Two thirds of high-tech incubator companies failed

Two thirds of the seedling high-tech companies nurtured by Israel's technology incubators program have closed down, only 61% managed to raise investment, and the firms are defaulting on state loans granted to them, the director of the program Yossi Smoler revealed yesterday for the first time. Which begs the question: Is the program a failure or a success?

Smoler presented the figures before the Knesset finance subcommittee for promoting and assisting high-tech technology, which convened to discuss the technology incubators. The state invests some NIS 180 million in the incubator program annually, in 26 centers operating throughout the country - 23 of which are technological incubators, one is dedicated to bio-technology and two to technology-based industry.

According to figures on the period between 1993 and 2009, 444 of 1,209 companies established through the program (37%) are still in operation, 55% continued to operate for less than three years, and just 26% have managed to survive for at least ten years.

Smoler also revealed new data about companies that operated within the technology incubators between July 2006 and June 2009: 100 firms "graduated" from the incubators, only 100 managed to raise at least $500,000 and a mere 2% of the graduates have raised $20 million or more.

Not only are fledgling companies having a hard time raising investment and being forced to shut down, venture capital funds are currently more focused mainly on reinvestment in their current portfolio companies. Investment in new companies is primarily directed toward more developed businesses, which present a lower risk, Smoler reports.

One solution that Smoler proposes is to extend the incubation period until the end of 2010, which could be implemented quickly, at the cost of about NIS 30 million. Other solutions that have been suggested include establishing a private fund with state leveraging, offering incentives for venture capital investment in seed companies, and establishing industrial incubators as a kind of "second-stage incubators."

MK Robert Ilatov of Yisrael Beiteinu requested detailed figures on loan repayments, and especially since privatization of the incubators in 2002. "This is the first such debate on the issue of technological incubators, and an important one, involving hundreds of millions of shekels of taxpayers' money. There is no doubt that the incubator model is an excellent one, and unique on the global stage, but the relevance of the criteria for their operation should be reassessed in light of the global economic crisis," he said.