutions for such problems (TLB). A  center for renewable energies as recently formed in Tel Aviv University boasting some 55 different research groups would certainly come with competing solutions to similar "hot" problems in that area. Would anyone expect a TTC to be formed for each competing solution?

The real bastion against the unified model has been the success of the existing model. The revenues accrued by the TTC of the Weitzman Institute (Yeda) and the Hebrew university TTC (Yissum) as well as the others supported the existing model – if it works do not change it…

The new model for TTC operation in Israel, however, if successful and with the support of the German model, to remove the claim for the difference due to universities versus colleges, could lead to a strong pressure to unify the universities TTC. After all Israel is not such a big place, and a single company could cover the whole country. Since we are dealing with public funding, such a move could be regarded by decision makers as interesting and certainly as warranting a closer look.

Will the new model be successful?  Should the university TTCs unite? 

Life Long Learning

I have come upon an interesting article in Forbs titled: “Five Leadership lessons from James T. Kirk”. This is not a sci-fi article, but it derives leadership lessons from the character as portrayed in the series and reflects on their application in management / leadership.
The first lesson is “Never Stop Learning” and it goes deeper than just gathering information in your line of work. The example given in the article relates to information appearing useless that helped Kirk survive and beat his opponent. But it has a deeper meaning for me. You can never know what you may need one day or what will happen to you, you cannot rely on the availability of information sources external to yourself to provide the answer when you need it. While this may seem trivial, it would appear that we are not teaching our children that important lesson.
In today’s world, with the information highway, when data is available, knowledge, intrinsic has become neglected. The children are required less and less to know, and increasingly to know where to find the information. Why learn the multiplication table by heart when you can calculate it fast enough? Why learn to formulas, data, chemistry and historical facts when you can find them if you need them?
The problem arises when you cannot easily define the question required to solve a specific situation, or to evaluate which of the multiple choices is best for you. In fact by trusting information supplied by others, we lose a part of our independence, our freedom of choice. If you look at the example given in the Forbes article Kirk could have chosen other solutions, it was his knowledge that helped him choose the specific solution which brought him out alive.
Knowledge that was once revered and appreciated is much de-preciated because it is so easy to obtain information. But the knowledge, being the internalization of the information, is ever more important and will become more important in the future. The answer in education would be to instill the thirst for knowledge, the wish to learn more and not for grades and for better pay, advancement etc. but rather for the joy of knowing more. We embarked on the journey towards Knowledge by trying to understand the world around us, that voyage is not over – so we should keep seeking knowledge.

The longer time to exit and its impact on VC

Recently a founding manager of one of the Leading VCs in Israelannounced he will not be part of the next round of funds, but will continue with his efforts in the existing funds. He mentions that the economic developments have made the time to exit longer than it used to be 10-12 years ago. That in time has made the investment in start-ups more problematic. The funds themselves are designed for 10-12 years duration, but the time for growing firms from small start-ups to companies that can be used for exit has lengthened and that made the VC try to capitalize either too early (less return on the investment) or invest in less risky firms.
In the second cycle, the institutional investors have moved towards investment in larger VCs due to managerial pressure – not related directly to risk management.
The investment in many small firms requires a managerial effort in tracking (board memberships and reports) many firms. If you want to keep the management load at a low enough level you would show a preference to a smaller number of investment of a larger size. That preference for larger VCs, is creating a push in the sector for larger VCs, - an artificial size advantage.
To sum, it would seem that the world economic crisis has created not only a reduction in available funds that has created a problem for the VCs. If that were the only problem it could have been remediated when the slow-down was over. The other effects such as the lengthened maturing process of Start-Ups, is more difficult to overcome and is creating a more complicated problem for the VC sector.

