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Israel Innovation Authority 2019

The Israel Innovation Authority’s vision is to establish Israel as a world leader in innovation and entrepreneurship that frequently grows innovation-driven companies, in order to provide extensive, highly productive employment for all population groups and all regions of the country

Figure 2.1: Israel Innovation Authority - 2019 in Numbers 

2019 was a productive, colorful, momentous year marked by the continued growth and development of programs and measures designed to advance the Innovation Authority’s vision, and to enact the strategic plan outlined by the Authority’s Council.

Key measures taken by the Innovation Authority in 2019 include:

  • Developing an array of new tools and measures to advance the ecosystem of innovation in Israel’s periphery. These measures include launching a program to aid in the establishment of large companies’ R&D centers in the periphery, establishing three entrepreneurship incubators in Karmiel, Yeruham and Bnei Shimon, a foodtech incubator in Kiryat Shemona, two innovation labs in Haifa and Beer Sheva, an innovation center in Haifa, and a collaboration with the Ministry of Economy to advance the establishment of a foodtech center in Kiryat Shemona and a center for advanced manufacturing in Karmiel.

  • Developing an array of new tools and measures to increase the volume and diversity of skilled human capital. These measures include promoting the Coding Bootcamp program, launching a program to encourage women’s entrepreneurship, and establishing two new training programs:

    • High-tech specialization program – helping companies hire and train inexperienced graduates (juniors) in high-tech professions.

    • The Workshop program – an association for advanced technology studies to help high-tech companies train workers in advanced development professions, particularly in AI.

  • Developing an array of new tools and measures to advance growth companies. These include a significant expansion of the pilot program, which helps growth companies perform semi-commercial demonstrations in beta sites. A series of actions was taken to expand the capital market and the availability of debt financing for growth companies: a program to encourage institutional investments, to advance collaborations with the European Bank, and to help growth companies apply for EU funding. Efforts were also made to remove regulatory obstacles and to create regulation that is supportive for innovations, such as the establishment of a dedicated center – an Israeli branch of the World Economic Forum’s Center for the 4th Industrial Revolution (C4IR) for the regulation of innovative technologies.

  • Advancing Israeli leadership in future technologies. As a member of the TELEM Forum (the forum for national R&D infrastructures),1 the Innovation Authority participates in the national program for the promotion of quantum science and technological applications. The Authority advances a national program for AI as well as a national program for bio-convergence (for further details see Chapter 6).

  • Advancing efforts to improve customer service, such as simplifying and eliminating procedures and bureaucracy, upgrading the website and computer systems, establishing a service center, and cutting response time (providing a response within 11 weeks of submission).

  • Relocating the Innovation Authority to Jerusalem: in 2019, in adherence with R&D Law, the Authority moved from central Israel to Jerusalem. This complicated relocation had no impact on its ongoing operations.

    Israel Innovation Authority’s workplan for 2020 includes several measures aimed at advancing Israel’s innovation ecosystem in adherence with the Council’s five-year strategic plan. However, political unrest in Israel hinders the Authority’s ability to quickly formalize and implement a stable, long-term government policy.

    Israel’s provisional government in 2019 decelerated governmental budgetary mechanisms and forced the Authority to defer its payments to companies. This provisional government also limits the ability to advance the new policy and legislation processes required for the long-term elevation of Israel’s innovation ecosystem. The 2020 budget will primarily be a continuous budget,2 which could further decelerate governmental mechanisms and could jeopardize the Authority’s budgets and its capacity to advance its programs.

    The Innovation Authority believes that substantially slashing its budget and hindering its ability to advance its programs could deal a heavy blow to Israel’s high-tech industry. The first to be hit will be start-ups, but the damage is expected to eventually affect the entire high-tech industry.

 

Israel Innovation Authority – 2018-2022 Strategic Plan

In 2018, the Authority’s Council devised a strategic plan for 2018-2022. The plan is comprised of four strategic goals and highlights ten strategic objectives.

Figure 2.2: Israel Innovation Authority’s Strategic Objectives

The Israel Innovation Authority employs various programs and measures to realize these ten strategic goals. Further details on the Authority’s operations can be found in Chapter 7: The Israel Innovation Authority in Action.

In preparing the workplan for 2020, the Authority defined four strategic goals as its main focus this year (assuming it will be feasible with the continuous budget of 2020). Macro measures and quantitative goals were defined for each of these goals, and a quantitative objective to facilitate progress to reach the goal by the end of the five-year period (2022).

Figure 2.3: Goals and Objectives at the Core of the Workplan

The Israel Innovation Authority’s Structure and 2019 Budget

 

The Structure of the Israel Innovation Authority

According to the R&D Law,3 the Innovation Authority is led by a council headed by the Chief Scientist at the Ministry of Economy and Industry. The council appoints the CEO who is supervised by the Council.

The Authority is divided into different divisions that specialize in professional challenges, target audiences, and tools to achieve their goals. Figure 2.4 describes the structure of the Innovation Authority.

Figure 2.4: The Structure of the Israel Innovation Authority

The Israel Innovation Authority’s Budget

The Israel Innovation Authority’s budget is divided into three sections:

  • In 2019, the Innovation Authority’s budget for grants (allowance budget) was 1.73 billion shekels. Out of this amount, 175 million shekels were provided by other government entities for shared projects.

  • The European R&D Horizon 2020 program – in 2019, the Innovation Authority’s share of participation in the program amounted to about 334 million shekels.

  • The operational budget of the Innovation Authority in 2019 amounted to about 172 million shekels.

     

Figure 2.5: Specifications of the Israel Innovation Authority grants’ budget in 2019:

Figure 2.5 / Figure 2.6

Revenue from royalties and knowledge transfer

The Israel Innovation Authority charges royalties for sponsored projects that were able to generate sales (3%-5% of sales until the grant is covered).4 The Authority also charges for knowledge transfer, when knowledge acquired from a particular project is sold to another company (1 to 6 times the grant amount calculated according to a fixed formula).

According to the R&D Law, revenue from royalties and knowledge transfer are paid to the State Treasury and are used as a funding source for Innovation Authority’s grants.

Roughly 459 million shekels were charged in 2019, including 299 million shekels in royalties and 160 million shekels from knowledge transfers.

 

The Israel Innovation Authority’s grants focus on addressing “market failures” in the Israeli innovation ecosystem

The overall 2019 grant budget amounted to 1.7 billion shekels. This budget comes to around 5.5% of the total capital raised by the Israeli high-tech industry (in 2019 it amounted to 9 billion dollars–30.8 billion shekels),5 and 2.5% of the total expenditures on civilian R&D in Israel (which amounted to roughly 65 billion shekels in 2018).6

In accordance with the R&D Law7 and the Innovation Authority’s vision, the Authority grants are designed to encourage technological and industrial R&D and innovation. However, some question the validity of governmental R&D support in a sector where numerous venture capitals operate and there is ample private funding. Others question the impact of a budget that is 2.5% of the total R&D civil expenditure on the ecosystem of Israeli innovation.

The justification for governmental investments in R&D is in cases of market failures – i.e.: where capital investment is expected to yield significant gains, but the private market does not invest the required capital or that its investments are very minimal. This occurs when the private sector disregards market gains (that do not translate to revenues), and when the private sector tends to stick with familiar sectors that are relatively low risk and offer short-term gains.

New data suggest that unlike the private capital market, Israel Innovation Authority’s grants focus on sectors that experience market failures – innovative, less familiar sectors that are high-risk and that offer long-term gains. In these sectors, the Innovation Authority’s grants make up a significant share of the total investment and can significantly impact developments.

Figure 2.6 presents the distribution of Israel Innovation Authority’s grants by technological sectors in comparison to the distribution of private capital raising in the same sectors.

Figure 2.7 suggests that while software leads in private capital raising with 32% of the total amount of funds raised, Israel Innovation Authority’s grants focus on healthcare and medicine. Grants for healthcare and medicine, which are high-risk and offer long-term gains, comprise 32% of the total Innovation Authority grants. Figure 2.7 also suggests that Innovation Authority grants tend to focus on less familiar sectors such as agriculture and food, energy, and environment. These segments are less popular in the private sector, despite their potential to significantly contribute to the market and for becoming the next technology trend.

Figure 2.7: Israel Innovation Authority vs. Private Investments - By Sector (2018)
Source: IVC and Israel Innovation Authority data processed by the Israel Innovation Authority for total investments in the Israeli market

Figure 2.88 completes the picture. It shows that by focusing Israel Innovation Authority grants on industries experiencing market failures and a shortage of human capital, the Authority becomes a key player, thus having a substantial impact on the total capital raised for R&D in this field.

Figure 2.8 shows that while the total amount of the Innovation Authority grants in 2018 was only 5.5% of the total capital raised, the Authority’s preference for providing grants to high-risk, less popular segments significantly increased its share of grants in these specific sector – 12% in healthcare and medicine, 15% in communication, 40% in energy, water and environment, and over 200% of private capital raised for agriculture and food (in many fields, the Israel Innovation Authority invests in collaboration with relevant ministries.

Figure 2.8: The Share of Israel Innovation Authority Grants out of Overall Capital Raising (2018)
Source: IVC and Israel Innovation Authority data processed by the Israel Innovation authority for total investments in the Israeli market

Another approach to understanding the importance of the Authority’s grants’ focus on market failures is to analyze the scope of the support the Authority offers for the establishment of new start-ups. As will be further detailed in Chapter 4, in recent years, private capital investments in early stage start-ups (seed stage) have been in decline. The Authority believes that this decline reflects insufficient private investments in seed-stage companies, investments that are crucial for Israel’s high-tech industry. This indicates yet another market failure, which calls for governmental support.

Figure 2.9 examines the number of start-ups that were established in 2014-15 and that applied for Innovation Authority grants (by 2018). The diagram indicates that a relatively high share (22%) of new start-ups that requested support and applied for grants. It also shows that in industries with an inherent market failure, such as life sciences, cleantech and foodtech, this share is even higher, reaching 48% and 38%, respectively.

The data show that the Innovation Authority plays a key role in funding new start-ups, particularly in segments that have inherent high risk with long-term gains like medicine and life sciences. The Authority is an important, meaningful player. Support by the Authority has a significant impact on the establishment of new start-ups, which ultimately offer long- term contribution to Israel’s market and economy.

 Figure 2.9: Share of Israel Innovation Authority Grant Applications for New Start-Ups By Sector (2018)
Source: SNC and Israel Innovation Authority data processed by the Israel Innovation Authority (among companies established in 2014-2015, data for 2018)
  • 1. The TELEM Forum also includes the Ministry of Science, the Ministry of Finance, the Planning and Budgeting Committee of the Higher Education System, and the Administration for the Development of Weapons and Technological Infrastructure in the Ministry of Defense
  • 2. By this method, the budget allocated to each issue is identical to last year’s budget with mild changes
  • 3. The Law for the Encouragement of Research, Development and Technological Innovation in Industry Law of 1984
  • 4. Plus LIBOR interest
  • 5. IVC data. For further details, see Chapter 1 of this report
  • 6. CBS data, August 2019, national spending on civilian R&D, 2018
  • 7. The Law for the Encouragement of Research, Development and Technological Innovation in Industry, 1984
  • 8. Distribution of market investments is based on IVC data processed by the Israel Innovation Authority

More chapters at this report

Accelerating Israeli Entrepreneurship

The Alarming Decline in the Number of New Start-Ups Must Be Stopped

In recent years, there has been an alarming decline in the number of new start-ups and in the amount of funding rounds by seed-stage start-ups. The Israel Innovation Authority analyzes the causes of this decline and is taking action to reverse the trend and to relaunch Israeli entrepreneurship

Israeli high-tech entrepreneurship continues to stand out globally, with the highest number of start-ups per capita1 and a third place global ranking in venture capital investments.2 In 2019, Israeli high-tech companies raised an all-time high in capital, reaching a total of roughly 9 billion dollars, a 15% increase since 2018.3 In the past decade, exit value grew eightfold, from 2.6 billion dollars in 2010 to 21.7 billion dollars in 2019.4

Israel excels in entrepreneurship and in launching new ventures. Israeli entrepreneurs have shown remarkable ability in identifying technology trends at the forefront of global innovation before the new fields become overly competitive and crowded, and that ability is an essential asset for Israeli industry.

Yet despite the sustained success of Israeli entrepreneurs, an analysis performed by the Israel Innovation Authority found some troubling trends. In recent years, the number of seed-stage funding rounds for start-ups dropped and the amount of new start-ups established declined, so much so that in 2019, the number of new start-ups launched was the lowest seen in a decade. The Israel Innovation Authority believes that these worrying trends are a call for action.

 

Decline in the Number of Start-Up Companies

Analysis conducted by the Israel Innovation Authority indicates that recent years have shown a decline in the number of start-ups added to the Israeli innovation ecosystem. Figure 4.1 demonstrates that from 2012 to 2017, 1,000 new start-ups were established per year, with a net of 500 companies added to the high-tech industry per year (the sum of new start-ups after deducting those that closed). However, since 2015, there has been a decline in the number of new start-ups, with 800 new start-ups registered in Israel in 2019, a net addition of just 360 companies – the lowest number seen in a decade.

Figure 4.1: The Number of New Start-Ups in Israel
Source: IVC data processed by the Israel Innovation Authority

The reduction in today’s new companies is not merely a problem of quantity. The decline in the number of new companies also means a decline in the diverse technologies and new fields of innovation developed by Israeli high-tech. This drop could hinder Israeli high-tech’s dynamism and flexibility, as well as its ability to continue to maintain its position as a world leader in up and coming technology trends.

