Accelerate - June 2014

From selling oranges to selling businesses - the Israeli perspective

open this image in new window: From selling oranges to selling businesses

In just over two decades, Israel has become a high- tech powerhouse that is now a magnet for venture capitalists and direct foreign investment.

With the greatest number of companies listed on the US stock exchange, other than North America, Israel has gained the nickname ‘Silicon Wadi’ due to its high concentration of high-tech industries.

How did a small country like Israel, far from its primary markets and with limited natural resources, become the high-tech powerhouse that it is today?

When one reviews Israel’s economic history, there are many contributing factors to its fascinating success story: US foreign aid, an influx of highly skilled immigrants and, as a result, a burgeoning workforce.

But the key factor that set Israel on its path to become one of the high-tech capitals of the world was its government’s focus on establishing and nurturing a culture of high- tech entrepreneurship through platforms such as its incubator programme.

Oren Gershtein, chief executive of Israel’s leading technology incubator for nine years and advisor to Callaghan Innovation’s Technology Incubator team, says the strategy behind Israel’s technology-focused incubator model is quite straightforward.

“Israel is in the business of exporting companies, but while we export our companies, we retain the know-how and inject cash and capability back into the ecosystem to build the next company. Our strategy is to think ‘exit’ from day one.”

Non-restrictive access to repayable grants and clear repayment criteria is an important part of its funding strategy. “If a company is successful, all repayable grants are paid back at 3% of its revenue. When a company is sold, the repayable grant is paid back in full and the entrepreneur and investor pays capital gains. If the company fails, the grant is written off and there is no restriction on accessing a grant for the next project.”

He says that the impact of technology incubators become evident in the first six to 18 months as new companies are established, new staff are employed and there is an uptake of local services. Significant incubated company successes are more likely to be seen within three to five years, depending on the industry.

Updated: 4 September 2015