A rose by any other name would smell as sweet

The title here is taken from the Shakespearian tragedy Romeo and Juliette. But is relates to a more obscure tragedy in the making. Recently, 15th December 2011 the Israeli government has decided to change the name of two ministries. The former ministry for national infrastructure would become the Water and Energy Ministry, and the former ministry of transportation would become the ministry for transportation, national infrastructure and road safety.
The second part of the change is intended to place all the design and executive organs regarding land water and air transportation, including safety and infrastructure investment in one place. But look at the following ironic scenario:
In order to save on land use (Israel is a small crowded country) a suggestion to place communication lines next to the train tracks, and to similarly provide a venue for electrical power conductance is presented. Such a suggestion would have to be approved by the ministry for transportation (blab la bla), the Public Utility Authority (energy) which is part of the Water and Energy ministry, the national planning committee (belongs to the ministry of the Interior), the Land Management Bureau belonging to the Housing ministry and the ministry of communications. All of which would fit, in a sane place under the heading of Infrastructure.
The reality is, that if such a suggestion would be tabled it would require the Finance ministry as well, but that would probably be the only one with a comprehensive look at the project. Sadly the list of agencies (perhaps justified) and ministries (probably not justified) is the reason so many projects are discarded mid-way in Israel. The different ministries, under ministers from different parties, with conflicting social agendas, would find it hard to cooperate. Further to that, in the lack of valid policy, every such project suggestion would require each ministry /agency to make a separate decision approving the project. It is enough for one to disapprove for the project to be rejected.
Unfortunately our lives are not mono-disciplinary or mono-ministerial, but moe complex than that.
Instead of changing the name, how about merging the ministries and agencies, into a real national infrastructure ministry and placing the responsibility for the management of national infrastructure there?
At least create a body to coordinate the decision making of all the infrastructure bodies.

Increasing Government Investment in Economic Development

It would seem that Israel is attempting to increase its economic growth in the current difficult world-wide economic situation.
In a recent publication it was announced that the ministry of industry trade and labor received an increase in budget (even that can happen) for 2012 of 1.5 billion NIS (about 300 million euros). That funding will go towards more R&D financing, training and other supportive measures for the local industry- to increase the competitive advantage of Israeli firms, and create / preserve jobs. This comes after an increase in funding from 2010 to 2011.
It seems that the money will not be left un-used as the Israeli high-tech industry is used to identifying such support opportunities and sizing them up. It comes also on top of the activities of the three years old agency for SME support operating under the funding and directions of the ministry.
It would seem that these attempts to shore up the economic development in 2012 come after the bleak announcement by the governor of the Israeli central bank, that 2012 will be a difficult year economically. Although we are entering an election period such steps seem real enough as they escape the notice of the general population, and will bear at best noticeable fruits after the 2013 elections.

Is there going to be a change in the EU economic situation?

While this blog has been silent for a long time, many changes have occurred in the outside world.
The latest event that I wish to discuss here is the recent government change in Spain.
This specific change has followed closely on the footsteps of two other government shifts in Greece and Italy.
While it is clear that the governments ousted have failed to help the economy in their states recover, the big question mark over all three changes is weather the new government can succeed in such cases.
In 2009 I participated in an economic seminar in Warsaw where the keynote presentation by Richard Koo referred to the crisis. It seemed that his idea, as I understood it, is that in order to prevent a crisis slowdown in the economy the government had to see to it that the GDP did not diminish. The way he offered to do it was by increasing eh government expenditure based on loans from the banking sector. His ideas were based on the actions taken in Japan during the 1990’s crisis, where a change in the activity of the firms was observed. The firms have changed from profit seeking entities into a balance sheet cleaning entities. Investment in development and other areas went down, as the DGP was in danger of diminishing.
The government took loans from the private sector, and used it to turn the wheels of the economy, by purchasing. This allowed the firms to clean their balance sheets and once their activity was back to normal (the indicator was the rise in loan interest) the government could start cleaning its own “balance sheet”.
With the euro zone, the ability of governments to increase their spending is limited. The government cannot easily print more money (disregarding inflation and other consequences) and borrowing from the private sector, unlike increasing taxation, will allow more economic action. Under such conditions the big question would remain, where and how should the government spend its money. Should it invest in infrastructure? In human resources? In technology development and support to the business sectors?
When seeking answers to such a question one should consider several aspects:
· The conditions in the neighbouring countries (with which you do most of your trade)
· The general economic condition in the world
· The basic parameters (strengths and weaknesses) of your own country
This article will not present the new government of Spain with the answer to all these questions. However, it is important to remember regarding the above mentioned parameters that by investing in roads, water, electricity systems the state will improve its future ability to attract investments and to initiate and support growth, but it will not make it easier to turn that investment into growth if the close trading partners and the general economic situation are bad. It will have a positive effect in the medium to long term, but not in the near future – except for those employed in the work. However, investment in the infrastructure, combined with investment in the human resources of the country, will help the country come back from the financial crisis, stronger than it was before, more competitive, and will help attract not just investment, but also more HR that would be beneficial for it.After all HR are the best natural resource any country can have!!!!!!