 

Knowledge Transfer from Academia to Start- Ups Increases - Slightly

Academia plays a key role in the creation of innovative knowledge and groundbreaking ideas, and in developing concepts to the point they can be used to establish start-up companies. Consequently, mechanisms that support the transfer of knowledge and collaborations between academia and industry play a crucial role in the creation of new start-ups. In recent years, there has been a moderate uptick in the number of license agreements signed by research institutions with Israeli companies, and in the number of start-ups established by the institutions’ knowledge commercialization companies.

The Authority believes that despite the moderate increase, academia’s contribution to innovation has huge untapped potential, and that the number of companies and license agreements that originate from research institutes can and should be substantially higher. The Council of Higher Education’s Planning and Budgeting Committee (Vatat) and the Israel Innovation Authority, in collaboration with the Ministry of Finance, are working together on a proposal aimed at increasing the transfer of knowledge from research to marketable products.

Figure 4.2: The Commercialization of Knowledge in Israel – License Agreements with Israeli Companies and the Establishment of Start-Up Companies
Source: Data from the Central Bureau of Statistics’ Survey of Knowledge Commercialization, 2018, processed by the Israel Innovation Authority. The data includes the activity of all knowledge commercialization companies in Israel – universities, colleges, research institutes, and hospitals

 

Declining Investments in the Early Stages of Start-Up Companies

The Israel Innovation Authority’s analysis of the Israeli high-tech industry shows an alarming a decline in funding rounds and in the total amount of capital raised by seed-stage start-ups.

As indicated in Figure 4.3, the total investment in seed-stage companies has remained constant in recent years, with a decline in 2019. At the same time, there was a gradual decline in the number of funding stages of seed-stage start-ups, dropping from roughly 570 funding rounds in 2015 to 410 in 2019.

Figure 4.3: The Amount and Number of Investments in the Seed-Stage
Source: IVC data processed by the Israel Innovation Authority

 

Reasons for Deceleration in the Early Stages of Start-Up Companies

In order to discern the reason for the slowdown in the creation and investment in new start- ups, the Israel Innovation Authority analyzed a variety of sources, including roundtable sessions with investors and a survey of 270 Israeli angel investors, and discovered several potential causes for the decline:

  • Maturation of the Israeli ecosystem } More attractive investment alternatives

  • Global technology and funding trends } More attractive investment alternatives

  • Fewer active early investors

  • An overall shortage of groundbreaking research, along with large companies performing more innovation in-house (instead of acquiring start-ups).

 

Maturation of the Israeli Ecosystem

One of the primary reasons for the decline in the number of seed-stage companies with access to capital is that Israel’s innovation ecosystem has matured significantly in the past few years. The growth of the ecosystem has two effects of the opening of new ventures:

  • Quality, not quantity: One widely held belief is that Israeli seed-stage investors and entrepreneurs, 20% of whom are serial entrepreneurs,5 are currently capable of better identifying the more successful, high-quality companies, essentially separating the wheat from the chaff. Their accumulated experience enables higher precision in selecting quality investments and in avoiding the opening of a large number of low-quality start- ups and investing in them.
  • Sufficient deal flow of growth-stage companies: The increasing number of growth- stage companies in Israel offers investors a broad selection of investment opportunities. Investors usually prefer to invest in more mature companies. While the amount needed to invest in these companies is higher, the risk level is generally lower and the payback period is shorter.

While the first claim, of quality replacing quantity, points to a positive trend and a more efficient allocation of resources, the second claim, diverting investments to growth-stage companies, is not as beneficial for the Israeli innovation ecosystem, as it shows that are less resources available for seed-stage start-ups.

Figure 4.4 also shows that more and more investments are being diverted from seed companies to growth-stage companies. The amount of investments in Israeli start-ups valued at up to five million dollars has decreased both absolutely (from 853 million dollars in 2018 to 509 million dollars in 2019) and as a percentage of total investments in Israeli start-ups (from 11% to 6%, respectively).

Figure 4.4: Investments in Israeli Start-Ups
Source: IVC data processed by the Israel Innovation Authority

 

Global Technology and Funding Trends

Notable trends in Israeli seed-stage companies are also evident in the US ecosystem and in other places around the world. The lower number of fundraising rounds, the higher median amount of the funding round, and the longer it takes, on average, for a company to reach initial funding,6 can all be seen in global markets, along with Israel.

Figure 4.5 demonstrates that in 2009-2015, the number of funding rounds conducted by Israeli seed-stage companies grew at an average rate of 15% per year, which is similar to the growth rate of several start-ups that raised initial funding in the US. In 2015-2018, there was a decline in the number of funding rounds in Israel at an average rate of 4% per year, while in the US there was an even more rapid decline averaging 9% per year.

Figure 4.5: Initial Funding Rounds in the US Compared to Israel, 2008-2019
Source: PitchBook and IVC data processed by the Israel Innovation Authority

Other trends observed both in Israel and the US are growth in the median sum raised in seed rounds and an increase in the age of the company at the time of the round. In 2014, the median sum of a seed-stage funding round in Israel was 750,000 dollars and 700,000 dollars in the US, while in 2019, the median sum raised in seed rounds was 2 million dollars in Israel7 and 2.2 million dollars in the US.8 Furthermore, as demonstrated in Figure 4.6, companies took longer to begin to raise seed funding, with the average time between a company’s founding and its seed round growing from 10 months in 2014 to 29 months in 2019.9 This trend was evident in the US, where the average age of companies raising seed capital increased from 29 months in 2017 to 36 months in 2018.10

Figure 4.6: Average Age of Israeli Companies when Raising Seed Funding
Source: SNC data processed by the Israel Innovation Authority

There are several possible explanations for these global phenomena. One explanation for the decline in the number of funding rounds is that today, investors have a range of attractive investment alternatives at more advanced stages in the private market, or even in the capital market. For example, in 2019, Nasdaq 100 saw gains of roughly 38%.11

The decline is also the result of a global trend of giant tech companies (such as Google, Facebook, Apple, Amazon and Microsoft) shifting to intensive in-house innovation, and creating new ventures within organizations instead of acquiring or establishing new start-ups.

The higher amounts raised in the seed rounds12 stems from the fact that the global low- interest rate environment increased the supply of capital available for private investors, allowing entrepreneurs in initial stages to find private, “under the radar” funding solutions. As such, their need for a public seed-raising round was postponed to a later stage in the maturation of the company, when the sums required are greater and the risk level is lower.

An additional explanation is the revolution of cloud computing, which makes the world even more global, and the ever-growing geographic distribution of accelerators and hubs for fledgling entrepreneurs. The combination of cloud computing and easy access to early guidance led to a substantial decline in the ongoing costs of start-ups in their early stages (especially in software). Cutting early stage costs allows some fledgling entrepreneurs to reach more advanced stage in the maturation of the company using only personal capital.

The Israel Innovation Authority believes that despite the low-interest rate environment and the lower costs stemming from cloud computing and accelerators, the decline in seed-stage funding sources and the increase in the amount of time it takes, on average, to raise seed funding, indicate that for a growing number of quality seed- stage ventures, it is harder than it was in the past to raise investments and to reach funding milestones.

 

Decline in Available Funding and in the Number of Seed-Stage Investors

There is a discernible decline in the number of seed-stage investors in Israeli high-tech. This translates into fewer smart money opportunities for seed-stage companies - investors who provide experience, connections, and management guidance along with capital.

The Authority’s analysis indicates than while in 2014-2017, the number of seed-stage investors remained steady at approximately 675, in 2018 and 2019, this number dropped by 17% to roughly 560. Among the various types of investors, the largest apparent decline is in angel investors. Figure 4.7 describes the involvement of various types of investors in seed-rounds and shows that the percent of angel investors dropped 19%, from roughly 400 angel investors in 2014 to 230 in 2019.

Figure 4.7: Types of Investors Involved in Seed Rounds
Source: IVC data 20 processed by the Israel Innovation Authority

Angel investors play a key role in the growth of new companies during their seed stages. These investors, many of whom were once entrepreneurs themselves, bring important business and management experience to the fledgling start-ups. Moreover, these investors usually focus on investing in start-ups at the earliest stages of their life-cycle, when the risk is high but investment amounts are lower. The investments and experience that these investors bring can help companies reach a significant milestone in their R&D, enabling them to raise larger sums of capital from additional investors.13

Figure 4.8 presents the results of a survey performed by the Israel Innovation Authority of 275 Israeli angel investors. It indicates that the large majority of angel-investors invest up to one million dollars, and that 65% of them invest up to 500,000 dollars. Although these are lower sums in comparison to advanced rounds, however, in early stages, even small investments are the oxygen that allows young companies to grow.

Because of the decline in investments by Israeli angel investors (Figure 4.7), new start- ups, which require relatively low sums of money (up to one million dollars) in order to reach a milestone to facilitate the raising of larger sums of money, currently have fewer smart money funding sources at their disposal in a critical stage.

Figure 4.8 also demonstrates the distribution of angel investors’ responses to the question: “Do you think that in recent years, it has been difficult for pre-seed and seed-stage start- ups to raise funds?” Responses show that the angels’ views on this are divided. Half of the respondents described recent circumstances as difficult, whereas the other half expressed that there is no such difficulty.

This discrepancy of views on a general lack of seed-stage funding was also articulated in interviews and roundtable sessions that the Authority held with various investors and entrepreneurs in seed stages, yet there was consensus that there is currently less smart money and fewer angel investors available in Israel.14

figure 4.8: Results of the Israel Innovation Authority's Survey of Angel Investors
Source: Israel Innovation Authority survey data

 

Human Capital

As covered extensively in earlier Israel Innovation Authority reports, there is fierce competition for skilled professionals in the Israeli high-tech industry. According to a survey conducted by the Central Bureau of Statistics,15 Israeli high-tech is in need of an additional 12,500 tech professionals. A survey conducted by the Startup Nation Central (SNC) and the Israel Innovation Authority estimates this number to be even higher, reaching approximately 18,500.16

The growing number of multinational high-tech companies operating in Israel has also increased the demand for highly skilled and talented workers, which in turn has increased their pay. For example, in 2017, multinational companies offered an average annual salary of 500,000 shekels, in comparison to an average annual salary in start-ups of up to 336,000 shekels.17

The fierce competition for skilled professionals and the abundant supply of attractive, high-paying positions in growth companies and in multinational companies operating in Israel make it difficult for fledgling entrepreneurs to recruit the core team they need to establish a new start-up.

 

Israel Innovation Authority’s Support of Seed- Stage Companies

The Israel Innovation Authority believes that the decrease in the establishment of new start-ups in Israel (dropping to the lowest rate seen in a decade), alongside a concurrent decline in the volume of seed-stage investments, are worrying phenomena that require a response. Israeli entrepreneurship, and especially the establishment and growth of new start-ups, is essential to the preservation of a dynamic, advanced ecosystem of innovation and for its lasting prosperity.

In an effort to support Israeli entrepreneurship and the establishment and growth of innovative, groundbreaking companies, the Authority operates in a myriad of ways to remove the obstacles standing in the way of these companies and to help them raise the capital that they need. The Authority believes that these efforts should be expanded and accelerated in order to “relaunch” Israeli entrepreneurship.

The primary method employed by the Authority to help new start-ups raise the capital they need in seed stages is by providing grants for R&D projects. As delineated in the second chapter of this report, the Authority focuses on fields with a market failure in regards to available capital – innovative, less prominent fields that usually carry high risk and offer long-term returns, and thus are less likely to attract private capital. Notable examples of these include:

  • Seed-stage companies led by first-time entrepreneurs, especially founders from sectors underrepresented in high-tech (such as women, ultra-orthodox Jews and minorities).
  • Seed-stage companies with high-risk tech solutions and long development times before reaching market, such as companies in silicone, clean-tech, pharma or agriculture sectors.

In addition to providing grants for R&D funding, the Authority aids in the formation of new start-ups by establishing innovation labs and incubators, which provide tech infrastructure and auxiliary knowledge. For more information on these and other tools, see chapter 7 on the Start-Up Sub-Market.

Furthermore, the Israel Innovation Authority is also working with the Ministry of Finance and the Tax Authority to look into ways to diversify sources of smart money, such as exploring ways to amend and improve the Angels’ Law.18

 


 

Alan Feld / Managing Partner, Vintage Investment Partners19

“I am not troubled by the number of startups created; this number increases and decreases continually. What makes me optimistic is that the quality of the entrepreneurs keeps improving, which to me is the most important point. Having said that, most of the companies being created lately seem to be focused on three areas: Cyber Security, Cloud Infrastructure and FinTech. Going forward, I think it will be very important to see far more startups created in other important areas in which Israel has an advantage, such as AgTech, Foodtech, Digital Health, Semiconductors and even selected areas in Energy and Water. As a country, we cannot have our eggs in too few baskets.

“Israeli companies tend do a great job when there is a complex, multi-disciplinary technology challenge. Examples of this are computational biology, where advanced hardware, data science and biology meet. Remote patient care is another example, taking advantage of Israel’s skills in sensor and communications technologies.”

“I see the Innovation Authority as a bridge between innovative academic research and the creation of new companies and industries emerging from this research. The Authority helps to reduce the financial risk of investments in the emerging sectors I noted previously, serving as a catalyst for the success and growth of sectors.”

