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Entrepreneurship and Government Support in Israel

Dr. Arie SADOVSKI

The Center for Organization Researchand Human Research Management

The University of Haifa

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The scope of this presentation:

What is/are…?• …a typical Israeli entrepreneur• …the sources for new entrepreneurs• …the nature of entrepreneurship challenge• …the expectations for government

assistance • …the impact that the incubator program

may have on its progeny firms

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Entrepreneurship in Israel

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Government financial assistance for new entrepreneurs

67(1.9%)

55(1.7%)

57(1.5%)

Budget For SME

NIS Thousands

3.53.33.8Total budget for all sectors

NIS Billions

200220012000

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The budget for newentrepreneurship (OCS)

8.58Research Instit.

4.5) 0.25%(4) 0.2%(Entrepreneurship

2117Β sites133) 7.3%(129) 7%(Incubators301272Generic tech.

1,3471,363Industrial R&D1,8161,795Total

Planned2001

Implemented2000

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Expenditures on Civilian R&D OECD Countries

3.6 3.5

3.1 3.02.7

2.4 2.3 2.32.0 2.0 2.0 1.9 1.8

1.6 1.6 1.61.4 1.4

1.2 1.1 1.0 0.90.6 0.5

0

0.5

1

1.5

2

2.5

3

3.5

4

Israel

Sweden

Finland

Japan

Switzerland

S. Korea

Germ

any

U.S.A

.

Netherland

France

Denm

ark

Iceland

Belgium

U.K

.

Canada

Norw

ay

Australia

Ireland

Czech R

.

New

Zealand

Italy

Spain

Portugal

Greece

% G

DP

From: CBS

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From: Manufacturers Association 2001

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Research findings

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Typical Israeli start-up

• Age: Mean =3.5; S.D.=2.2

• Sales: Only 29% of the respondents• R&D is a major expenditure item: 56% of

respondents spend 50% or more of the income; and on the average 74%.

• Industrial branch distribution; 84% are classified in eight sectors - next slide

• In 67% of the respondents’ original entrepreneurs are still in the lead.

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Industrial sectors classificationEight major sectors:

• Communication hardware 20%• Software for internet 17.5%• Med. Electronic devices 10.5%• Software for communication 7%• Biotechnology (ex. Pharma) 7%• Computers, semiconductors & compo 4.9%• Optical instruments incld. communi. 4.9%

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The entrepreneurs

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Entrepreneurs’ profile

• Teams’ work; the mean partners number :2.6 S.D.=1.4 , 1 - 15%, 2 – 40%, 3+ - 30%

• Education; formal degrees distribution in companies:Ph.D. =47%, M.S. =44%, B.Sc. = 51%, Vocational Eng. =6% Non = 8%

• Age; distribution in founders’ population:24-33=24%, 34-43=26%, 44-53=33%, 54-65= 15%, 66+=6%

• Gender; distribution in companies and founders’population:19 women in 15 companies, 330 men

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Table 3: Founders' Training Disciplines

Founders' Training

Disciplines

Companies*

Number Percent

Engineering 64 44.8

MBA 24 16.8

Exact / Computer Science 77 53.9

Management/Economic 21 14.7

Life Science 26 18.2

* Multiple responses per company were given. N=143.

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Previous occupation of founders

Occupation Companies

Number Percent

Unemployed 2 6

Student 9 1.4

Academia, Research Inst. 24 17

Industry 108 75.5

Total respondents 143 100

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Table 5: Working Environment and Birthplace of the New

Enterprise

Working

Environment

Companies

Frequency Percent

Academic institution 23 19.5

High tech industry 73 61.9

Academic + high tech 4 3.4

Low tech industry 18 15.3

Total respondents 118 100

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Table 7: Previous Industrial Positions of Founders

Position *Responses Number

Percent of total

Manager 78 49.0 R&D

Staff 31 19.5

Manager 10 6.3 Production

Staff 1 0.6

Manager 33 20.8 Marketing

/sales Staff 6 3.8

Total responses 159 *Multiple responses per company were given

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The financial sources

18

Financial sources

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Fund raising roundsMean rounds number 2.2 S.D. 1.2

Distribution of amounts that were raised:

12% 14% 19% 18%7% 12% 11%

2% 6%

4% 5%

11%4%

14%

26%

8%14%

15%4% 2%

4%

4% 8%

19%

13% 15%

31%

<0.05 0.05-0.15 0.15-0.3 0.31-0.6 0.6-1 1.1-2 2.1-3 3.1-5 5.1+$ M

Round1 Round 2 Round 3

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The entrepreneurship challengeWhat are the major difficulties ?

