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July 29, 2004 – The Israeli Government Incubator Program is in its 13th year. Instrumental in creating the grassroots of Israel’s high-tech industry, the program has promoted many micro and some nano startups such as NanoPass and NutraLease. Still, the Incubator Program is in danger of winding down.
Current budgetary cuts threaten to slash the annual budget of the Office of the Chief Scientist (OCS) to almost half of what it was some years ago. Two years ago the Incubator Program had a budget of nearly $40 million, while this year its budget is set to fall to $18 million or less.
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Rina Pridor, managing director of the Incubator Program, told Small Times it would “be impossible to operate within that budget. I am afraid that in 2004 we will find it very difficult to finance new projects.”
Government Chief Scientist Eli Ofer said he too was worried that the program would not be able to meet its commitments because of cuts in the budget.
“In its 13 years of existence the Incubator Program has accepted over 800 startups, of which some 40 percent have found later-stage outside financing. In 2003 we accepted 85 new startups, and in 2004 we had plans to accept 100,” said Ofer.
“Because of the planned budget cuts we will only be able to accept a handful and this will effectively make the program meaningless.”
Yossi Venitzki, managing partner of the Challenge VC Fund, said, “From its beginnings the Incubator Program has financed novel technologies whose commercial feasibility were, well, doubtful at that time. If its activities are curtailed, it will harm the development of cutting-edge technologies, such as nanotechnology projects.”
According to Zeev Holtzman, managing partner of Giza, one of the countries largest VC funds, the development of micro and nanotech will not be the only technology sectors to be harmed, the whole framework of Israel’s high-tech industry may be irretrievably damaged.
“The high-tech industry in Israel is revolving in nature,” said Holtzman.
“Fledging startups receive funding from government-backed programs, such as the Incubator Program, after two years they mature and receive funding from VC funds. And after a period most of those are successful and are either sold to overseas interests or develop by themselves,” explained Holtzman.
“If there is no Incubator Program the number of new startups will be miniscule, the grassroots will dry out.”
Indeed the Incubator Program has been a prime mover of startups developing micro technologies in various fields such as IT and telecom, biotech, medical devices and more.
“Micro technologies companies, and especially nano startups, need a sheltered environment in which to develop. It is very difficult in most cases to judge their commercial viability and consequently they can only find funding in a program such as ours,” said Zohar Gandler the managing director of the TEIC Incubator in Haifa.
TEIC has promoted quite a number of micro technologies such as Tehuti’s network traffic accelerator and GeneCraft’s novel therapy for atrial fibrillation.
Lihu Ahituv, general manager of Naiot Incubator, agreed that cutting the budget of the Incubator Program would deal a big blow to the creation of future startups.
“In these times it is nearly the only source of finance for startups,” said Ahituv.
If budgetary constraints will affect the level of operations of the Incubator Program, then the number of Israeli startups will fall significantly.
So why kill the goose that lays the golden eggs?
Why indeed.
“It is the policy of this administration to cut government spending as much as possible, and this is a policy which will be continued,” according to Yossi Gordon, deputy budget director at the ministry of finance.