  • 1. 2019 Startup Genome Report
  • 2. Global Innovation Index 2019
  • 3. IVC data processed by the Israel Innovation Authority
  • 4. IVC Exits Report
  • 6. Venture Pulse, Q3 2019 KPMG
  • 7. SNC data
  • 8. Venture Pulse, Q3 2019 KPMG
  • 9. SNC and IVC data processed by the Israel Innovation Authority
  • 10. PitchBook data processed by the Israel Innovation Authority
  • 11. Nasdaq 2019 Review
  • 12. In 2014, the global median amount of a seed funding round was 500 thousand dollars while in 2019, the global median amount of a seed funding round was 1.9 million dollars
  • 13. Diamanto Politis, “Business Angels as Smart Investors: A Systematic Review of Evidence”. Handbook of Research on Business Angels, page 147
  • 14. Roundtable sessions were conducted in October 2019
  • 15. Central Bureau of Statistics, “Employees, available positions, and the ratio between supply and demand” classified by occupation (2011 classification) in select groups, 9.33
  • 16. Human Capital Survey Report 2019, Israel Innovation Authority and Start-Up Nation Central, work version
  • 17. CBS, “R&D Activity in Startups and Multinational R&D Centers”, 2017
  • 18. The Angels’ Law refers to Section 20 of the 2011-2012 Economic Policy Law (legislation provisions), which legislates tax incentives in order to encourage private investment in seed-stage start-ups
  • 19. Vintage Investment Partners is an Israeli venture capital fund that invests in venture capital funds (a fund of funds), in secondary funds, and in advanced-stage growth companies. The fund manages roughly 1.8 billion dollars, and follows over 500 venture capital funds and roughly 6,000 private high-tech companies

More chapters at this report

Innovation Report 2019

Introduction

  • 2019 was a year of growth and prosperity for the Israeli innovation ecosystem. It broke records in capital raised, exports, output, and the number of people working in the high-tech sector. Total capital raised increased by 15% to 9 billion dollars,1 and high-tech exports increased by 1.2% reaching a record 45.8 billion dollars. The year was marked by accelerated growth in the number of people working in the high-tech sector; for the first time in 15 years, the share of high-tech employees exceeded 9% of Israel’s total workforce.2 The fortitude of the Israeli ecosystem is also shown in the Israel Innovation Authority’s High-Tech Index, which demonstrates sustained growth.3
  • In international comparisons, the Israeli innovation ecosystem continues to show global dominance. Israel has significantly improved its position in a variety of global innovation indices, ranking among the top ten in indices such as the Annual Bloomberg Global Innovation Index4 and the Global Innovation Index.5 Israel continues to hold second place among OECD countries in the share of its R&D expenditures of its GDP sourced from private capital,6 and is the world leader in its number of start-ups per capita.7
  • The data indicates that in 2019, the welcome trend of Israeli high-tech maturation continued, with an increase in its number of growth companies. New data in this report reflects that 4,500 high-tech growth companies have sales revenue.8 This trend is also evident in the high number of unicorns (start-ups valued at over one billion dollars) established by Israeli entrepreneurs, with 30 of these unicorns in 2019.
  • 2019 saw substantial achievements in government activity in support of the high- tech sector. In 2019, the Israel Innovation Authority funded 1,650 R&D projects at a total sum of 1.73 billion shekels. The EU also granted R&D scholarships valued at 89 million euros (340 million shekels) to Israeli companies (SMEs) funded by the Israel Innovation Authority, with Israel ranking first place both in the number of grant applications and in application success rates. Achievements by the Israeli government in 2019 include the expansion of the Pilot Program, which promotes the growth of start-ups developing innovative technologies that have not been tested in a commercial environment.9 The Authority helped launch the national program for quantum science to help Israel maintain its future lead in the field. The Authority also funded the creation of innovation labs and entrepreneurship incubators in the periphery, which encourage the propagation of innovation in new fields and in new geographic regions. The Israel Innovation Authority’s investments in projects for the advancement of human capital has led to the sustained growth of human capital skilled in high-tech professions in both academic and non- academic tracks supported by the Authority and inspired by its vision:

“...to establish Israel as a global leader in innovation and entrepreneurship that frequently grows innovation-driven companies which provide extensive, highly productive employment for all population groups and all regions of the country.”

Alongside this promising data, the Israel Innovation Authority has also identified alarming trends that point to challenges and obstacles that could potentially delay the development and prosperity of the Israeli high-tech sector:

  • Analysis of high-tech output and high-tech exports shows that while there was growth in the software and R&D sectors,10 the commodities sectors showed a decline in exports and output. This decline in the share of commodities sectors in exports and high-tech output is concerning. Israel’s high-tech commodities industry is critical for the economy due to its contribution to output and export, its nationwide distribution, and its employment of a variety of professionals including R&D specialists. A large share of companies in this field are complete companies that operate manufacturing centers throughout the country. This sector also plays a key role in creating and preserving Israel’s assets and innovation infrastructure. Scaling down the high-tech commodities sectors and relying on software, including the provision of services for multinational R&D centers (this was covered extensively in last year’s Innovation Report) narrows the diversity of the Israeli innovation ecosystem. This trend could hinder Israel’s ability to compete in the global market and to maintain its lead in identifying and developing upcoming technological trends.
  • Today’s flux of new start-ups serves as the basis for the bolstering of growth companies and for the reinforcement of future high-tech output. Yet an analysis of data on fledgling start-ups indicates that in recent years, there has been a decline in the number of new start-ups, as well as a decline in the number of funding rounds for seed-stage companies. The Israel Innovation Authority believes that these phenomena are a call for action.
    These trends are the result of several factors: the maturation of the Israeli innovation ecosystem, global funding and technological trends that lead to more attractive funding alternatives, and the pull of creative and talented entrepreneurs by large multinational companies (in-house innovation). This has resulted in fewer funding sources at the initial funding stages. A survey conducted by the Israel Innovation Authority of 275 Israeli angel investors, and a study on the involvement of types of investors, indicate that in recent years, there has been less smart money11 accessible in seed stages.
  • Data on growth companies points to difficulties raising debt financing sourced in Israel, which is critical for these companies’ sustained growth. Debt is an important funding instrument for growth companies that require substantial capital to finance marketing and production for their continued growth without damaging the company’s ownership structure. The Israel Innovation Authority’s sample data indicates that Israeli growth companies’ debt-to-equity ratio is significantly lower than the ratio in similar companies across the globe. This difficulty poses a potential barrier for their sustained growth in Israel, and encourages them to transfer central aspects of their activity overseas where it is easier to raise debt capital.
  • Despite the increase in skilled human capital in the high-tech sector, high-tech companies operating in Israel are still lacking skilled personnel. Data also shows that in 2019, the number of open high-tech positions was higher than any other R&D positions, reaching 12,500 according to the Central Bureau of Statistics,12 and 18,500 according to the SNC and Israel Innovation Authority report published in February 2020.13 This shortage is continuing to boost the average wage in the sector, which is eroding Israel’s relative advantage in the high-tech industry.
  • Political instability in Israel makes it difficult to quickly establish and assimilate a stable, long-term government policy. Israel’s transitional government in 2019 slowed down government budget mechanisms, forcing the Israel Innovation Authority to delay its funding of companies. A transitional government also impedes the advancement of new policy and legislation processes required for the long-term growth of Israeli innovation. 2020 is expected to be under a continuous budget,14 which could further slow down government mechanisms. The Israel Innovation Authority is using all of its resources to minimize the damage caused to work processes and to the companies it funds to the greatest possible extent.

The complex picture depicted in this report demonstrates growth and prosperity alongside challenges and barriers. It shows that the Israeli high-tech sector is facing complex challenges that could prevent it from realizing its full potential, thus posing a threat to its continued prosperity.

The Israel Innovation Authority is devoted to addressing market failures. Private funding sources are not always optimally invested in the Israeli economy, and sometimes government intervention is needed in order to fulfill the significant potential for growth and its contribution to Israeli society.

 

This report provides an exhaustive description of these processes and trends:

 

Chapter 1:

Israeli high-tech in 2019 – Prosperity and Challenges. This chapter presents key data on the 2019 innovation ecosystem. The data is presented in the Israel Innovation Authority’s High- Tech Index,15 in output data, exports data, and other data regarding the high-tech sector.

 

Chapter 2:

Investing in Progress – Israel Innovation Authority 2019. This chapter describes the main actions taken by the Israel Innovation Authority this year, offering a review of the Authority’s structure, budget and strategic plan. It includes analysis that shows that the Israel Innovation Authority focuses its grants on market failures that are overlooked in the private capital market.

 

Chapter 3:

Growth of the Israeli Innovation Ecosystem - From Start-Up Nation to Scale- Up Nation. This chapter provides data on high-tech growth companies in Israel that reflects their position and their needs. It introduces new data derived from analysis performed by the Israel Innovation Authority of the low debt-to-equity ratio in Israeli growth companies in comparison to similar companies across the globe. It also describes the barriers to debt financing in Israel and the ramifications of these barriers.

 

Chapter 4:

Accelerating Israeli Entrepreneurship - The Alarming Decline in the Number of New Start-Ups Must Be Stopped. This chapter presents data that points to stagnation in the number of new start-ups in Israel and in the amount of seed-stage funding. It offers an analysis of the reasons for this stagnation. The analysis is based on data derived from a survey of Israeli angel investors performed by the Israel Innovation Authority, which points to a shortage of smart money.

 

Chapter 5:

Bolstering Artificial Intelligence - What Can Be Done for Israel to Maintain its Leading Position in the Field of AI? This chapter was written as the continuation of a chapter that appeared in the previous Innovation Report, The Advent of the Smart Machine Era, which calls for the establishment of a strategy to advance this field in Israel. The chapter presents key achievements in AI alongside current data about Israeli AI companies, and reviews Israel’s position in relation to the rest of the world. It also details barriers to further developments in this field and the various actions taken to remove these barriers.

 

Chapter 6:

Bio-Convergence – The Future of Medicine. The chapter builds on the previous Innovation Report, which called for Israeli innovation to break down barriers and to identify new ecosystems to be developed. The chapter describes the main principles of the strategic work performed by the Israel Innovation Authority in 2019, which identified substantial potential in the field of bio- convergence. It details the field’s inherent potential and the steps required for its development in Israel.

 

Chapter 7:

The Israel Innovation Authority in Action - The Parts that Comprise the Whole. The chapter reviews the main achievements of each of the domains of the Authority’s operations in 2019. These domains address the challenges facing the Israeli high-tech sector.

 

  • 1. IVC data as of March 2020
  • 2. Central Bureau of Statistics data processed by the Israel Innovation Authority. Chart 20 – high-tech employees excluding the communications sector, according to profession and gender, 2012-2018 (2011 classification).
  • 3. Analysis by the Israel Innovation Authority in this present report.
  • 4. The Annual Bloomberg Innovation Index, 2019
  • 5. GLOBAL INNOVATION INDEX 2019
  • 6. OECD STAT 2017
  • 7. 2019 Startup Genome report
  • 8. Central Bureau of Statistics data produced exclusively for the Israel Innovation Authority and processed by the Israel Innovation Authority.
  • 9. The Pilot Program was launched in 2018 with the objective of helping high-tech companies conduct semi- commercial demonstrations of new technologies.
  • 10. The Central Bureau of Statistics categorizes the high-tech sector into two primary fields: knowledge-based services sectors (including communications, computing services and R&D), which for the purpose of this report will be called software and R&D sectors, and the industry high-tech sectors (including the pharma industry, electrical components, communications equipment, industrial equipment, and machinery and aircraft) which will be called commodities sectors. Source: Central Bureau for Statistics, Subcommittee for Official Classification of High-Tech Industries (2004).
  • 11. Investors experienced in the field or experienced entrepreneurs who help management guidance.
  • 12. Section 25, 31 and 31 in Central Bureau of Statistics surveys. Central Bureau of Statistics, “Employees, available positions, and the ratio between supply and demand” classified by occupation (2011 classification) in select groups, 3rd quarter, 2019.
  • 13. Human Capital Survey Report 2019, Israel Innovation Authority and Start-Up Nation Central. Based on data from the Zviran Institute
  • 14. With this system, the budget allocated for each issue is identical to the previous year’s budget, with some slight changes
  • 15. Source

More chapters at this report

Part B: What Will Enable the Next Quantum Leap of Israeli High-Tech?

The Next Quantum Leap of Israeli High-Tech:

It seems as if Israeli high-tech has existed forever, but it is actually one of the younger sectors of the local economy. In a relatively brief period over the past few decades, Israeli high-tech has established itself as a significant factor in the local economy, not only contributing to employment, exports, and other important macro-economic indices. The Israeli economy has become largely dependent on the high-tech sector. Israeli high-tech has enjoyed accelerated growth in recent years, a phenomenon that is expressed by the emergence of Israeli technology companies that are not seeking a quick "exit" sale to multinational giants, that raise unprecedented sums of funding, and which go public and are traded on the stock exchange. Furthermore, these companies also employ large numbers of employees in Israel and overseas and enjoy large-scale sales revenues.

Israeli high-tech relies, among others, on excellent human capital, world-leading academic institutions, and venture capital investors that facilitate the development of local startups. Israeli high-tech also includes companies from the defense industry that are at the forefront of technological development and multinational corporations which develop innovative solutions in Israel while also serving as investors, buyers, and partners of local startups throughout the different stages of their existence.

The past two years signify a turning point for the Israeli high-tech industry that has now reached a more mature stage of its development. Among the current period's characteristics are the large number of Israeli startups that have become public companies, and the Covid pandemic's impact on the labor market. As a result, the challenges confronting the Israeli high-tech industry and the relevant solutions are also changing.

