Israel is praised as a world-class success story thanks to its high-tech industry. Israel's technology exports account for half of its industrial exports. This is a world record. The book, "Israel - The Startup Nation", which tells the story of Israeli high tech, has sold more than seven million copies, and has been translated into 30 languages. Countries from all over the world send delegations to Israel to learn about the innovation, daring, chutzpah, and other characteristics of the Israeli entrepreneur.
They also diligently study and replicate the unique models for extended and successful collaboration between Israel's government and business-technology sector. This collaboration includes the activity of the Chief Scientist and the incubators, the Yozma program, which led to the establishment of venture capital funds (or maybe "venture chance"), and liberal policies for the commercial use of know-how developed in the defense establishment and the universities, and the tax breaks for foreign investors in Israeli high tech.
Many clouds
Despite the tremendous success, there are many clouds which portend real problems for continued growth. Financing sources for the industry are shrinking, and companies are struggling to raise capital. Start-ups are sold at early stages instead of creating big companies, which would bring stability and jobs. The manpower reserve is not just stagnating, it is liable to shrink as the engineers who came to the country in the waves of immigration from Russia retire. We have not yet dealt with the competition from China and India.
Growth of the innovation industry is critical for the continued growth of the Israeli economy. How can we do this?
The Israel Advanced Technology Industries (IATI) has drawn up a number of ideas the implementation of which should support further growth of the Israeli wonder story. IATI represents start-ups, medical devices and biotechnology companies, the development centers of multinationals such as IBM, Google, and Microsoft, Israeli and foreign venture capital funds, universities' technology transfer companies, incubators, technology accelerators, law and accounting firms, patent lawyers, international services companies, commercial and investment banks, and more.
Financing the high-tech industry requires investment to grow. More than 75% of venture capital investment in Israel is made by foreign funds and investors. They believe that Israel is an excellent investment target. Profits from the investments are sent back overseas. In contrast to the situation in the US, where most of the money for investment in high tech comes from pension funds, insurance companies, and other investment institutions, the corresponding entities in Israel invest little in high tech.
Israeli pension and provident funds have about NIS 1 trillion in assets under management. It is enough to allocate 1-2% of this amount for investment in the technology sector to create a huge boost. By the way, most of the investment turns into salaries for the funds' members. The government will have to establish some kind of partial safety net for investment, as it has already done in various programs, but there will be no budget expenditure. The money will be invested in private early-stage companies, public companies, and venture capital funds.
The life sciences industry: We should set the strategic target of opening a development center of a leading pharmaceutical or medical devices company in Israel within two years. Israel has outstanding personnel with broad academic skills for whom there are not enough good jobs. The international development center will become an anchor for Israel's life sciences industry, just as the international electronics and software development center did 20 years ago. The life sciences have special importance because of the high proportion of women who work in it.
Chief Scientist's budget: The Chief Scientist's budget is an important part of the collaboration between government and private investment. The Chief Scientist's budget has been cut in recent years, and its share of the state budget is now half of what it was ten years ago. The budget should be increased, with a renewed review of the principles for allocation to companies. For example, it is worthwhile providing relatively larger budgets to companies that create more jobs among subcontractors and suppliers, which will contribute more to the economy than companies which channel most of their budgets internally.
Employment of haredim (ultra-orthodox) and Arabs: Few people know about current activity in Israel to bring new groups into high tech. Progress in the endeavor has been impressive and should be strengthened, mainly by creating meetings between the parties involved and technology companies' development and human resources managers. We must show them the possibilities and success stories, such as Galil Software Ltd., which employs more than 200 Arabs, and software companies which employ haredi in Modi'in and Elad.
Strengthen technology education
Strengthen the ties between academe and industry: One of the main reasons for the excellence of Israeli high tech is the current quality of research at the universities and research institutes. We must strengthen the ties between high-tech industry and academe, for both the good of academe to work more in basic research and for the good of industry, which will benefit from academic research.
Strengthen technology education in Israel: The number of graduates in technology professions important to the high-tech industry has been steadily declining for years. We must strengthen technology education at every level, both academic subjects at schools, and subjects such as computer engineering at universities. The government should also bring back Israel's scientists from the four corners of the world and create a serious research infrastructure for them.
Conclusion: The Israeli technology world must prepare for the next leap forward. Combining the forces of industry, government investment institutions, academe, NPOs, and IATI will achieve continued growth that is critical for the economy and for our continued success as an example to the world.
The author is a partner in Aviv Venture Capital and former president of Scitex. He serves as the co-chairman of IATI.
Published by Globes [online], Israel business news - www.globes-online.com - on January 6, 2013
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