Renewable energies and other myths

While there is an on-going debate about climate change, there is one fact that faces no argument – that fossil fuel is limited by quantity and that we are nearing the end of the reservoirs. Coal will still be available probably up to the end of the century, but it cannot supply all the demand, so if only for this reason, there is a place for renewable energies.
However there are some myths that seem to be a bit misleading and that we should avoid them, when making decisions. Please have a look at the hypothetical example below (if you think that you have seen this somewhere in the world – think again).
A company introduces a novel idea into the market, an electric car, with a special business model. Instead of charging the batteries, the driver will enter a refueling station and replace the batteries when they run down. The station will recharge them at leisure and sell them to the next customer that comes in. The company claims that this will reduce air pollution and especially the carbon emissions. The company sets on a huge public campaign claiming environmental protection as its main purpose, and manages to convince public bodies and ministries to endorse it. Seems like a good idea no?
Not so fast. Where does the charging electricity come from?
It comes from the grid. That is the key point for understanding the relevance of the scheme to the environment. If the electricity produced in the example country is mostly clean and low on carbon emission such as: hydro-power, geothermal-power or even nuclear (is that really environmentally friendly?) powered, than it would seem that the move from fossil fuel driven cars to electricity cars is smart. Since these technologies for power production are also relatively cheap (on the fuel side at least) it will also help keep the electricity cost down, it will reduce the fossil fuel import, and probably have in addition to the environment, a positive impact on the economy.
But what if the power produced is from renewable sources? If that is so, than it will probably reduce the emissions and the fuel import, but as the power production from renewable sources (solar, wind) is more expansive, it may drive the price of electricity to the general public up, and this may complicate the economic impact analysis.
There is one more problematic possibility, that the power supplied to the grid is almost entirely based on fossil fuel (including coal). Here we probably get a negative impact of the project. Due to efficiency issues it is more efficient (less fuel consumed per Km) to burn the fuel in the car than burn it to produce electricity (one set of efficiency losses) and then convert the electricity into movement (second set of efficiency losses). In fact, in such a situation we may be burning MORE fuel than originally – MORE pollution, MORE emissions.
There is little data about the situation in the sample above, but the fact that the company has not claimed in its publications, adds and other media that there will be a reduction in fuel import, one could tend to believe that we are dealing with the third case.

A heaven for Angels

Under the new fiscal law for 2011-2012 the Israeli parliament approve measures to encourage Angels to invest in High-Tech companies. The law basically recognizes an investment in a High-Tech as an expense over three years.
That law would appear to be a wonderful solution to the need to get more funds invested in High-Tech companies, especially for starting companies in that sector. The law actually holds more than meet the eye at first glance. In this post I will try and point out some interesting side effects that the law holds.
In the first place since the benefit recognizes the investment as an expense it allows a capital investment to be deducted from income in the annual personal profit and loss statement. The idea behind the benefit is that in many cases the angel’s investment is either turned into a loss after a few years (as most start-ups requiring angels to invest do), or that it bears some profit in the long term, and at that time the profit is deducted from the original investment.
High-Tech investment has been reduced since the 2008 global financial crisis. The need for investment in the High-Tech start-up section, is evident (IVA data) . By the benefit offered this investment has advantage (at least in postponing the tax) over other financial investment even for people not considering Angel Investment on regular basis. The law places some restrictions on the investment and the management of the firm in order for the benefit to be acknowledged:
• The firm must use at least 75% of the sum invested by the single investor for R&D purposes,
• 75% of the investment is spent in Israel.
• The year of investment and the following year the firm income cannot be more than 50% on the firm’s R&D expenses.
• Until the year in which the firm’s R&D expanses reached 75% of the investment the R&D expanses should be at least 70% of the total firm expanses.
The law discusses a personal investment of up to 5 million NIS. If we want to have a look at the first point above, we can see that the way it is phrased in the law makes it advantageous to have the investment in the firm done by several angels and not a single one. This requires an example;
A firm requires an investment of 1 million. It finds an angel to invest the whole sum. That means that according to the regulations above, the firm now needs to spend at least 750,000 on R&D, most of it in Israel, and until that is done the R&D expanses should make at least70% of the total firm expenses.
Alternatively 10 angels invest the 1 million paying 100,000 each. Meaning that the firm now has to spend at least 75,000 in R&D and only until they do that they other obligation regarding the firm expenses is in place. Of course these conditions are easier to meet.
Based on the example above it would seem that there are two major changes to the way Angels investments were regarded in the past. Angel’s clubs have an advantage under the law as they reduce the risk of an investment losing its eligibility during the benefit time since the more angels there are the easier it is for the firm to meet the terms.
More than that, if in the past once an entrepreneur found his Angel he would not like to share, but under the law, sharing would actually have a benefit for the entrepreneurs and the angels. So if you have an angel and you friend have another it would be best for them to invest each half in each of you. Everyone gains.
The law would be more interesting if the limit on income being no more than 50% of overall R&D expenses would not pose a most difficult restriction. The restriction exists for the first two years on investment. However, if the firm should have a marketing breakthrough and generate revenues more than 50% of its R&D expenses the benefit would be lost. This creates a conflict of interest between the Angels and the Firm’s directors. The angels want the revues for the first two years to be low and the directors have an obligation to increase the revenues and thus the firm’s value.
The point is further complicated as the law states that the tax reduction should be the main motive for investment, that is a bit complicated to explain when coming to ask for the tax exemption- recognition of the investment as expense.
Will the angels be able to overcome the difficulties and benefit from the advantage? Will former non-angels decide to make such investments due to the attractive benefit? And most important, will the law help increase the overall investment in High-tech companies in spite of the current financial situation?