Since the inception of Israeli high-tech, the state has played an important role in removing obstacles and laying infrastructures to advance Israeli innovation. For example, in its very early stages, Israeli hightech contended with serious funding challenges. In response, during the 1990s, the government laid infrastructures critical for the growth of the Israeli venture capital sector via the "Yozma" program and strove to solve funding problems of R&D-oriented startups via programs that provide them with direct financial support. At the current point in time, Israel is home to an extensive and strong high-tech industry and funding difficulties have abated. These difficulties exist today primarily in the companies' early life stages and in especially high-risk areas that are generally characterized by deep technologies, long "time to market" (TTM), or regulatory obstacles. This trend has been manifested in recent decades by a decline in the level of government expenditure out of total investments in Israeli high-tech from 25% at the beginning of the 1990s to less than 2% today. In other words, the private market has almost totally assumed the role filled previously by the state at the industry's outset and has now become the primary funder of high-risk innovation in Israel.

Today, alongside the change in the Israeli innovation arena, the government's role within the industry must also be revised in order to meet existing needs and to enable Israel's next quantum leap. The goal is to enable Israel to preserve its position as a global technology leader while facilitating an improvement in the level of technological innovation available to Israeli citizens.

Milestones In The Development Of Israeli High-Tech

What are the Revised Needs of Israeli Innovation in the Current Era?

The Israeli innovation hub competes with other global hubs of innovation, that include cities or small countries such as Paris, Toronto, Sweden, Singapore, Switzerland, Boston, Berlin, Chicago, Seattle, and Ireland. Israel leads the group of hubs in metrics such as the number of young seed-stage startups, ranks second in the absolute number of high-tech employees, and fifth in the number of high-tech employees per capita. In contrast however, Israel's ranking in other metrics has deteriorated e.g., the level of venture capital investments it attracts. According to 'CrunchBase' data, while the relative share of investments in hubs such as those in Berlin and Paris has grown in the past two decades, the share of venture capital investments flowing to Israel declined during the same period from 18% of total investments in the hub groups examined to 11%.

To ensure that Israel maintains its leading position vis-à-vis other global innovation hubs, solutions must be found for the challenges facing Israeli innovation. These challenges can be divided into two central groups: the first includes the current commercial needs of the Israeli high-tech industry and of the companies themselves. The industry consists of a diverse range of organizations including startups in "high-demand" and/or high-risk fields, growth companies, local giant companies, and multinational corporations' R&D centers. The challenges relevant to the Israeli high-tech industry include, among others, a severe shortage of technology workers, guaranteeing readiness for future technology trends, reinforcement of the growing and whole companies in Israel, and exposing the companies to overseas markets.

The second group of challenges is related to connecting Israeli innovation to the local private and public sectors. A disparity exists today between the groundbreaking innovation developed by Israeli high-tech employees in Israeli and global companies, and the level of digital and innovative services available to the Israeli public. In other words, "the shoemaker's son always goes barefoot". In this sense, the Israeli public does not benefit from Israeli innovation in the course of its daily life. The challenges related to this issue include removing obstacles to enable the experimentation and assimilation of pioneering technologies in Israel, funding R&D and innovative infrastructures in companies that are not part of the high-tech industry and in the public and private sectors, encouraging innovation-based management in non-technology companies, assimilation of advanced technology in the economy, and training workers in the skills needed for engaging in innovation.

The solutions that will meet the updated needs of the industry involve players from all parts of the Israeli innovation ecosystem, including the "innovation engines" themselves i.e., the entities that engage in developing technologies (including startups, growth companies, R&D centers etc.). In addition, apart from the innovation engines, it is worthwhile to note the "innovation facilitators" – the institutions responsible for the infrastructures and services (including venture capital and other investors, different regulators, training entities etc.), and the sources of knowledge – organizations that create scientific, technological, or other unique knowledge that can be transformed into innovation. For example, academic institutions and research institutes or the end clients themselves who possess knowledge about their innovation needs. Connecting the entities that belong to these three groups generates innovation that is subsequently used by end clients in diverse Israeli and global target markets.

The Innovation Authority, as an advisory entity to the Israeli government in the fields of innovation, is also currently required to adapt itself to the new reality. As part of the new role the Authority is assuming, it is also updating its existing solutions' offering, which until now, focused primarily on direct financial support for companies. The Innovation Authority's role makes it a mediating entity that enables the achievement of the next quantum leap of Israeli innovation, for example, by addressing the economy's significant challenges in the fields of housing and transportation. Later in this section of the report, we will present a detailed examination of two central challenges facing Israeli innovation: connecting Israeli technology companies to academia in order to ensure continued innovative R&D that enables their continued growth; and connecting Israeli innovation to the public and private sectors in Israel with the aim of enabling them to provide the Israeli public with advanced services. We will thereby gain an in-depth understanding of the problems and their significance, and present alternative solutions based on the Innovation Authority's new strategy.

Map Of Israeli Innovation Hub

 

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The Unrealized Potential of Israeli Technology Companies: Collaborations Between Industry and Academia

A significant proportion of the historical breakthroughs in the world of technology are based on research that originates in academia. In the research laboratories, scientists and researchers uncover new discoveries, the commercial application of which creates a new world of developments and progress. The prominent examples in Israel over recent decades are the Copaxone medicine developed by Prof. Ruth Arnon from the Weizmann Institute in conjunction with TEVA, and the computerized vision system for motor vehicles developed by Prof. Amnon Shashua from Hebrew University that led to the foundation of the Mobileye corporation.

Overseas, the largest technology companies, recognizing the importance of collaborations with academia for their continued growth, strive to establish such collaborations, with some even maintaining their own labs in academic institutions. A look at Israel reveals a slightly complex picture. On the one hand, Israel is ranked first in the world in the field of collaborations between academia and industry according to the Global Innovation Index (GII). Nevertheless, an in-depth examination reveals that this flattering fact stems primarily from the activity of the foreign companies that operate development centers in Israel. IBM and Microsoft alone are responsible for half of the research collaborations. In total, 85 percent of the collaborations between industry and academia are undertaken by multinational companies.

Israel Has Become A World Leader In Collaborations Between Academia And Industry, But The Level Of Research And Its Academia Is Declining

In contrast, the local technology companies make almost no use of this avenue and focus instead mainly on internal organizational R&D that relies on the expertise and human capital at their disposal. The exceptions to this rule in Israel are the Israel Electric Company, TEVA, and the defense industry companies Rafael, Israel Aerospace Industries, and Elbit. One surprising finding is the small number of collaborations between Israeli companies and academia in the fields of computer science, the fields with most collaborations, comprising over 20 percent of academic research output in Israel.13

Most Of The Value From Collaboration With Academia Reaches Foreign Companies

Israel ranks high (and is still improving) in the international index of per capita investment in R&D however, an opposite trend can be detected in Israel's ranking in per capita academic investment in R&D (from 3rd in the OECD in 2006 to 26th in 2018) This is a long-term trend that indicates a significant erosion in the level of competitiveness of Israeli academia and may, in the decades to come, influence future developments on which Israeli high-tech will rely.

Ongoing Erosion Of Israel's Ranking In Academic Investment In R&D And Academic OutputNo. of most highly cited articles in the field - Israel compared to selected countries 2018-2020

Strengthening the collaboration between academia and Israeli industry may prove to be a win-win factor benefitting both parties. On the one hand, Israeli companies may find academia to be a source of high-quality research human capital that can meet the needs of the industry which suffers from a chronic shortage of workers. On the other hand, this human capital from academia will expose Israeli companies to advanced knowledge and will enable them to make the next quantum leap and further extend their ability to continue being innovative and competitive on the global market.

As far as Israeli academia is concerned, it may find Israeli industrial companies, that have in recent years benefitted from the injection of significant capital, to be a source of innovative research questions with high commercialization potential. These collaborations can lead to a growth both in the number of highquality articles emanating from Israel (that is relatively low in relation to the benchmark countries),14 and in the income of the knowledge commercialization companies in academia. These incomes have suffered an ongoing and significant decline from approx. NIS 1.9 billion in 2012 to just NIS 500 million in 2019. Furthermore, this collaboration may also increase the number of startups that are based on academic knowledge which, although increasing somewhat in recent years, still stands at only several dozen each year.

Patent Requests - No Significant Change Over Past Decade

The importance of collaboration with academia is further reinforced by the fact that it enables brainstorming that ultimately generates the development of novel ideas. A study conducted in 2021 by the Samuel Neaman Institute on the Innovation Authority's Consortiums Program examined the benefits for each of the parties involved in the joint research. The Consortiums Program creates collaborations between companies from Israeli industry, including startups, and academic research groups for self-development of groundbreaking pre-product technology. The Samuel Neaman Institute study, that was based on questionnaires answered by 250 researchers in academia and industry, revealed that this joint brainstorming is one of the main reasons for entering joint projects.

The study also found that the creation of trust and commitment between the two partners is the prime motivation for collaboration, for both academia and industry equally.15 According to this study, the main outputs of the consortiums' collaborations are academic articles and patents, indices that have both suffered from stagnation in Israeli academia in recent years. One should note the activity of Tel Aviv University that has shown significant growth via several collaborations with industry. This may stem from the concentration of Israeli high-tech activity in the city.

Another significant warning sign for the quality of the research at the foundation of Israeli high-tech comes from the maturation of the industry expressed in the significant wave of IPOs of Israeli technology companies during the last two years. Studies show that the level of innovation in a company declines by 40 percent following an IPO,16 a decline that does not stem from a drop in the scope of R&D activity, which is unchanged, but rather, results from a change in focus of the company's R&D activity that becomes more conservative and less original, becoming directed towards profit margins. This change in the company's R&D strategy is primarily expressed in the departure of leading inventors and the decline in productivity of those who remain. In other words, the level of innovation in the wave of current Israeli unicorn companies, and in those that recently conducted an IPO, may be adversely affected, and decline in coming years. To compensate for this, and to maintain the Israeli ecosystem's growth and level of competitiveness, Israeli technology companies must diversify the sources of their R&D, among others by creating collaborations with Israeli academia. At the same time, effort must be made to ensure that Israeli academia has access to the means necessary to conduct international standard studies.

 

Strengthening Collaboration Between the Industry and Academia for a Better High-Tech Future

Several insights arise from the picture presented above: first, collaborations between industry and
academia are based primarily on large and stable companies with a significant cashflow that can afford
long periods of development. In Israel, we see that although there is a fair number of Israeli technology
companies with significant cashflow,17 these collaborations are overwhelmingly based on large international
companies. Second, in recent years, Israeli academia has generated world-class research, also attracting
the interest of companies with global deployment, although this situation may change due to the relative
decline in research investment in Israeli academia compared to the rest of the world. Third, the current wave
of prosperity experienced by the Israeli high-tech sector, that is expressed in the creation of whole public
technology companies alongside the opening of fewer new startups, may actually lead to a decline in the
quality of R&D conducted in Israel.18

Therefore, action should be taken to bolster the research activity in Israeli academia in general and,
specifically, the research collaboration between Israeli academia and Israeli technology companies. The
Innovation Authority operates several programs aimed at creating collaboration between academia and
industry, primarily the Consortiums Program described above. As part of this program, 38 consortiums were
opened between 2010-2021 with the participation of hundreds of large companies, small and medium-sized
companies such as Evogene, Senseera, AccuBeat, and Polygon, as well as dozens of academic institutions
including all the Israeli universities.

Furthermore, because there is generally a significant culture gap between industry and academia, manifested
for example in the different pace of work, objectives, and goals, the Authority operates two programs aimed
at creating collaborations between an individual researcher or small group of researchers and a single
supporting company that identifies commercial potential in the research and is maybe even interested in
adapting it for its own needs. The first of these programs is the Applied Research in Academia Program that
aims to bridge the gap between knowledge created in academia and the needs of the industry, and to create
technological proof of concept (POC) for the preliminary research achievements. The second program is
the Knowledge Commercialization Program that aims to validate the knowledge, adapt it to the company's
needs, and train the company's employees, in order to reduce the existing obstacles in commercializing
knowledge from academia.19

A good example of the value that a small company can derive from the Authority's programs supporting
academia and from the collaborations with industry is the Senseera corporation that began operating with
an applied academic project supported by the Authority. As part of the project, an innovative method was
developed in the lab of Prof. Nir Friedman from the Institute of Life Science and the School of Computer
Science and Engineering at the Hebrew University to diagnose a wide range of diseases via a simple blood
test. Using a unique and sensitive technique, the development helps identify dying cells in different body
tissues, thereby enabling to identify a range of different disease situations with a single blood sample,
including various forms of cancer, and heart and liver diseases. Based on this knowledge and with the support
of external investors, the company was established while commercializing the academic knowledge and has
since become a world leader in its field. Today, the company is leading the establishment of a medical fluid
diagnosis consortium consisting of more than 20 different entities: academia, hospitals, biological banks,
and other companies from the fields of sensors and deep genome analysis. The consortium's goal is to
develop the next generation of disease diagnosis based on a wide range of biological signals, using Artificial
Intelligence.

