Reform to make life harder for incubators

Incubator manager: I don’t lose a minute's sleep over this. There are 20 incubators; enough for those who want.

Technology Incubators Program director Dr. Yossi Smoler long ago completed his learning stage after 18 months on the job. He has already mapped the burning issues for all the parties - the entrepreneurs, incubators, and the state - and formulated a comprehensive reform that the cabinet has already approved, and whose implementation will begin this year.

The reform will make life harder for current incubator franchisees. Until now, their franchises were almost automatically renewed; the reform will require current franchisees to compete for the franchise in competitive tenders that will be held every ten years. The bidders will include new groups who have never before operated a technology incubator.

Franchisees will also have to commit to offer supplementary funding for each incubator portfolio company (15% of a company's budget, with the government financing 85%); currently this is only a recommendation. The state will again demand repayment of grants from royalties on sales or at an exit, rather than the current practice of receiving repayment only of loans.

The reform also includes opportunities for follow-on financing for good companies after they graduate from an incubator, as well as a plan for the establishment of another biotech incubator.

Incubator franchisees are taking the reform calmly. This is especially true for the most successful franchisees, who believe that they will easily win any competitive tenders. However, to give teeth to the reform, the Technology Incubators Program will have to show new operators participating in and winning tenders at the expense of current franchisees. This means that some of the current franchisees will lose their incubator operating franchises, and when that happens, their attitude to the reform could change, become more critical, and change from implicit to explicit.

In an exclusive interview, Smoler told "Globes", "The current franchise model was not created wisely. Currently, a franchisee is given a three-year franchise, which is definitely not enough time to make a return on investment in companies. We therefore want to extend the franchise period. On the other hand, there are other companies in the market who could run an incubator. We want to give them a chance, as well as creating competition to support excellence.

"This is the reason for the decision to hold a tender every ten years, and for the ban on an incubator from accepting new projects in the final two years before the tender."

Smoler also wants an amendment that will allow the revoking of a franchise during the franchise period if its functioning is particularly problematic.

The first competitive process will be held in July 2011 when tenders will be published for four of the 24 incubators. It is not yet known which incubators will be the first to undergo the process, nor have criteria been set for choosing the next franchisee. "It's hard to compare companies with a proven track record for better or worse and a new company," Smoler admits.

"Globes": Some incubator operators, such as Biomedix Incubator Ltd. (TASE:BMDX), Capital Point Ltd. (TASE:CPTP), Maayan Ventures Ltd. (TASE:MAYN), and Xenia Venture Capital Ltd. (TASE:XENA) are public companies. Their franchise partly determines their value. Are they angry about the process and do they fear it?

Smoler: "Everyone knows that the franchise is officially temporary, even if until now it was rare for a franchise to be taken from somebody. In any event, even if one of the publicly traded franchisees losses its government franchise, it can continue to operate from the same offices under the name of a private incubator, without government support. It will naturally continue to own percentages in all the incubator companies that it fostered during the franchise period."

The incubator franchisees are trying to maintain their equanimity. "I'm comfortable with the competitive process, because we won first place in the last incubator competition, said Todd Zolinger, chairman and CEO Trendlines International Ltd., which owns Misgav Venture Accelerator and Mofet B'Yehuda Innovation Accelerator.

"I don’t lose a minute's sleep over this. There are 20 incubators; enough for those who want," said the manager of a publicly traded incubator company who preferred to remain anonymous.

Published by Globes [online], Israel business news - - on January 13, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

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