Portugal Bail-out request from the EU

The Portuguese Government has asked for the EU for assistance when it realized that borrowing was becoming unsustainable (NYTimes). That Portugal needs to be bailed out is evident, and in fact that step has been anticipated for some time now. Earlier in the year there were some hopes that China may be able to help Portugal, but it would seem that this was not enough. Portugal of course is not alone in its current crisis. Last May 80 Billion Euros were approved for Greece by the EU with additional 30 Billion Euro from the international monetary fund. In November Ireland had 85 billion approved for its own bailout. The exact amount to bailout Portugal is estimated between 75 billion Euros and 110 billion Euros – with 80 Billion Euros approved for three years. The crisis in Portugal is complex in the fact that the prime minister resigned last week (country going to general election in June after an election in January this year), a record high rate of un-employment and an economy that according to the national bank is going to contract this year. In Ireland the interest was kept high for the bailout as the government refused to raise its corporate tax percentage. What will be the price for this help in Portugal? This request for help constitutes a clear admittance of failure to navigate the national economy towards a safe haven. For those who had hopes that the government will save them, find them work, protect their interests and make the economy grow, that dream is over. It is now up to the Council of finance ministries to show that the eurozone can protect the unified monetary unit. As some experts argue the bailout deal offered by the EU is a heavy burden for many years and assures low economic growth rates and slow recovery. It is claimed that the poor are helping bailout the assisting banks – paying in future taxes and reduced economic growth to save the banks (external banks mostly) from losses at this point. There are two questions that are normally asked in such events: 1. How did this happen (sometimes phrased as "who is to blame?") 2. What can now be done to get out of this mess As an outsider, the first question holds no interest whatsoever, and therefore I would rather focus on the second question. This can be viewed as Portugal's finest hour. This is the time for the individuals in the country to get up and take action. It is well that the EU will probably assist in bailing out, but it is up to the people – more than the government, to see that the situation turns out for the good in the end. This should not be a narrow escape, but rather a step towards a much brighter future. When asked on several occasions: What is the secret behind Israeli Innovation? I used to answer: "the background of No-Alternative". The Portuguese people need to realize that one cannot expect others to bail it out, and that it is up to them to find ways, each one in his / her small way. This is the time to come up and: 1. On individual level take responsibility for one owns economic situation, without expecting others to provide for you. If you do not have a job thinks of ways to create jobs. Start your own business; cooperate with others who may be able to help and to be helped. 2. On national level – use the funds that will be coming in once the debt are being paid, and divert as much as can be towards the creation of tools that will allow anyone following number 1 above to do so. Use this opportunity to foster innovation and entrepreneurship. To create opportunities for small businesses to survive and grow. Create monetary tools, legal environment and general attitude that encourage such actions – via education, approach etc. 3. On international level – assure that the work the local citizens do, is not wasted on paying back loans at extortionist rates with internal prices of increased taxation leading to reduced growth. Demand to see the threatening inflation that requires higher interest rates – you are foreseeing a retracting economy, where is the inflation? To all that think that these are just slogans, or that this cannot be done, please look at Israel as an example. Insolated on the other side of the Mediterranean Sea, Israel managed to create opportunities for venture capital, for start-ups and technology parks, to increase the rate of technology transfer to industry and more. In the late 1980's Israel was not much different than Portugal (except for the crisis) is today. It was much worse, it had just come out from a huge inflation, had problems exporting its goods (mainly agro production) and had no venture capital, no technology incubators no start-up support mechanisms. It did have a good education system – and no other choice. Today, Portugal can benefit from its EU connection and learn from other EU best practices per each tool it chooses to develop. In a way the relative small size of Portugal is its main advantage. It is easier to make big changes in a smaller country than in a big one. It is up to its people, its real treasure, to show their true metal.