 

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Connecting Israeli Innovation to the Public and Private Sectors

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While Israeli technology companies are at the forefront of global innovation, their developments are frequently exported elsewhere and fail to benefit the Israeli economy or its citizens. Furthermore, a disparity exists between Israeli innovation developed in local high-tech companies and multinational development centers, and the level of digitization and technological infrastructures available to these companies. Evidence of this disparity can be seen in Israel's ranking in various parameters of the Global Innovation Index (GII) for 2021. On the one hand, Israel leads the rankings in different metrics, indicating the breadth and depth of the Israeli high-tech sector, such as public expenditure on R&D, the scope of venture capital funding rounds, export of ICT products, and inter-sectorial collaborations in areas of innovation. In contrast, Israel ranks below average in other metrics related to infrastructures critical for attaining technology advancement, such as a regulatory climate, participation in digitization processes of the public sector, the ratio of expenditure on software out of GDP, and others.20

The pace at which advanced communications infrastructures are deployed in Israel – via optic fibers – was accelerated recently and reached 50% of the country's homes by the end of 2021. This was achieved following a massive investment aimed at closing the existing gap.21 Nevertheless, the available 'bit rate' in Israel is still behind that of the world's leading countries: Israel is ranked 32nd in the world as of February 2022 with a median broadband bit rate of 90.42 MB per second, according to Ookla.22

It is unsurprising therefore that the business and public sectors in Israel lag behind the relevant benchmark countries to which Israel compares itself with regard to digitization and technological innovation. OECD data also reveals that the Israeli business sector is below the OECD average in application and use of various technologies such as use of social media networks, cloud computerization, CRM technologies, and big data and Artificial Intelligence technologies. In all these metrics, the Israeli business sector ranks below the average use of the OECD countries. The public sector in Israel also suffers from a similar disparity: according to UN data, Israel is ranked 66th in participation of the public sector in digitization processes.23 One of the significant challenges to digitization of the Israeli public sector is a lack of natural language processing tools. In this context, there are two primary obstacles: a lack of economic incentive for the private sector because of the small size of the Israeli market, alongside a lack of databases necessary to train models of natural language processing. The State of Israel is therefore investing 180 million shekels via the National Artificial Intelligence Program to develop natural language processing tools for semitic languages (Hebrew and Arabic).

infoIsrael Ranked 66th of OECD Countries In Digital Participation In Public Sector Indexinfo31

 

These disparities have several negative ramifications for Israel:

1. The citizens of the State of Israel do not fully benefit from the fruits of Israeli innovation
Israeli citizens have only limited access to Israeli-made technological innovation which instead benefits the citizens of other countries. For example, the insurance company Lemonade that offers low-cost insurance policies that are priced using AI technologies, does not offer its services in Israel because, the company claims that the database required for the company's pricing model is not digitally accessible in Israel.24 In other words, in this example, the gap in digitization of government services hinders the assimilation of Israeli innovation and contributes to the high cost of living in places where technology can lower costs. Moreover, companies in the fintech and insurance sectors are subject to regulation, and Israeli startups frequently prefer to adapt their solutions to American or other regulation, rather than to Israeli regulation.

2. Israeli technology companies may transfer activity overseas
Israeli technology companies frequently need an operational environment in which they can conduct initial applications and demonstrations of their technologies during the different development stages. This is especially true for rigorously regulated areas or complex products and services that require infrastructures such as autonomous vehicles, food-tech, and digital health. If Israeli companies do not derive benefit from the pilots and preliminary application in Israel or if the regulatory environment does not enable them to do so, they can be expected to seek these opportunities elsewhere as part of their accelerated growth process. This may weaken the Israeli innovation hub in the medium- and long-terms. In contrast, attractive opportunities for conducting preliminary pilots and applications in Israel can attract important business activity of startups, multinational companies, and pilot beta sites in a diverse range of economic sectors. One example illustrating the potential for the Israeli economy is the National Drone Initiative that was established to advance the use of drones for public benefit. The drones can help reduce congestion on the roads by establishing a national network of aerial routes that can be used, among others, for transporting medicines and medical equipment, or for deliveries in the retail market. The initiative provided all stakeholders – from the operating companies, service providers, technology companies, potential users, and regulators – an opportunity to visualize the future operational environment. The initiative attracted both Israeli and international companies that sought to participate in it despite not having been awarded an Innovation Authority grant, because of the pilot's unique nature and its contribution to their development. Furthermore, many commercial companies (selling ice-cream, soap, sushi etc.) joined the initiative to test the economic model most appropriate for using drones to deliver their products to the end client.

3. Non-high-tech economic sectors miss out on economic benefit inherent in technological innovation
To take the next step and adapt themselves to the 21st century, all sectors of the economy, including the public sector – from health organizations and ports, via commercial companies, to food companies – must apply innovative technologies. Furthermore, collaboration with Israeli startups via "Open Innovation" processes will expose Israeli companies in all sectors to innovation and, via technology, assist them to establish and reinforce a competitive advantage in the global arena.

 

To Facilitate, Pilot and Implement: How Government Policy Can Promote Innovation

A collaboration between the public and private sector forces alongside a formulation of government innovation-supportive policy are required to create synergy between Israeli innovation and the daily lives of Israeli citizens, Israeli companies, and the public sector. Such policy will enable the strengthening of the local innovation hub, will ensure its continued global leadership, and will aid expansion of technological innovation's benefit to further economic sectors.

Thus far, the Authority's involvement focused primarily on direct financial support to fund high-risk R&D in startups and technology companies. In light of the changes in the required policy and the industry's maturation, the Innovation Authority's role has also expanded, and it will serve as a mediator and facilitator in implementing the new policy. The Authority will strive to reinforce the connection between the public sector and the Israeli high-tech industry – both with regard to the public services that Israeli citizens receive, and the public infrastructures used for assimilating innovation (i.e., regulation, physical infrastructures, access to data, and others).

The new generation of solutions that will be implemented by the Innovation Authority and other public sector entities, includes a variety of tools that will transform the government into one that initiates innovation via various projects, into a government that adopts technological innovation as a pilot site and target market, and into a government that facilitates innovation via advanced and flexible regulation. We will now detail how the various new tools are beginning to be executed in projects at different stages of planning and implementation.

 

The new supportive tools for advancing innovation in Israel:

 

1. Government Initiating Innovation: Advancing Public and Private Sector Collaborations to Develop Groundbreaking Solutions

Current Situation:
During its initial years of operation, the Innovation Authority (and previously, the Office of the Chief Scientist) espoused the use of supportive tools in R&D without government direction or focus i.e., without indicating specific technological fields or investing in their development and advancement. Underlying this view was the 'bottom-up' approach, dependence on the private market (entrepreneurs and investors) to identify and choose technological-business opportunities, and government stimulus in those fields in which a level of innovation can be found at the global forefront.

Required Change:
Today, given that Israeli technology companies raise huge sums from the private sector and grow their global activity without any government support, the Innovation Authority focuses on the creation of new supportive tools in places with distinct market failures which, without government support, will prevent Israeli high-tech from continuing to be a world leader. One of the new supportive tools facilitating this is "reality-changing innovative initiatives" – collaborations between the public and private sectors aimed at generating a significant change in a specific and defined area such as public transport or residential construction. These changes will impact the lives of Israeli citizens via assimilation of technology. Innovation initiatives involve government entities, technology companies, regulators, pilot sites for testing technologies, and implementational entities. The inter-sectorial collaborations within the framework of the innovation initiatives will provide unique pilot opportunities while also creating a supportive regulatory and operational framework that will enable the technology companies participating in the initiative to penetrate the market after a successful pilot phase. Furthermore, this support will also allow government and regulators to design future regulatory solutions and to become world leaders in their respective fields. The innovation initiatives will run for 2-4 years and will include identifying a need, gathering knowledge from Israel and overseas, recruiting government and private partners, funding a pilot, and monitoring the results.

The innovation initiatives will focus on areas in which there is a need or a public challenge alongside a technological-commercial advantage for Israel, and in cases where there is a need for regulation or a coordinated government effort to realize the potential. The first innovation initiatives in the fields of smart public transportation and modular construction have already been launched as will be detailed below. During the coming year, the Authority will examine, together with leading government partners, further opportunities to jump-start reality-changing innovation initiatives in fields with an intersection between technological-commercial potential, and Israeli leadership to help in resolving a public challenge.

info

The First Innovation Initiatives:

A Joint Initiative to Promote Autonomous Public Transportation in Israel
Although historically Israel has not been a dominant player in the automotive industry, in an era when motor vehicles are becoming smart and driving themselves, Israel has in recent years acquired a leading position in this field. The number of Israeli startups in the field of smart transportation rose from 400 in 2016 to over 600 in 2020. The most significant growth was in the number of startups established in the field of autonomous vehicles with an annual average growth of 26% during this period. Furthermore, since 2008, more than 20 of the world's largest car manufacturers and their suppliers have opened development centers in Israel, including GM, Honda, Volkswagen, Ford, and others. This field also generates significant business activity with companies raising 1 billion dollars in 2021. Furthermore, one of the largest success stories to come out of Israel in the last decade is the Jerusalem company, Mobileye. The company was established by Prof. Amnon Shashua and Ziv Aviram and developed a technology for advanced driver assistance systems (ADAS), that is also used to develop technologies for autonomous (driverless) vehicles. Mobileye's IPO in 2014 set the company's value at more than 5 billion dollars – at the time, the largest IPO by an Israeli company. In 2017, the company was bought by Intel for more than 15 billion dollars in the largest acquisition deal for an Israeli company.

Travelling To The Future: With A 50% Increase In The No. Of Startups In The Field, Israel Is Becoming A Smart Transportation SuperpowerAuto Manufacturers Are Opening Development Centers In Israel

In other words, there is a significant knowledge base for technologies in the auto and transportation field in Israel. At the same time, the startups in this field are contending with challenges that hinder their global growth. According to an EcoMotion survey conducted in 2021, approximately 40% of the startups in this field report that one of their most significant challenges is a lack of access to piloting sites.25

To assist the companies and to transform Israel into a leading global beta site for innovative technologies in the field of autonomous vehicles and to take advantage of the unique knowledgebase created in Israel, an amendment to the Road Transport Order was approved in March 2022. This amendment will enable to conduct more advanced pilots than those permitted today (e.g., operating a driverless autonomous vehicle). Specifically, Israel is especially interested in integrating the market's existing technologies into the Israeli public transportation system.26

With the laying of an advanced regulatory infrastructure, the autonomous vehicle can now be harnessed to improving Israel's public transportation system and to transform Israel into a leading beta site in the field of autonomous public transportation pilots. To this end, a "reality-changing innovation" initiative has been launched to advance autonomous public transportation in Israel. The initiative is being promoted by the Ministry of Transport's Public Transport Authority, the Innovation Authority, and Ayalon Highways. The expected benefits from the initiative are aimed at one of the largest challenges facing the State of Israel – traffic congestion – by streamlining the public transportation system, improving service and passenger experience, and enhancing safety. Furthermore, the initiative is expected to assist the country and the transportation sector to contend with the problem of manpower and the severe shortage of drivers, via transition to fleets of autonomous buses within the next few years.

 

How will it work?

During the first stage of the initiative, the companies selected will conduct pilots operating autonomous buses in designated pilots and beta sites, with the goal of achieving technological and regulatory feasibility. In the second stage of the initiative, the companies will operate an autonomous public transportation line on public roads that will steadily increase in scope during the two years of the pilot. The initiative is expected to connect public transportation operators and innovative Israeli and global technology companies that are developing autonomous driving systems, and to increase public exposure to autonomous vehicles and their characteristics – namely, safety, travel experience, and environmental advantages. The initiative will also include an examination of operating models and of their economic efficacy.

Promoting Modular Construction to Increase the Housing Supply in Israel
While Israel has a technological advantage in the field of smart transportation that led to the creation of a joint initiative, the need behind an initiative in another area stems primarily from the demand on the ground – Israel's housing challenge. The construction industry in Israel creates 55 thousand housing units a year using existing technologies.27 This while the future housing demand forecasted for 2040 stands at 70 thousand units a year,28 reflecting a need to increase the annual supply of housing units by 30% in less than two decades. One of the ways to contend with the gap in the supply of housing is by extensive assimilation and adoption of advanced technologies to industrialize construction, specifically technology for modular construction. Volumetric modular construction is an innovative construction method in which most of the process is transferred to the factory where complete 3D modules are produced in an "assembly line" method. The modules include the components of the building's external frame, thermal and acoustic insulation, and even pipeline system, electric devices, bathroom fixtures, flooring, windows, doors, and more. The modules are transported to the construction site where they are assembled into the final building (generally including a reinforced concrete core and base floors). This construction method is expected to shorten the duration of construction by 20%-50% and to increase the industry's productivity, alongside further advantages of construction quality, site safety, and the environmental impacts of the construction process.29

The Ministry of Construction and Housing, together with the Innovation Authority and the National Building Research Institute (NBRI) at the Technion have recently published a call to receive information on constructing buildings using the modular construction method and on establishing factories to manufacture modular units. The goal of this call was to receive information from local and global industry players about the feasibility of widespread adoption of this technology in Israel including the need for supportive regulatory infrastructure and promoting the local manufacturing industry. An NBRI survey conducted among professional entities in the construction industry revealed significant obstacles in the assimilation of the modular construction method in Israel. Among the prominent obstacles found were the high level of coordination required between the various planning and implementation entities during construction, a lack of supportive regulation and standardization, and the need to educate both buyers and renters.30

According to the information gathered in the survey, consideration will be given to the possibility of a joint initiative – together with the Ministry of Construction and Housing – to construct residential buildings using modular construction. As part of this initiative, all stakeholders – entrepreneurs, contractors, local manufacturers, and various regulators – will be able to acquire local knowledge of and experience in this method, including practical experience in managing and executing projects of this kind. Furthermore, a coordinated project can help create a unique list of requirements for modular construction in the Building Systems Unit at the Technion that is responsible for approving innovative construction methods. The initiative will provide a tailored regulatory solution and will pave the way to more widespread adoption of this method in Israel. Finally, the project will also help future homebuyers to understand the benefit inherent in the quality of building and living aspects of modular construction.

