Gov't allocates NIS 180m for startups in outlying regions

Anya Eldan Photo: Yasmin Yablonko

Israel Innovation Authority has launched a special support track for entrepreneurs in outlying areas amounting to NIS 180 million over five years.

The Israel Innovation Authority has launched a special support track for local entrepreneurship in the outlying areas amounting to NIS 180 million over five years. The Innovation Authority is promoting the founding of incubators in Zone A development areas. In contrast to the past, the aim of these incubators is to create a regional ecosystem that will connect research and development companies with regional assets: focuses of know-how, industry, other businesses, etc.

Behind the conceptual change in the incubators model lies one of the most prominent characteristics of the high-tech industry - the massive concentration of startups in central Israel. 77% of the startups in Israel are in this region. One of the main challenges in the high-tech industry has been the shortage of personnel, while the outlying areas have not benefited from this industry. For example, employees with high salaries are obliged to choose between living in central Israel and living in the outlying areas and traveling long distances to and from work.

There are several approaches to solving the problem through encouragement of high tech in the outlying areas. For example, success in the Beer Sheva high-tech center was only partial. The number of employees there is now 2,000-2,500, but it cannot truly be said that an ecosystem capable of fostering startups that will stay in the area for many years has developed there. Today, especially with the delay in the IDF move to the Negev, high-tech companies have few reasons to prefer Beer Sheva to central Israel.

Israel Innovation Authority VP and startup division head Anya Eldan told "Globes," "The incubators previously founded in the outlying areas did not work towards developing companies in the area. The idea was that if there is an incubator in Katzrin, some of the companies would stay there and hire employees there. Sometimes this really happened, as in Nazareth.

"Companies must be founded that will stay in the outlying areas, for example a media company founded in Katzrin will probably not stay there. On the other hand, the chances of an agriculture company that works with local industry staying in the area are good. We carried out a thorough study of the outlying areas, and we discovered that there isn't much entrepreneurship there. Building this local entrepreneurship is different from investing in companies." She further stressed that she did not intend to compromise on the quality of the companies; she wants to make sure that they also contribute value to regional development.

Creating a local ecosystem out of nothing is not an easy task, and it is unclear which is better: encouraging local grass roots entrepreneurship or planning from above by the local authorities. For example, in northern Israel, an initiative is developing to turn the area into a food-tech hub. The plan was initiated by the local authorities and Jerusalem Venture Partners (JVP) chairperson Erel Margalit, with whom the Innovation Authority cooperated. Eldan says that the current plan encourages grass roots local entrepreneurship, but also makes an effort to gain support from governmental and private entities, for example hospitals and research institutes.

How the model works

The Israel Innovation Authority is now looking for franchise holders to operate the incubators. The franchise holders will be selected according to their ability to promote cooperative efforts with academic institutions, industrial concentrations, investors, partners, and potential customers. The franchise period is for five years, with a three-year extension option. The franchise holders will have to have NIS 10 million in capital behind them, compared with NIS 50 million in the ordinary incubators. Each incubator will receive NIS 1.5 million in financing for its regular activity. Regular costs will of course be higher; the incubators' investors will finance them.

Eldan emphasizes, "The preliminary and structured connection to local anchors will encourage the incubator companies to become an active and key part of the innovation system around the incubator. This will enrich and strengthen it, and make it more attractive to additional ventures."

The companies operating in the incubator will receive support of up to NIS 1 million per company, with a grant percentage of 85% for a year in order to prove that the idea is practical. The companies will also benefit from the Innovation Authority's other benefit tracks. If a company succeeds in turning the technological idea into a business idea, it will have to present a development program to the Innovation Authority. Approved programs will receive 60% of the total budget up to a NIS 6 million grant.

Published by Globes, Israel business news - en.globes.co.il - on April 18, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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Anya Eldan Photo: Yasmin Yablonko
Anya Eldan Photo: Yasmin Yablonko
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