Int'l cos bid in new incubators tender

The Technology Incubator Program will publish the results of its tender for the selection of incubators' new franchisees in nine days. Sources close to potential franchisees believe that participation in the tender was very strong, and that there was competition for most of the incubators.

The incubators in the tender are Ofakim Hi-Tech Ventures and Meytag Technology Incubator in Katzrin, currently owned by Capital Point Ltd. (TASE:CPTP); Incentive Technological Incubator in Ariel, currently owned by Peregrine Ventures; New Generation Technology (NGT) in Nazareth, currently owned by a group of Jewish and Arab investors; and the former Technion incubator, which was operated by a group of venture capital funds.

The winners will receive the right to operate an incubator with government support, but the incubator's assets - the holdings in current projects and former portfolio companies - will be retained by the incubator's previous franchisees.

The quality of the participants in the tender may contain a pleasant surprise, as they reportedly include several strong Israeli companies as well as the funds of multinational corporations. Some of the bids are joint bids by Israeli and foreign corporate funds.

At the start of the tender, there were doubts about the quality of the participants, since most of the current incubator franchisees have not profited from the model, and some voluntarily gave up their franchise and struggled to find buyers or alternative managers.

The Technology Incubators Program, under director Dr. Yossi Smoler, amended the incubator model to lower the bureaucratic barriers about which incubator franchisees had complaints. But the most important new factor, which made the incubators attractive, was the drop in capital available for seed investment from other sources, such as venture capital funds and angel investors, due to the ongoing economic crisis.

There has also been a change in the incubators of business, with some incubators switching from a focus on medical devices projects to Internet and new media. In the past, Internet entrepreneurs had many alternative sources of investment, but new ventures are starved for initial funding. Meanwhile, the time to market for medical devices has become longer and more expensive, rendering them less suitable for technology incubators.

The problem with the incubator model was, and is, follow-on investment, which is critical to prevent the dilution of an incubator's stakes in its portfolio companies. It seems that an investor that wants to successfully use an incubator will have to set up a fund that will make separate investments in graduate companies. An example of this model is Peregrine Ventures and the Incentive Technological Incubator.

Published by Globes [online], Israel business news - www.globes-online.com - on July 19, 2012