 

2. Government Adopting Technological Innovation: The Public Sector as a Playing Field for Piloting Technologies

Current Situation:
As part of the Innovation Authority's collaborations with a diverse range of public entities, including governmental entities, administrative authorities, government corporations, and local authorities, numerous challenges have been found that influence their ability, especially those of governmental entities, to manage joint work processes with the high-tech industry. Among others, difficulties arise in conducting pilots and acquisition processes with public entities and in assimilating innovative technologies. One of the challenges is the difficulty to characterize the technological solutions required by governmental entities, partly because of limited exposure to market innovations and insufficient familiarity with the existing technologies available in the industry. Even in those cases in which the public sector is partner to characterization and pilot processes of innovative technologies, the acquisition process fails to reach completion and ultimately the technology is not assimilated due to the structure of the public procurement processes that are sometimes cumbersome and overly bureaucratic. Another challenge stems from the fact that in many cases, the high- tech industry fails to approach governmental entities or to adapt its solutions to them. This difficulty is the result of the slow-paced decision-making regarding acquisition and assimilation of technology, and privacy restrictions that prevent governmental entities from sharing the data necessary to adapt the technology to their needs.

Required Change:
To improve the level of cooperation and coordination between the private and public sectors, there is a need to characterize, build, and implement joint work processes between public entities and the high-tech industry. This will enable the parties to familiarize themselves with each other, to reach a common understanding on the challenges, and to complete the acquisition processes on the way to rapid and extensive assimilation of technological innovations. Some of the next generation of Innovation Authority solutions therefore transforms it into an entity that assists and promotes consultation processes with public entities in fields related to technological innovation. The Authority provides support by offering expert technological reviews that help the government entities' early-stage decision-making process. The Authority also participates, alongside the relevant governmental entity, in funding the adaptation of the technological product to the government needs and its subsequent implementation.

At the same time, the Authority surveys best practices for innovative technology procurement in Israel and overseas, and assists various public partners in accessing and designing similar models. Based on these models, principles can be proposed for synchronizing public and private sector work processes: from the stage of design partnership, via the pilot partnership stage,31 to implementation of technology procurement and the assimilation of technology for an ongoing use. These principles are based, among others, on similar processes implemented in the Israeli defense establishment and on the innovation partnership procedure in the EU and UK. This unique procedure enables suppliers to develop technologically innovative products or services while receiving monetary payment throughout the development, and subsequently continuing directly to the stage of acquisition and assimilation without the need for a further tender procedure. These procedures offer a sequential process from the characterization stage, via the pilot stage, through to procurement, with the aim of allowing government entities and technology companies to progress without administrative delays.

 

3. Government Facilitating Innovation

Regulatory Sandboxes: Adapting Regulation to Test Innovative Technologies

Current Situation:
Regulation plays a key role in promoting or hindering the assimilation of innovation. In many cases where no appropriate regulation exists, a situation may arise whereby no early-stage demonstration of a product or service is conducted in Israel, their production is not conducted in Israel, and they will not be offered for use on the local market. All this while countries worldwide have in recent years developed mechanisms to assist their local companies contend with global competition via technological innovation alongside adaptation of a regulation sandbox for innovative products, services, and business models. As a result, Israel – as an innovation facilitating country – faces increased competition. Required Change: One of the prominent regulatory tools employed in recent years by countries leading the way in assimilation of technological innovation is the "regulatory sandbox". This method is based on the underlying understanding that innovative technologies develop at a rapid pace which, in general, is faster than the pace at which regulation is created and updated, and that the regulator lacks the necessary technological knowledge to comprehensively regulate the industry. As part of the regulatory sandboxes, governments enable companies and organizations to test innovative products, services, and business models without complying with all the existing regulatory rules and while significantly reducing the regulatory uncertainty. This way, companies can test products and services in a facilitating and safe environment without violating existing regulatory constraints. Regulatory sandboxes also include additional tools such as regulatory signposting and nonenforcement letters in which the regulator expresses his intent to forego enforcement of certain regulatory clauses in order to facilitate the activity of a company offering innovative products or services.

Regulatory sandboxes also have significant advantages for the regulators themselves, enabling them to learn and become familiar with the industry and its needs by establishing an independent connection with the industry. In this way, they encourage regulators to collaborate with the industry by creating defense mechanisms for consumers when adopting innovative products. Furthermore, these regulatory sandboxes help regulars to identify a need for regulatory reforms and for the creation of information-based regulation.

One of the prominent fields in which countries operate regulatory sandboxes today is fintech.32 In 2020, there were approximately 70 regulatory sandboxes operating worldwide. This approach has also gained momentum in recent years in additional fields such as transportation, health, and climate. For example, in 2018, Japan announced a general regulatory sandbox, not limited to a specific pilot, that covers the fields of financial services, health, and transportation.33

Regulatory sandboxes are expected to constitute a critical layer of an innovative regulatory environment that will support the financial and taxation tools and will encourage the penetration of innovative products and services into the Israeli market in a way that aids market acceleration and its increased growth. An advanced and innovative regulatory environment in which it is possible to experiment in research, development, assimilation, and marketing of innovative technologies constitutes a significant magnet for Israeli and foreign high-tech companies.

 

An Example of a Regulatory Sandbox: Testing Autonomous Vehicles

The introduction of autonomous vehicles into the public domain significantly increases the potential to change the future of Israeli transportation and accelerates the development of local industry, economic growth, and the efficiency of the transportation sector. Furthermore, it can increase the safety of passengers and pedestrians and reduce traffic accidents. At the same time, the development processes of autonomous vehicles pose complex technological and regulatory challenges. The State of Israel, at the forefront of development in the field of advanced technological systems for autonomous vehicles, is therefore striving to remove the various obstacles in order to advance this trend.

Tests in driving autonomous vehicles have been conducted throughout Israel since 2018, including the independent driving system driving the vehicle, but these include a backup driver responsible for taking control of the vehicle in case of emergency. Furthermore, there are no passengers in the vehicle during the tests and it is not used for commercial purposes. These tests are conducted according to a specific permit provided by the National Traffic Supervisor who is qualified to exempt those conducting test on a vehicle from the obligations of drivers in regular vehicles, such as the driver's obligation to hold the steering wheel.34

A precedential law, composed by the Ministry of Transport and Road Safety together with the Ministry of Justice and with the professional support of the Innovation Authority, came into effect in March of this year. This law was the result of a 2017 government resolution about the creation of a national smart transportation program. The legislation will transform Israel into an autonomous vehicles' beta site at the highest levels of autonomous driving so that, for example, the pilots can evaluate car safety without the presence of a driver. Among the leading countries alongside Israel in this field are California and Arizona in the US and other countries in Europe – Germany and France – and in East Asia – Japan and Singapore. Israel enables to check passenger and commercial service solutions with autonomous vehicles, a reality that is expected to transform Israel into an attractive global focal point of piloting and assimilating this technology. The uniqueness of Israel's sandbox is the possibility of commercial operation of a driverless autonomous vehicle anywhere and without restrictive constraints. This possibility is also recognized as Level 5 Autonomy although Level 5 autonomous vehicles have not yet been fully developed. In practice therefore, the State of Israel has prepared a regulatory infrastructure for a future technology and will be able to progress to pilots of fully autonomous vehicles when this technology becomes available.

info

 

  • 13. See the report published by the Samuel Neaman Institute on the outputs of R&D in Israel: Scientific Publications – An International Comparison, 2021 (Heb).
  • 14. See the report published by the Samuel Neaman Institute on R&D outputs in Israel: Scientific Publications – An International Comparison, 2021 (Heb). The benchmark countries are small dad developed economies – Belgium, Denmark, Norway, Singapore, Finland, Sweden, and Switzerland.
  • 15. Leck, Eran. Gilad, Vered. Getz, Daphne and Tziperfal, Sima (2022). Evaluation of R&D Instruments for Fostering Academia-Industry Collaboration: The Case of the Magnet Consortia. The Samuel Neaman Institute for National Policy Studies (Forthcoming).
  • 16. It should be noted that the companies strive to compensate themselves by recruiting new employees, opening startup subsidiaries and, mainly, via mergers and acquisitions. See Bernstein, Shai. “Does going public affect innovation?”, The Journal of Finance 70.4 (2015), 1365-1403.
  • 17. 25 technology companies traded overseas (90% of them on the NASDAQ) and with a connection to Israel reported a net profit of over USD 10 million in 2020. More than half of them reported profits of over NIS 100 million.
  • 18. The quality of R&D is generally measured according to publication of academic articles and on patents.
  • 19. For more details on these programs, see Appendix.
  • 20. The pace at which advanced
  • 21. Ministry of Communications data.
  • 22. Ookla speed test
  • 23. Public sector digitization processes - UN ranking
  • 24. These cutting-edge Israeli inventions are unavailable in Israel - Business - Haaretz.com
  • 25. Israel’s automotive and smart mobility industry, EcoMotion and Roland Berger, 2021
  • 26. Israel’s automotive and smart mobility industry, EcoMotion and Roland Berger, 2021
  • 27. Beginning and completion of construction October 2020-September 20201, CBS.
  • 28. The Strategic Housing Program for 2017-2040, National Economic Council, May 2017.
  • 29. McKinsey & Company, Modular Construction: From projects to products, 2019.
  • 30. See: Industrialization of Residential Construction Report Via Architectural, Engineering, and Implementational, 3D Modular Units Aspects, 2019
  • 31. See: Innovation partnership procedure
  • 32. See: The Map of Regulatory Sandboxes
  • 33. For information on the regulatory sandbox program in Japan, see
  • 34. According to Regulation 16a of the Road Transport Order

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Appendix: Activity of the Israel Innovation Authority’s Divisions

In 2021, the Innovation Authority's divisions implemented a wide range of measures aimed at advancing the growth of the Israeli innovation ecosystem. This chapter presents the main activity of the various divisions during 2021 and the way in which they translated the Authority's policy into action and specific policy tools.

Summary of Innovation Authority Divisions' Activity

 

The Startup and Business Development Division

The Startup and Business Development Division supports early-stage entrepreneurs and startups in the ideation stage, and corporations interested in exposure to open innovation via partnership in technology incubators and innovation labs. The Division assists the ideation process – from development of an initial technology idea to a complete product – and in advancing the initiative with the aim of reaching advanced stages of capital raising and sales. Furthermore, the Division operates various support programs designed to encourage the market to join forces and advance the area of human capital by developing innovative programs and initiatives. To this end, the Division constitutes a source of government and public knowledge in the spheres of high-tech human capital.

 

The Division's Incentive Programs:

 

Startup Programs

Ideation (Tnufa) Program: The Ideation (Tnufa) program is intended for fledgling entrepreneurs who are interested in formulating and advancing an innovative technological concept to the initial R&D stage, in preparation for Proof of Concept (POC) and/or construction of an initial prototype. The program's goal is to assist in the project's technological POC and commercial applicability, thereby enabling it to raise private funding and/or recruit a business partner for further development. The program provides a maximum grant of up to 85% of the approved budget, with a maximum grant of NIS 100,000 for the initial 12 months period and a further NIS 100,000 for a second period (or up to double for innovative solutions in the field of Bio- Convergence).

Seed Program: The program is intended for startups in the seed stage that are developing technologies in fields with complex regulation and an extended timeframe until implementation, or technologies that are part of an evolving market. The support will be awarded to companies that have not raised more than NIS 5 million (before making their submission to the program) and that have already signed a memorandum of understanding with a venture capital investor experienced in high-risk investments who is interested in making an initial seed investment in the company. Find more details below.

Technological Incubators Programs: The program aims to support investment in technology companies in their early stages by creating a support system that will expedite their development of innovative technology ideas in their initial stages into advanced startup companies that are suitable for continued investment. The program also aims to encourage technology entrepreneurship and commercialization of groundbreaking technologies from research institutions to industry in complex and high-risk fields and to strengthen Israel's technology innovation environment in the field of seed investment. The program is also intended to assist high-tech companies in unique and complex technological fields to formulate and test products, with technological POC, conducting pilot tests etc. The technological incubators, that provide support and assistance to early-stage initiatives, are located in and operated by local and international commercial companies and by venture capital investors with the ability to provide quality added value and support startups and fledgling entrepreneurs. The comprehensive support offered by the incubator includes technological and business guidance, connections to strategic partners, additional investors, and potential clients, a physical site and infrastructures, administrative services, legal advice, and financial services. No financial investment is required by the entrepreneur as part of the program – 85% of the budget is funded by the Authority (up to a maximum sum of NIS 3.5 million for up to two years, according to the type of project and geographical location of the incubator) and 15% is funded by the incubator operators.