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Expectation for assistance- % of respondents

4945

4437

3226

2422

1919

1717

1613

77

1

58Fund raisingConnecting international collaborators

MarketingConnection to funding sources

Networking with strategic collaboratorsProtection of IPR

Training of existing personnelInfo-marketand/ technology trends

Sources for technical informationObtaining office facility

Recruiting of professional staffManagement matters

Networkingwith other firmsStrategy issues

Legal mattersNetworking with suppliers

Networking with professional individuls Others

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Activities, difficulty indices and expectations for assistance I

Difficulty

index

Activity

Mean S.D.

Expectation

for assistance % of total comp.

Fund raising 4.2 0.94 58

Connections with international collaborators 3.3 1.01 49

Marketing 3.8 1.02 45

Connections to funding sources 2.9 1.15 44

Networking with strategic collaborators 3.5 1.10 37

Protection of IPR 2.8 1.16 32

Training of existing personnel 1.8 0.83 26

Info-market/technology development trends 2.4 1.13 24

Sources for technical information 2.0 0.91 22

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Activities, difficulty indices and expectations for assistance II

Difficulty

index

Activity

Mean S.D.

Expectation

for assistance

% of total comp.

Obtaining office facility 1.8 1.02 19

Recruiting of professional staff 3.2 1.13 19

Management issues 2.2 0.97 17

Networking with other firms 2.5 1.03 17

Strategy issues 2.5 1.0 16

Legal issues 2.1 0.96 13

Networking with suppliers 1.9 0.97 7

Networking - individuals on

professional issues

2.4 0.96 7

Others 3.0 1.73 1

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Intermittent conclusions

• Venture capital funds and “angels” are the most important sources for investment funds

• The major difficulties:– Fund raising– Establishment of business contacts: strategic partners and

marketing– Protection & management of IPR

• The most meaningful government assistance:– Promoting the establishment of VC funds through the

Yozma program

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Are incubator companies different in their development pattern?

What impact has the incubator program on its progeny firms?

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Are incubator companies similar to the other respondents ?

11.9 S.D.=11.7Incubator companies

T(133)= 4.6 P<0.0001

*22 incubator companies out of 143

39.9 S.D.=58.8Sample companies

Company* size(Mean number of employees)

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Are incubator companies similar to the other

respondents ?Table 10. Incubators graduates and sample companies - Sales

revenues -2000 *

Sample companies

(% of total)

Incubator-graduate companies

(% of total)

Sales, $

52 63 No sales

22 37 100k-1M

26 0 >1M

*19 Incubator-graduate companies were compared to 110 Sample companies.

** χ (2) = 6.9204, P< 0.0314

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Are incubator companies similar to the other respondents ?

Table 11: Previous occupation of the founders

% of total Industry Academic

and Research

Institution

Other

Total Number

of Companies

Incubator-graduates

41 36

23 22

Sample companies

78 12 10 98

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Entrepreneurs’ formal education-

Start-ups and incubator companies

תוממחב םימזי לע םינותנה רוקמ : לקנרפו רפש2002

תוממחב םימזיה ינותנל רוקמה : לקנרפו רפש2002

4

63

0

21

11

2

6

47

10

44

51

8

Vocational eng.

Ph.D.

Military program

Master’s degree

Bachelor’s degree

Non-academic

Incubator comp. Start-ups Companies

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Industrial sectors affiliation – Start-ups and incubator companies

2002 ƒ–»—ÕΩ —Õ“ :º∆∆øº ”Ω— ø ¡»Ω”»ƒ —Ω–∆º

6.3

8.2

8.7

9.1

10.1

11.5

12.5

12.5

21.2

42.1

25.7

7.1

0.7

0

3.6

2.9

7.1

10.7

Software

HW- Communication &elect. compo.

Optical and precision equipment

Pharmaceuticals

Energy and ecology

Mechanical engin. & industrial autom.

Chemicals and new materials

Biotechnology (excluding drugs)

Medical equipment

Sample companiesIncubator companies

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Conclusions:

• Industrial background and experience enforce the creation of successful enterprises

• Investment s in R&D promote an “R&D culture” that becomes a breeding ground for entrepreneurs and entrepreneurial ideas

• The incubators program provides a “ balancing” measure to concentrating in few market trendy industrial sectors

• The involvement of “angels” and other individuals in funding the surge of establishing start-upsneeds to be evaluated

End