Israel lights way for tech start-ups

Oren Gershtein, an Israeli technology incubator expert, is advising Callaghan on its business model. Photo / Sarah Ivey

Government plans to replicate successful business model to set up technology incubators in New Zealand.

Israeli technology expert Oren Gershtein is a true believer in his homeland's start-up incubator programme, which New Zealand wants to replicate.

While Israel is better known for its long-running conflict with the Palestinians, the country is also a heavyweight player in the world of innovation, with the third largest number of listings on New York's tech-heavy Nasdaq stock exchange after the United States and China.

Many of the world's technology titans - including Google, Apple, Hewlett-Packard and Intel - have research and development operations in the small, Middle Eastern country.

Gershtein was chief executive of Israel's leading technology incubator, Jerusalem's Van Leer Ventures, for nine years.

He was in New Zealand this week advising Callaghan Innovation, the Government's high-tech business body, on its plan to establish up to four new private-sector-led technology incubators that are being modelled on the Israeli programme and will distribute new repayable government grants of up to $450,000 per company.

Gershtein said Israel's incubator programme - established in 1991 - had been one of the most important contributors to the success of the country's technology companies.

The Israeli Government had invested around US$600 million ($720 million) into the programme over the past 20 years, he said, and the start-ups involved had secured US$3.6 billion in foreign investment during the same period.

"The whole system is manufacturing about 100 new companies every year into the Israeli eco-system," Gershtein said. "This is something that's really significant."

He said the Israeli incubator system had benefited from its privatisation in around 2002, when private firms took over the management of the incubators.

"That took the incubators to a new level with different types of activity, which was a lot more business oriented," Gershtein said.

The same model will be used in New Zealand. Private companies will operate the Kiwi incubators, which will have to come up with at least 25 per cent of the funding for their start-ups. The remaining funding will come from the Government's repayable grants scheme.

Gershtein said Israel's repayable grants programme, which it also operates through the incubators, was "working beautifully" as the Government took on the lion's share of risk - risk many private sector investors were unwilling to take.

Companies that find success repay the grants, allowing the Government to recycle the capital into new start-ups, while those that flop are not required to pay anything back.

Gershtein said Israel had also benefited from its government's decision to keep funding the incubator programme through the economic fallout of the 2000 dotcom crash and the more recent global financial crisis.

"Three years after each crisis finished, the Israeli eco-system continued to act like nothing had happened and the foreign VCs [venture capital investors] suddenly had a new raw material to work with," he said.

Callaghan Innovation commercial manager Russell O'Brien said there had been a good response from potential private sector operators of the new incubators and that the target was to have the incubator operators appointed by July.

In October the Government said the scheme was budgeted to cost $31.3 million over four years.