Entrepreneurial Incubators in the Periphery Program: This program is aimed at promoting the development and strengthening of innovation systems, technological entrepreneurship, and employment in Israel's geographical periphery via collaboration between specially designated incubators and higher education institutions, students, entrepreneurs, and startup companies. This collaboration is achieved via research activity, development, and commercialization of incubator companies that are based on local initiatives. As part of the program, a local project operating within the incubator will be entitled to a grant of 85% of the approved budget from the Innovation Authority, up to a maximum budget of NIS 1 million, and a grant of 60% from the Innovation Authority, up to a maximum budget of NIS 1 million for a second year of activity. No financial investment is required by the entrepreneur as part of the program – supplementary funding is provided by the incubator that can also assist with follow-on funding. The comprehensive support offered by the incubator includes technological and business guidance, connections to strategic partners, additional investors, and potential clients, a physical site and infrastructures, administrative services, legal advice, and financial services.

Technological Innovation Labs: This program is intended for entrepreneurs in the preliminary stages of a project, who need unique infrastructures and expertise to prove the feasibility of a technological idea. The program is also intended for corporations interested in collaborating with Israeli startups. The assistance to entrepreneurs is provided through innovation labs operated by the industry's leading corporations via an open innovation model. The program enables startups to access unique technological infrastructures, market insights, and unique channels of marketing and expertise to which they currently lack access, with the aim of proving feasibility on the way to transforming a technological idea into a commercial product. The program provides a grant of up to 85% of the approved budget, up to a maximum grant of NIS 1 million for up to a year (and up to NIS 3 million for a period of up to two years in the Digital Health Sub-Program). A grant of up to 50% of the approved budget, up to a maximum sum of NIS 1 million will be awarded for a further period of 1 year (up to NIS 3 million for a period of up to two years in the Digital Health Sub-Program).

Advancing Technology Entrepreneurship in Haifa: This program is aimed at reinforcing and strengthening the city of Haifa's status as a high-tech industry hub in the Israeli ecosystem and to advance technological innovation in the city. The program's goal is to increase the number of startup companies and technological initiatives in Haifa, with emphasis on its Lower City neighborhood. The program encourages synergy and collaboration between principal city focal points such as City Hall, academia, industry, the business sector, and the non-profit sector, with the aim of bolstering urban infrastructures and the use of the city's strategic assets, encouraging independence of entrepreneurial parties, and strengthening the Haifa entrepreneurial community while integrating populations such as ethnic minorities, Ultra-Orthodox, women and Israelis of Ethiopian descent.

Young Entrepreneurship Program: The Authority is working in conjunction with the Ministry of Education to promote an entrepreneurship incentive program that will constitute an efficient tool for encouraging and educating young people in business, scientific, and technological entrepreneurship. The participants in the program will gain practical experience in developing knowledge and products while utilizing Ministry of Education scientific and technological infrastructures such as 'Eshkol' (Cluster) and 'Tapuah' (Apple) science centers and science museums as part of their initiative to transform a technology idea into a product of economic value.

 

Human Capital Programs

Coding Bootcamps Program (34): In response to the shortage of skilled high-tech personnel, the Authority has been operating a program since 2018 that supports extra-academic courses (coding bootcamps) aimed at increasing the supply of programmers and data science graduates in Israel. These intensive and practical programs locate candidates with significant potential, provide them with the necessary theoretical and practical knowledge, and train them, in a relatively short period of time, for work in the high-tech industry as programmers and data scientists. The graduates can therefore make a real and immediate contribution to the company. The program's goal is to increase the number of graduates acquiring relevant practical training who are placed in high-tech development jobs at salaries of over NIS 14,000 (within 15 months of completing the course). The bootcamps were chosen in a competitive procedure for a period of three years.

The Advanced Technology Studies Workshop (HaSadna) Program: The huge demand for experts in advanced technology professions requires innovative models for training experts in this field and for upgrading skilled professionals already employed in the high-tech industry. The Workshop Program focuses on support of a joint advanced training framework for engineers in high-tech companies, led by the industry, in advanced development professions. Proficiency in algorithmics in the field of Artificial Intelligence (AI) has become vital and relevant in almost every field of technology. The Innovation Authority's initiative to assist high-tech companies in training their employees stems from the need for high-quality expert personnel and is aimed at enhancing the important activity taking place in academic institutions and providing training in further AI areas that are required by the industry.

High-Tech Specialization Program (42): In response to the challenge of recruiting inexperienced workers in the high-tech industry, this program offers grants to high-tech companies that create employee specialization programs. As part of these programs, new graduates with a university degree or a degree in practical engineering in technology professions ("juniors") will be accepted and trained for entry-level development roles. The company will receive a grant of NIS 50,000 for every candidate they hire for a minimum of six months with a monthly salary of at least NIS 15,000 and who receives on-the-job training. The juniors' training model will be adapted to each company's specific needs and may be based on the company's internal resources and/or external organizations and trainers.

Human Capital for High-Tech Fund (44): The Human Capital Fund is a unique program aimed at encouraging the creation of innovative solutions coming from the market, to expand entry routes to hightech employment and to upgrade or improve the existing high-tech human capital in R&D and growth positions (sales, marketing, finances, legal etc.) in the high-tech field.

The fund offers grants for budget requests according to the following rungs:

  • For budget requests of up to NIS 1 million – 50%, 60%, or 70% of the approved budget.
  • For budget requests of NIS 1 million -15 million – 30%, 40, or 50% of the approved budget, according to the committee's decision.

Industry Training and Placement Program (45): As a response to the high-tech employment crisis that developed as the result of the Covid pandemic, the Innovation Authority, in conjunction with the Ministry of Finance, and the Ministry of Economy and Industry, launched an emergency program to finance the immediate large-scale training and placement of workers in a variety of high-tech professions. The program offers grants to training entities and companies implementing a process that combines training for and placement in in-demand technology and business jobs. Preference will be given to requests that emphasize high-percentage placement, employers' involvement in defining the training program, and the provision of practical specialization.

 

New Projects:

Programs to Promote Entrepreneurship and Seed-Stage Startups: These programs are intended to establish a supportive network for the creation and mentoring of new initiatives and entrepreneurs from the ideation stage, to create an innovation ecosystem that supports entrepreneurship, and to increase the number of investors at the pre-seed and seed stages. The programs also encourage entrepreneurship and increased numbers of initiatives and new companies from the seed stage via three sub-programs:

a. A program to establish angels' clubs
b. A program to establish technology innovation centers and the possibility to include activity aimed at advancing high-tech employment
c. A program to establish technology accelerators

As part of the programs, grants will be given for up to NIS 900,000 per year, for the three years franchise of the angels' club; NIS 2 million each year, for the five years franchise of establishing a technology innovation center; and a further NIS 1 million for each operational year, if the proposal includes activity aimed at advancing high-tech employment, and NIS 1 million per year for 2-4 years for the franchise of establishing a technology accelerator.

The Program to Advance Technological Innovation in Beersheba: This program is intended to create a high-tech hub in the Negev by advancing technology entrepreneurship and increasing the number of startup companies in Beersheba. Special emphasis will be given to the fields of activity with existing industrial mainstays that can serve as a focal point to attract companies: ICT (cyber, G5 communications, Artificial Intelligence, organizational software), industry and sustainability, and health. The program encourages the creation of synergy and collaboration between principal city focal points (City Hall, academia, industry, and the business sector), the bolstering of urban infrastructures with an emphasis on R&D infrastructures, the creation of large companies' R&D and innovation centers, the strengthening of the Beersheba entrepreneurial community while integrating populations such as ethnic minorities, Ultra-Orthodox, women and Israelis of Ethiopian descent – including branding and marketing the city as a Negev high-tech hub and as a center of entrepreneurship and innovation. As part of this program, the Innovation Authority will award a grant of NIS 25 million for a period of 4 years.

The Technological Innovation Labs Program: A new technological innovation lab in the field of digital health began operation as part of the general technological innovation labs program. As part of this sub-program, the lab's companies will receive a grant of up to 85% of the approved budget, up to a maximum grant of NIS 3 million for a period of up to two years, and a grant of up to 50% of the approved budget, up to a maximum sum of NIS 3 million for a further period of up to two years.

Human Capital Fund: 49 different programs were chosen as part of the first and second calls for proposals in the Human Capital for High-Tech Fund Program (44). Most of the programs focus on advancing sectors of the population currently under-represented in the industry – women, the Arab sector, the ultra-Orthodox sectThe programs receivedor, and residents of the periphery, as well as advanced technology training courses such as VLSI and sustainability.
The programs received total grants of NIS 54.2 million (state funds) and NIS 63.3 million (private funding) and will train 13,600 participants during the next two years. Furthermore, 5 operating entities were chosen to integrate new immigrants and returning Israeli citizens with R&D experience. Over the next two years, these entities will run programs to locate and sort relevant participants, provide them technology training and soft skills workshops, and place them in local high-tech companies.

 

Below is a summary of the programs selected in the second call for proposals:

 Type of Program No. of Programs
Approved
Total No. of Trained Participants (in 2 years)
 Juniors and extra-academic training 16 6,615
 Training for under-represented populations 19 3,200
 Bringing human capital from overseas 5 1,016
 Training in advanced tech professions 8 790
 Training platforms 1 2,000
 TOTAL 49 13,621

 

The Division's Performance in Numbers:

  • 99 requests were submitted to the various incubator programs during the year, of which 85 were approved for total grants of NIS 150 million.
  • 325 requests were submitted to the Tnufa (Ideation) Program of which 108 were approved for total grants of NIS 12 million.
  • 28 requests were submitted to the Innovation Labs programs of which 22 were approved for total grants of NIS 14 million.
  • 1 request was submitted to the Advancing Technology Entrepreneurship in Haifa program and a grant of NIS 7,500,000 was approved.
  • As part of the Young Entrepreneurship Incentive Program, the 'Unistream' NGO, via a dedicated joint NIS 1.25 million budget from the Innovation Authority and the Ministry of Education, also operates technological entrepreneurship training programs for youths aged 14-18 in schools and designated centers around Israel, with an emphasis on the geographical and social periphery.
  • One group consisting of the market's leading companies operates as part of the Workshop (HaSadna) Program and trains the employees of the participating companies in Artificial Intelligence-related professions. The lecturers leading the programs are senior industry figures from the companies that are members in the operating group of companies alongside professional instructors, with the proposed syllabuses being submitted and approved by the Innovation Authority. 600 employees will be trained over a 3-year period that will receive investment of NIS 6 million representing a 66% funding ratio.
  • Over 6,300 allocations were approved as part of the Emergency Training and Placement Program (45). These were divided between development roles and technology and business roles that support development. The subsidized training programs will also be held in periphery areas and will be tailored to under-represented populations, with an emphasis on the ultra-Orthodox and Arab sectors, at a total budget of NIS 16 million. The training courses will be run by 29 training entities and 18 employers who will conduct the training and placement of the graduates. In addition, as part of this program, 5,600 workers were trained in the high-tech industry during 2021, with a third of these being in core roles and the remainder in supporting core roles- and business positions.

 

The Growth Division

The Growth Division supports startups and companies in growth stages, mature companies, and R&D centers operating throughout Israel. The division helps to advance companies' competition and technological leadership with the aim of increasing the pace of their growth and their potential.

 

The Division's Programs:

R&D Fund: This program supports commercial companies currently developing new products or upgrading an existing technology. The program offers the largest financial incentive awarded by the State of Israel for Israeli corporations' R&D activity and is offered to all sectors with the aim of strengthening and advancing the Israeli economy. The fund's activity also includes designated programs to support startup companies owned by members of Israel's minority populations and/or ultra-Orthodox and/or women and another designated program supporting breakthrough generic research and development in R&D-oriented companies.

Joint Government Support for High-Tech Technological Innovation (Pilots): This program allows technology companies to conduct R&D, including programs for operating pilot sites in a variety of innovation systems, including those with rigorous regulation and with governmental influence, while enhancing the perception of the economic value created in Israel. Collaborating with government entities via the incentive program increases their ability to strengthen innovation systems in fields under their responsibility, provides better access to regulation, state assets, and public infrastructures, and that ultimately improves the level of knowledge and professionalism of both the Innovation Authority and government in advancing these innovation systems for the benefit of the general public. This incentive program is intended to support research or development and to provide a response to market failures that exist in new and growing innovation systems, including those resulting from regulation and government impact. These market failures are characterized by high levels of technological risk, complex implementation, limited access to pilot testing sites, or difficulty in receiving regulatory approval. This program includes sub-programs specifically designated for various sectors such as health, transportation, environmental protection, the Government Companies Authority, agriculture, cyber, energy, internal affairs, teleprocessing, finance and securities, tourism, communications, internal security, space, etc.

Assistive Tech ("Ezer-Tech"): This program has been operating since 2011 and is the result of collaboration between the Innovation Authority and the National Insurance Institute funds. The program's goal is to encourage R&D of industrial products that provide technological solutions for the disabled and thereby enabling them to integrate into society and the labor market. Assistive technologies possess the potential to generate dramatic change in the lives of people with disabilities and to enable them to conduct healthy, independent, and respectable lives enabling them to contribute in all spheres of life: employment, education, leisure etc.

 

New Projects:

Last year, the Innovation Authority expanded the scope of tailored initiatives focusing on fields with defined market failures and that without government support will endanger the continued leading position of Israeli high-tech. These projects are a concentrated and coordinated public-private effort that includes a critical mass of multi-sector pilot activity which includes, as needed, government entities, technology companies, regulators, testing sites, and implementation bodies, led by the Innovation Authority, that are aimed at generating a reality-changing development in a specific technology field in Israel. This is, in effect, a further facet of the Innovation Authority's policy measures, the goal of which is to maximize an organization's existing knowledge and tools and enable the Authority's support to have the maximum possible influence in advancing Israeli technological innovation.