Digital Books – where are they going?

Recently it has been published that McGraw-Hill a major publisher of academic textbooks has invested in Inkling intending to use the platform for sale of its own publications.
The deal itself is not the issue of this post, but rather a small announcement regarding the way that inkling operates. They publish interactive text books that incorporate audio and video with the written text.
In my view this is the real meaning of electronic or digital books. The multi-media approach to publishing. This way finally the medium will allow the full use of its capacities for writers, to express themselves, and for learners in the case of textbooks to enjoy the full potential it carries in their studies. If you study music you no longer have to listen to it on one device and read the analysis separately, but you can do it at the same time, and the book (text) can refer to the piece while it is being played. If you study physics you can have a video explaining a specific action with motion while relating to the text of the book. Add the ability to add notes and markings and you have the perfect teaching tool.
Two weeks ago I received notice from my publisher that my book will be rendered by them in electronic format as they see the electronic format as complementing the hard copy. If I had known when I started writing my book that what Inkling is offering would be possible – I would have written a different book.
How will this affect fiction writing?????

Secondary effects of Middle East revolutions

I do not intend to analyze the political or "justice" side of Middle East revolutions going on now in the region. The questions such as: Was this the right time to do them? Will the new regimes be better first to the people who helped raise them, and second for the rest of the world? Are in my opinion best left for History to answer.
But we cannot ignore the fact that these events happen in the worlds richest in oil regions and that while up until now the revenues and the flow regimes of the oil operated in a known and relatively predictable way.
Whether the new regimes (political and profit distribution) will stop the flow of oil, or just raise the prices, the deviation from the known methods and systems will cause uncertainty. In the short term that will lead to increased costs, but in the long term to the creation of emergency reservoirs, and therefore for a long term (if smaller) increase in prices.
The increased cost of this precious resource will not stop at increased travel costs in the developed economies. Worse than that, the secondary effect will be an increase in food prices (oil is important resource in food production and transportation) in all economies and especially in the less developed ones. As food riots (see Jordan five years ago) as a result of food prices increase, can lead to further impoverishment of these economies, combined with a tendency of revolution we may see that phenomena spreading to other regions in the world. In the movie "Under Siege" the terrorist leading the attack speaks of the term revolution as a process not a step. It continuously revolves. We may witness the embodiment of that statement.

Nokia Downsizing

Nokia and Microsoft coming together worry the Finnish unions as well as the government. The relatively large impact of Nokia in the Finnish economy and the potential negative impact any policy change in the company may have on the economy has worried the government for several years. The downsizing expected (size not known yet-introduce link here) of even 10% only of the 20,000 employees the firm has in Finland could mean 2,000 new job seekers on the market at one go. For a relatively small country to absorb such a rush of people would take time and some effort.
In Israel there have been talks that the economy needs some international local giants. However it is important to remember that once such giants are created, any strategic change, whether in response to market changes, technology shift, emergence of new markets, mergers and Acquisitions, could lead to massive lay-offs and thus to economic and social crisis.
Medium size companies "well entrenched" in the local economy with a view towards export would seem to have a better chance of stabilizing the economy. They can increase production, or retract with marginal over-all effect on the economy. Even if purchased or merged into others they will lay-off smaller numbers of employees that the sectors will absorb faster than large numbers. If such firms are dispersed over diversified sectors they will also reduce the national economy sensitivity to international market changes.
A variety of firms with 50-200 Million $ in sales will enable a stable economy that can deal with changes in international markets, provide employment on reliable basis and one that is less sensitive to the changes in any single firm.
Finland has been trying for several years to encourage the growth mechanisms of small companies so that they could grow into medium size players- so far with limited success. The change in Nokia will create a crisis in the Finnish economy, hopefully not too sever. It could also be the break that Finland needs from the decisive role Nokia plays in its economy. Unfortunately due to the trouble it is having with its southern parts the EU will probably be able to assist Finland only in a limited way.

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…….

