Israel is one of the most significant hub of innovation and technology in the world thanks to the conscious and strategy driven ecosystem development of the last 20 years.  Israel is the role model how to use the results of the research institutions for business purposes in order to create high growing potential startups. The change is dramatic: Israel have had only the military industry and some other players of the pharmaceutical industry 20 years ago.

The current situation in Israel:

  • 50% of the export revenue is based on the own research findings and the high tech industries nowadays
  • The high tech industry has attracted more Venture Capital investment around 2005 than the whole EU in Israel .
  • There are more than 60 seed funds in the market
  • The high tech companies attracting 1,5-2 billion dollars investment yearly (even during the crisis it hit the 1 billion in 2009)
  • More than 100 tech companies have been traded on the NYSE
  • State programs for the seed investments are pretty successful with outstanding revenue, attracting foreign capital and creating jobs)

What is behind the success of Israel?

  • The optimal combination of State driven programs and private economy in creating startups
  • Effective cooperation of privatized incubators and VCs
  • State funding for the startups (if the incubator invest in them the leverage is 1:5)
  • Strict filtering processes
  • The incubators are motivated to make the ventures successful and help them to find next round investors

These principles could solve the problem of lack of new ventures and could help develop international recognised and successful companies. The current incubators are focusing on basic services (telephone, internet, legal advisory and accountancy) and providing office instead of  professional advisory or coaching. There is also a need for early stage VCs and international VC investmens. Hungary has a lack of global R&D experience and startup expertise.

 

What should be the action steps?

  • Private incubators with strict entry conditions  (international expertise and relevant expertise or track record)
  • The selection process of the startups should be made by the incubators but 80-85% of the funding should be provided by the state in order to minimize the risk
  • Real technological innovations and International growing potentials should be prioritized
    The incubators should have 30-35% stake in the startup in order to use the state funds cost efficiently and rationally
  • Strong collaboration with universities and research institutions
  • Fine tuning the legal environment (legislations and definitions)

 

(Source: dr. Marta Turi’s and Laszlo Koranyi’s working paper about the situation of early stage startups in Israel and how to adapt that best practices in Hungary)

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