Incubation in Israel: Model and Performance

1
Incubation in Israel Model and Performance
2
Extent

• 24 incubators
• About 10 projects per incubator Typically
  between 8-12 projects
• Grant of 175000 per year for up two years.
  After two years a firm graduates
• Up to 85 of the approved project budget
• Budget half a million per incubator. 40 by the
  government

3
The Incubator Finance Sources

• Government (OSC) 38
• Projects payments for services 14
• Royalties, Shares and dividends 24.5
• Strategic Partners 20.5
• Local Authorities 3

4
Entrepreneurs

• Education Degree
• 63 Doctors (MD or PhD)
• 21 MA
• 11 BA
• Area of Education
• Engineering 40
• Life Sciences 38
• More than 2/3 from either the academia or from
  RD department in the Industry

5
Project Areas

• Biotechnology 15.5
• Drugs 11
• Medical instruments 15.5
• Chemicals and new materials 11
• Mechanical Engineering 14
• Optical and exact Instrumens 7
• Energy and Ecology 11
• Computer hardware and software 15

6
Steering Committee on Technological Incubators

• The Chief Scientist (OSC) of the Ministry of
  Industry and Trade Chairman
• Public representatives from high-tech industry
• Representatives of the incubator "graduates"
• The Director for Technological Incubators
  Office of the Chief Scientist, Ministry of
  Industry and. Trade.

7
Incubator Legal Role

• Because the State provides most of the budget
  during a project's incubator phase, it holds the
  management of the incubator responsible for sound
  and efficient professional operation of each
  project in the incubator, including budget
  management and commercialization of the product
  being developed.
• The incubator management is the State's trustee
  in running the incubator projects.

8
Incubator Functions

• 1. Assistance in determining the technological
  and marketing applicability of the idea and
  drawing up an RD plan 2. Assistance in
  obtaining the financial resources needed to carry
  out the project 3. Assistance in forming and
  organizing an RD team 4. Professional and
  administrative counseling, guidance, and
  supervision 5. Secretarial and administrative
  services, maintenance, procurements, accounting,
  and legal advice 6. Assistance in raising
  capital and preparing for marketing.

9
Incubator Organization

• incubator is an autonomous nonprofit corporation.
• It is run and managed by
• a professional salaried director
• a policymaking management
• a projects committee that selects and monitors
  projects.

10
Policy Making and Project Committees

• The last two governing institutions, are
  composed of professionals of the highest caliber
  from industry, business, and sciencecorporate
  and industrial executives, RD 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.

11
Incubator Selection Committee

• Membership
• The incubator manager
• Academic Experts
• Industry experts
• Businessmen and finance professionals
• Size
• 3-12 members
• In 1/3 also an ad hock committee based on the
  project specialty
• Acceptance is strictly based on full consensus

12
Project Selection Criteria

• New Product
• Export oriented
• Based on RD
• Feasible with available resources

13
Selection

• Idea Probing 100
• Submitted business plan 56
• Selection by the incubator manager 37
• Incubator Selection committee 11
• Selection by Chief Scientist committee 6
• Acceptance of project to the Incubator 5
• In a typical incubator
• 345 projects are probed and 18 accepted in 3
  years

14
Graduation

• In 99-2002
• 86 Graduation Rate
• 78 Gained independent financial support after
  graduation
• Long Term Perspective
• By the end of 2002, over 800 projects had left
  the incubators (in addition to the 240 that
  remained).
• Of these "graduates," 53 percent have continued
  on their own steam and 47 percent have been
  discontinued.
• Most of the ongoing projects have managed to
  attract private investments
• The total private investment obtained thus far
  is in excess of US 525 million

15
Ownership

• Initial ownership in the Project Company is as
  follows
• At least 50 percent the developer/entrepreneur
• At least 10 percent key staff members other than
  developers/entrepreneurs
• Up to 20 percent the provider of supplementary
  financing (i.e., additional to the State grant)
  for project implementation.
• Up to 20 percent the incubator.
• Further investment that becomes necessary in the
  future is worked out in unrestricted business
  negotiations. These investments dilute the
  original shareholders ownership in the company
  proportionately.

16
Strengths and Weaknesses

• Strengths
• Ability to accomplish technologically at a high
  standard
• Ability to learn in a sustained way technological
  developments and trends
• Weaknesses (according to incubatees)
• Identification and access to capital sources
• Marketing planning, access to international
  distribution channels and strategic partners

17
Recommendation for Improved Selection

• Increased incubator budget
• Preparing of a good well supported business plan
  before acceptance
• Evaluation of plan by larger number of experts
• Preparation of Strategic business plan for
  guiding the project from the initial stage
• Closer examination of the fitness of the
  personality of the entrepreneur