Wikipedia and the moral issue

At the beginning of 2011 Wikipedia published (thank you letter) the results of its annual public fundraising (16 million US$). Unlike other internet service rendering - entities raising funds from public or private organizations via equity issue, Wikipedia raised funds from DONATIONS from the public. The only return the public received was the continued function of Wikipedia without commercials, or other forms of commercialization.
This may not seem innovative. Many non for profit organizations, operating for public benefit raise funds from donations (e.g. Rotary Bat-Hefer) at Gala events, active fund raising from donations, second hand sales raffles or even a direct approach for donations (anti cancer and similar).
However, a closer examination will revel some differences. The other organizations mentioned above and their donations are normally raised on a local or maximum national level per event, by active if not personal and evident physical approach. Furthermore they are targeted towards a specific local target community with specific interest. Wikipedia approached the entire world, raised its funds entirely on the web without physical approach, and allowed the whole world to join in. This is global fund raising on the net.
While so far we compared Wikipedia to non-for profit local organizations, another approach would be to compare it to other web-based service providers. As such Wikipedia could collect some payment for its services. True, as it also feeds on the input of its users the business model would need to take it into account. Potentially giving credit for writing as well as charging for getting information from it, even creating a scaled model based on the uploaded content extent and quality. Another possibility would have been to get funding by allowing commercials on its pages. This option would have allowed Wikipedia to generate real income that is not based on the good will of the public, rather it is based on the usage of the service. This would have made the founders of Wikipedia rich – see what is happening to successful social networks owners.
Social networks also use content provided by the users, the connections made by the users' sub-groups and classifications. The networks provide a public service, but unlike Wikipedia it comes with a price tag – the commercials, and other commercialization sections (e.g. paid games). This commercial activity gave the networks their market value and allowed its owners/operators to get rich.
Do we see an ethical dilemma between the two models of operation? It would seem that there should not be any problem by giving a free service to the public, and fund the infrastructure and operation by commercials (this has been going on in commercial TV for years). Do we consider a non-for –profit organization raising funds by donations from the public as more ethical than an organization not charging for the service but getting funded by commercials?
Is our response based on the vast economic value of the social networks? The power they exert over our live? Do we fear that just by being business oriented and representing vast capital and power that they may be open to abuse?
Are non-for-profit public donation fund raising organizations more moral? Can we be more trusting regarding their intentions?
We live in a capitalist world, driven by economic considerations, feeling confident that the "market forces" can assure proper service, long term quality. Do we not feel that there is a contradiction between that trust and questioning the morality of profit oriented bodies while feeling confident regarding the morals of non-for-profit organizations?
As mentioned in the opening to this blog the purpose here is to raise questions – answering them is another matter entirely.

Hidden in the Open

With the increased usage of the web and web related tools for business applications the issue of security becomes ever more important.
There are several dangers for users. One is that their strategic assets be stolen or used by accidental thieves those that do not seek them specifically, but are looking for something to steal.
The other, harder to protect against danger, is the thieves that are looking specifically for the user or his information.

There are many software options, and more are being developed to help code, or protect the strategic knowledge. There is of course an evolutionary process here, in which the protectors and the thieves are competing and becoming more sophisticated over time.
These solutions, especially the more sophisticated ones are not free, and the cost could be an important parameter in decision making.

One of ancient strategies to protect assets was to hide them. If you can hide the asset it is harder to steel it. In any case, it will be a useful protection against the accidental thieves, they will not see it, so they will move to another potential victim, without knowing that there may be something to steal.

But how can you hide things effectively in to-days world? And how can you retrieve it back again?

Consider this (at your own risk):

It was Allen Edgar Poe who suggested, and later Sherlock Holmes used it to, to hide things in the open – the important letter left open on the table in full view of anyone, while the seekers ransacked the room but could not find it.
What is the equivalent of that in the electronic world?

At least for short or very short periods, you can hide it in the net. In full view of anyone, trusting the huge amount of data to hide you.

In order to do that, one must avoid the search engines. In fact if you want to do it well all you have to do, is look at one of the guides for doing business on the net, and avoid the marketing tips – do not use tags, do not try and get links into hubs or popular sites, avoid site names that are easy to remember etc. (in fact, after trying to promote my website – it would seem that hiding can be done without effort).

So, sharing confidential info for a while (a meeting, short project etc.) can be done on such dark site, that the search engines would not find, and would not catalogue, leaving you covered, unless someone knows the exact address.

Well Hidden in the Open

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.