ZICHRON YAAKOV, Israel - More than half of the "raw ideas" given a real chance to prove their value and potential during the two-year incubator period independently manage to attract financing in the private market, according to a study ordered by the incubator system's management.
"Two years' development time for commercialization of a raw idea is hardly a lot. Much more time and a lot more than the incubator budget grant is needed," said Rina Pridor, program director of the technological incubators run by the Office of the Chief Scientist in the Ministry of Industry and Trade.
"Our objective is to bring the projects to a status where investors are willing to invest to complete their R&D, and to reach the level of a commercial product," Pridor told BioWorld International. "The success of the program is measured by the proportion of projects that succeed in obtaining private venture capital investment.
"One must understand that most of the projects that graduated successfully would have failed and vanished without the special help provided by the incubators," she added.
Yet, of 476 projects that went through the incubator program since its inception in 1991, 285 projects, or 52 percent, went on to become independent companies, bringing in a total investment of $445 million, of which $270 million came from the private sector and $175 million from the budget of the chief scientist. The program's annual budget stands at about $30 million.
As of the end of 1998, more than 239 projects were being carried out in the incubator system. They employ 1,780 people, half of whom are immigrants, a continuation of the framework for fostering integration of the massive immigration of inventors and potential entrepreneurs from the former Soviet Union and "helping their nascent marketable ideas reach a stage to attract private funding," said Eldan Nissenbaum, marketing director of the incubator system.
"The short period of time, in start-up terms, does not enable the drawing of precise conclusions [the time to an IPO is eight to 10 years], but there are already success stories," Pridor said.
Venture capital funds invested in incubator projects include Evergreen, Inventec, Astra, BIRD, Goldstein, Gemini, Veritas, Yozma, Mofet, Star and Polaris. Companies invested include: Ipex, El-Op, Alliance, Elron, Ampal, Dovrat Shrem, Vishay Israel, Telrad, Motorola, Poalim Investments, Fairchild, RAD and Kenwood. Such entities as IDB Investments, Ofer Technologies, Discount Investments, Lidan, Clal Computers and Dow Chemical are invested in the technological incubators themselves. The overall sum of commercial investments tops $180 million.
"This is the best proof of all that the program is both needed and successful," Pridor said.
Chief Scientist Orna Berry said there is no justification to cut the technological incubators budget, but an inspection process is being done with the objective to merge together some incubators "to focus and make more efficient their capabilities."
Berry cited the report, covering the period from 1991 to July of this year, that demonstrated the program's "high rate of success compared with a similar program in the United States which has a 10 percent success rate."
She is a staunch supporter of high-tech investment, especially in biotechnology, noting that annual high-tech exports are predicted to double from $7 billion to $14 billion by 2000.
Recently, the American company Becton, Dickinson signed a contract to become the exclusive marketer of a precision thermometer that measures changes in heat flow to detect cancerous growths. The contract calls for at least $2 million in each of the next three years and a $1 million advance. The company is already marketing two other incubator projects.
"High-tech and especially medical initiatives are very risky and at the phase of business development [that] commercial money does not take this kind of risk," Pridor said. "There are still the hard approvals process, the clinical trials and regulatory agencies, such as FDA, and these require an abundance of time and money."
Finance Ministry Expected To Support Start-Ups
How such seed support fits into the overall picture of R&D support is still under discussion. Finance Minster Avraham Shochat appears open to the industry point of view and gave no indication of lessening support for early-stage companies.
"Everyone there supported the start-ups," Zachi Berger, chairman of the Israel Biotechnology Organization (IBO), told BioWorld International. "The decision was that the government will not make any change in the interest rate without further thinking and input from all industry sectors.
"The Finance Ministry is open to appoint a joint team of the government and wide industry representatives to change the R&D law and correct it to fit the needs of the 21st century," said Berger who also is chief operating officer of XTL Biopharmaceuticals Ltd. in Rehovot.
"Minister of Industry and Trade Ran Cohen said that he will fight to increase the CSO budget and change the law," Berger said. "In the two critical meetings everybody supported the start-ups - including Zohar Zisapel [who is chairman of the Electronics Industry Association, and not co-director of IBO, as mistakenly reported earlier] and Elisha Yannai [managing director of Motorola Communications-Israel] - but they claimed that the big companies also need support for their R&D in order to remain competitive in the global market. So, the message should be that no start-up will be hurt, and that it seems that the new government will support increasing the budget and changing the law to support Israeli start-ups."