There are many reasons for the unique success of Israel’s high tech industry. Surprisingly, despite some possibly justified complaints about its over-involvement, the Israeli Government has been a major enabler of the country’s stunning achievements, having made critical (and rather bold) decisions early on that created the structure for encouraging and backing large numbers of projects, and turning ideas into marketable products.
The establishment of the Office of the Chief Scientist, the Israel Export Institute, and Israel’s Venture Capital infrastructure can be credited to the foresight and determination of Israel’s government.
The Office of the Chief Scientist (OCS), part of the Ministry of Industry, Trade, and Labor, was created in the early 1970’s to encourage and support R&D-based export-oriented industries – with the goal of driving economic growth, and fostering innovation and entrepreneurship – especially among high tech startup companies. Leveraging the country’s considerable human resources in the areas of science and technology – as well as its well-developed academic and technological infrastructure – the OCS managed to convert these assets into a significant competitive advantage on the world stage. The Chief Scientist’s emphasis was originally centered on technological innovation, but experienced an important transformation in the early 80’s, shifting the emphasis to product marketability.
The OCS mandate is based on the 1984 Law for the Encouragement of Industrial Research and Development, whose revised version allows the transfer of know-how and manufacturing rights abroad, under certain very strict conditions. Through the OCS, Israel has signed a number of crucial international cooperation agreements and participates in various joint funds that encourage industrial R&D between Israeli and overseas partners.
The government’s policies, together with OCS activities, have created an ecosystem that generates a wide range of interesting investment opportunities. This environment supports hundreds of foreign organizations – including many of the leading multinationals – who have set up flourishing research centers in Israel.
The powerful impact of the OCS is felt throughout the high tech sector via its multiple activities in Israel as well as its international activities. Among the Israel-focused activities are various funding programs, the technological incubator system, and support for – and close cooperation with – Israel’s world-class research institutes. The R&D Fund, with a budget of around $300 million, is open to applications from any Israeli company planning to conduct technological R&D. Grants are given as a ‘conditional loan’, i.e., the company will owe royalties only if it achieves commercial success; if it fails to commercialize, it will not be required to repay the loan. Acceptance into the program requires both technological novelty and economic justification that is expected to result in a new product or process, or significant improvement on an existing one; all fields of technology are considered, from biotech to clean tech and IT.
The Tnufa Program, a pre-seed fund, provides grants of up to 85% of approved expenses up to $50,000, with additional support including concept evaluation, assessment of market potential, and assistance with patent proposal and business plan preparation.
In answer to the influx of technologically trained Russian immigrants, the Technology Incubator Program was developed in the 1990’s, under the aegis of the Chief Scientist, with an annual budget of around $45 million. These immigrants had come with exciting ideas (which they were unable to develop in Russia), but without the resources to develop them or even a basic understanding of a market economy. Many of them, unable to find work in their fields of expertise, became street musicians and street cleaners. The goal of the incubators was to employ these immigrants, while turning technological concepts into commercial successes through a framework of support and financial aid.
From the beginning, the Incubator Program has been open to all Israeli entrepreneurs. Once accepted into this program, entrepreneurs are expected to complete development of their products and to locate required financing. Their obligation to return government loans is based on their future success. The Incubator Program provides grants of up to 85% of approved R&D expenses with a budget of $300,000 to $500,000 for two years; the entrepreneurs are responsible for raising the remainder of the funding. Currently there are 26 incubators in Israel, all of which have been privatized – with the hope that this will expand private investor involvement. A special program has been established for biotechnology incubators, which takes into consideration the sector’s unique needs, including long-term R&D requirements.
The MAGNET program, with an annual budget of ± $60 million, is tasked with developing Israel’s industrial infrastructure by supporting the R&D of generic pre-competitive technologies through assisting collaboration among academic institutions, industry, and technological user associations. Twelve of its 50 consortia are currently active, with participants developing the technological building blocks for the next generation of products. Grants are provided for up to 66 percent of the approved budget, with no royalty payments required. Two tracks administered by the MAGNET Program are of special relevance for seed funding. The MAGNETON track promotes technology transfer from academia to industry via mutual cooperation between individual companies and specific academic research programs; the recently expanded NOFAR Program bridges the gap between basic and applied research in the fields of biotechnology, nanotechnology, medical equipment, water technology, and energy storage. Considered relatively short-range activities, participants are granted up to 15 months with limited budgets of up to $150,000, where a relevant industrial company, possibly a multinational, assists financially (up to 10%) and through professional guidance. After achieving a reasonable milestone that makes sense to potential industrial partners, the supporting company is granted priority in the commercialization agreement.
The OCS has been a loyal and dedicated partner for Israeli innovators, has chalked up multiple significant successes, and deserves kudos for its ongoing role in Silicon Wadi’s legendary accomplishments.
This article was originally published with the title: Israel’s Silicon Wadi, Part 2, Office of the Chief Scientist