 

The Division's Performance in Numbers:

  • 95 requests were submitted to the Institutional Investment Programs,35 of which 93 were approved for secured investments totaling NIS 848.8 million.36
  • 639 requests were submitted to the R&D Fund Program of which 274 were approved for grants totaling NIS 533 million.
  • 157 requests were submitted to the Pilots Program of which 67 were approved for grants totaling NIS 69 million.
  • 3 requests were submitted to Sub-Program (35) – Biotechnology and Medical R&D Centers. All 3 requests were approved for grants totaling NIS 26 million.
  • 49 requests were submitted to the "Assistive-Tech" Program of which 14 were approved for grants totaling NIS 9 million.

 

International Collaboration Division

The International Collaboration Division helps create a competitive advantage for Israeli companies via international collaborations in fields of research and innovation. The Division strives to facilitate access to knowledge, partnership in global research and innovation and market pilots, as well as collaboration with multinational corporations, public entities, and leading research institutions worldwide. The Division is responsible for the Innovation Authority's global connections that advance research and innovation collaborations on strategic issues. Operating under the auspices of the Division is the ISERD (Israel-Europe Research & Innovation) Directorate responsible for Israel's interface with the European R&D framework program.

 

The Division's Programs:

R&D With International Partners Incentive Program: This program provides support to Israeli companies working with foreign partners on commercialization-directed R&D projects to develop new technological products or to significantly upgrade an existing technology. The program also provides Israeli companies with an opportunity to work with foreign partners via a financial incentive that enables to share the risk in funding the project and helps with finding foreign technology partners.

Pilots with International Partners Program: This program supports Israeli companies' technology pilot programs in different fields that will be conducted at overseas companies or that will be based on their capabilities, data, or information. The program grants Israeli companies an opportunity to test their technologies in real conditions via a financial incentive that enables to share the existing risk in funding the project and assistance with finding international sites for the pilots. Products submitted as part of this incentive program must be ready for testing (after proof of feasibility and development of most of the product) and without additional significant R&D content.

Bi-National Funds Incentive Program: This program provides support for Israeli companies collaborating with foreign companies in the US, India, Singapore, and Korea on R&D projects of new technology products or the significant upgrade of an existing technology. The program's financial incentive, financed by the binational funds, enables to share the risk of funding the project and offers support in the search for foreign technology partners.

There are currently four bi-national funds:

  • I4F – Israel-India
  • BIRD – Israel-United States
  • SIIRD – Israel-Singapore
  • KORIL – Israel-Korea

The ISERD Directorate - European Program for Research and Innovation – Horizon Europe: The European Framework Program for Research and Innovation is the world's largest platform for collaborations in this field, with a total budget of EUR 95.5 billion over 7 years. Israel is an associate member of the program and Israeli entities are entitled to submit requests for grants. ISERD – the Israel- Europe Research & Innovation Directorate – is responsible for advancing Israeli activity in the European research arena and aims to provide Israeli entities with access to the European Framework Program. The program provides direct funding for a vast range of sectors and entities according to calls for proposals, both via individual grants to outstanding researchers and to outstanding companies, and via grants to consortiums in fields of European preference. The program is intended for any organization or legal entity that would benefit from cooperation in international research, development, and innovation processes: companies, startups, corporations, research and academic institutions, government agencies, hospitals, municipalities, non-profit organizations, and others. The Horizon Europe program will implement the "Green Deal" policy that constitutes the European Commission's roadmap for advancing UN goals of achieving climate sustainability by 2050. To this end, specific challenges are identified relating to climate change and damage to the environment. The strategy formulated in the Green Deal initiative outlines a program of significant economic and social changes in Europe that advance efficient utilization of resources and a transition to a circular and clean economy, conservation of biological diversity, reduction of environmental pollution, and use of research and innovation to adopt a sustainable, equitable, inclusive social change. As part of the program, 30 percent of the grants will be allocated to the Green Deal policy.

 

The central sub-programs intended for companies are:

Accelerator EIC: for small- and medium-sized groundbreaking companies. This program offers grants and equity investment proposals.
Consortiums Program: offers a grant for projects that answer calls for proposals in different fields. Consortiums will consist of at least three partners from three different countries, one of which must be a member country. The consortiums enable companies to collaborate with researchers.
Missions: the program defines five major missions in the fields of cancer, smart cities that are climate balanced, adaptation to climate change including social transformation, healthy oceans, seas and lakes, and healthy earth and food. The projects chosen will be ambitious and multi-disciplinary and will meet the criteria determined as part of that mission.

The program runs several sub-programs in fields of preference in which the Authority participates:

  • The CHIPS Micro-Electronics Program
  • The M-ERA.NET Program in materials science
  • The MANUNET Program in advanced manufacturing
  • The PRIMA Program for Mediterranean cooperation in fields of food and energy
  • The QuantERA Program for research in the field of Quantum Technologies
  • The Graphene Flagship for graphene and brain research
  • The ICT AGRO Program for research in the field of precision agriculture 
  • The CHIST-ERA Program for collaborative research in ICT fields

 

The Division's Performance in Numbers:

  • 99 requests were submitted to the R&D and Pilots with International Partners Incentive Programs of which 48 were approved for a total of NIS 60 million.
    • 114 requests were submitted to the first stage of a pilot program with 4 leading global health centers, 20 of which advanced to the second stage. Of these, 14 projects were approved for total support of NIS 8.6 million. The approved projects include innovative technologies for remote monitoring and control of patients, use of AI systems for issuing recommendations and supporting medical decisions, and software tools for streamlining cancer treatment. 
  • 51 requests were submitted to the Bi-National Funds Program of which 22 were approved for a total of NIS 47.3 million. 
  • 13,000 Israeli requests were submitted to the European R&D Horizon 2020 Program between 2014-2020. Of these, 1,666 grants totaling EUR 1.27 billion were approved (preliminary figures).37 Furthermore, 5 Israeli requests were approved as part of the ECSEL Program in the field of micro-electronics for total grants of NIS 20 million.
    • 209 Israeli companies submitted requests in 2021 to the EIC Accelerator Program for outstanding companies of which 16 Israeli companies were approved grants totaling EUR 37 million and equity proposals worth EUR 101.6 million.

 

Technological Infrastructure Division

The Technological Infrastructure Division is responsible for advancing the development of groundbreaking generic and pre-product technology, commercialization and transfer of knowledge from academia to industry, the establishment of R&D infrastructures, and for supporting the development of dual civilian-defense technologies. The Division's programs are open to entrepreneurs, companies, and research institutions for individual or collaborative research.

 

The Division's Programs:

MAGNET Consortiums Program: Consortiums of Israeli industrial companies and academic research groups working together to realize a common vision of groundbreaking pre-product technology research. The technology focuses on fields of importance on the global market in which Israeli industry has or may have a competitive advantage. The program enables the distribution of knowledge and cooperation between the consortium partners, which may be otherwise difficult to achieve. The program enables the formation of different consortiums for a period of 3 years, via broad-based partnership of industry entities, that are focused on a limited number of companies or those aiming to build an infrastructure of knowledge via research institutions that are directed by the industry.

Academic Knowledge Transfer Program: This program incentivizes biennial applied research with innovative technological feasibility originating in academia and its advancement to the stage at which an Israeli industrial company will adopt it to develop as a commercial product. The program's goal is to bridge the knowledge gap between academia and the industry's needs, with the option of leading a project to a stage where it attracts the interest of business entities and, ultimately, achieves a commercialization agreement with the research institution. The program allows the project research to be accompanied by a corporation that envisions its subsequent commercial potential. Adding a corporation to the consortium will therefore be allowed at all stages of the project, to increase its chances for commercialization in Israeli industry. This program includes 3 sub-programs: Knowledge Transfer with an Accompanying Corporation, Knowledge Transfer without a Corporation, and Preferred Pharma Research that allows for triennial activity. In addition, a technology-business expert will be allocated to approved projects via the Authority's expert subject matter sub-contractors, in order to assist researchers in honing their scientific and business activity and to adapt it to market requirements. This benefit will be given to institutions that choose to add this expert (whether from the Authority's list of experts or one proposed by the institution itself). Projects approved as part of this program that met the technology criteria and those stipulated by the committee, will be given the option of requesting further support for an "inclusive feasibility lab". This activity will enable funding of an external service laboratory, will demonstrate compiling of technological development, and will yield value for the industry which will ultimately allow the project's commercialization and transfer of knowledge to the industry.

Knowledge Commercialization Program: A program promoting cooperation between academic research groups and an Israeli industrial company, with the goal of proving technological feasibility of the preliminary academic research's achievements. The program is intended to enable a company to absorb the knowledge developed by the academic institution and to adapt it to its needs for developing groundbreaking products. The program includes repetition of the research results, their validation, adaptations to industrial conditions, and industrial application. The program includes three biennial sub-programs – MAGNETON, Knowledge Import, and Continued MAGNET:

  • MAGNETON and Knowledge Import – the R&D program will include the transfer of knowledge from one or more research institutes (Israeli or foreign respectively) to an Israeli industrial corporation, primarily via repetition of the research results, their validation, adaptations to industrial conditions, and industrial application.
  • Continued MAGNET – continued joint R&D activity of an industrial corporation member in the consortium and a research institution on a selected project conducted in the consortium.

MEIMAD – Dual Military, Defense, and Commercial R&D Program: This incentive program is a joint venture of the Innovation Authority, Ministry of Finance, and the Defense Ministry's Administration for the Development of Weapons and Technological Infrastructure. The program supports the development of creative pre-product solutions for military needs and commercial markets. The program's goal is to promote military and commercial R&D of dual use technologies, which on the one hand contribute to national security, and on the other hand possess commercial potential. This program includes three sub-programs: MEIMAD Academia (see Academic Knowledge Transfer above), MEIMAD Industry (see Knowledge Commercialization above), and MEIMAD Pre-Product – groundbreaking pre-product technology developments with dual-use potential (the project is for up to 2.5 years).

R&D Infrastructure and Equipment Program: This program enables the establishment of R&D infrastructures needed by the industry for innovative and groundbreaking R&D. Government support for the establishment of infrastructures is required when a significant industry need arises for such infrastructure and when, for the following reasons, there is no economic justification for its establishment without government support: a. There is no such infrastructure in Israel and the need exists for significant knowledge and funding that would be uneconomic for a specific Israeli company. b. Accessibility to the exiting infrastructure overseas incurs high costs or does not conform to the needs of industrial users in Israel. c. The infrastructure and facilitating its accessibility will create fertile ground for building an ecosystem in this field in Israel. Establishing the infrastructure can be undertaken by a group of users, or by an industrial corporation, by buying infrastructure equipment to provide R&D services for industrial corporations to advance Israeli industry.

Applied Research in Industry Program: This program supports companies that invest large-scale budgets in research / preliminary development processes of groundbreaking technology. Among the emphases of the program:

  • Innovative high-risk R&D - Engaging in high-risk research and the development of innovative technologies grants a company a significant advantage and allows it to penetrate new markets and to influence the growth of the Israeli economy.
  • Attractive funding model - The program offers participation in risks inherent in the development process of a new technology, regardless of future profits or successes. The grant will be 55% of the program's total budget approved by the research committee. 
  • Quality-Standard support - The support of the Innovation Authority, given only after a project undergoes comprehensive professional examination and evaluation, constitutes a quality standard for companies in the industry. This quality standard helps in recruiting investors at various stages of a company's activity.

 

New Projects:

IGBT (Israel Biochip Technology Consortium): is a consortium of leading companies and researchers from the field of electronic chips and biochips. The consortium's goal is to develop generic technological bricks aimed at creating an Israeli competitive technological advantage in the field of continuous medical monitoring of the human body, based on data measured by multiple sensors. The consortium integrates well with the Innovation Authority's efforts to advance the field of bio-convergence as a significant growth engine of the Israeli economy.

Applied Research in the Industry: NOVA is a 28-year-old company with revenues of over USD 400 million and with more than 800 employees, of whom 400 are in Israel. The company submitted a request for support in developing a new metrology technology that will enable the early electrical characterization of the components built in the semiconductor industry's assembly line. The product, that will be constructed using the technology will be innovative and will allow to conduct an electrical test at a significantly earlier stage than that possible today. No such product currently exists in the growing metrology market.

Knowledge Commercialization: CEVA is a company that develops advanced sound solutions to improve human-machine and interpersonal communication. The company submitted a request to the Knowledge Commercialization Program at Bar-Ilan University for a field that focuses on algorithms for Machine Learning and Deep Learning. The project pertains to the integration of new mechanisms in products' software and hardware components (the bx- processor, ClearVox sound filter) to reduce noise and improve sound quality. The future products, in which the technology developed in this program will be incorporated, include communications and multimedia devices and others.

Applied Research in Academia: A study conducted by Prof. Malachi Noked from Bar-Ilan University on surface modifications aimed at creating innovative protection levels to improve the operation of rechargeable lithium batteries. The funded study will assist in the development of an innovative nanometric coating on the silicon anode of a next-generation lithium-ion battery and help enhance its performance by approximately 30%. This technology has commercialization potential with different companies in Israeli industry that have large needs on the local and global markets and can contribute significantly from a sustainability perspective.

MEIMAD Applied Research in Industry: Lurya Defense and Aerospace submitted a request to develop a ballistic helmet and a helmet for civilian purposes. The helmet combines soft and hard protection, connected via a spring switch, and has improved performance in protection from amor-piercing bullets and trauma wounds. This idea represents high-level functional and technological innovation on a global level. The company is also interested in developing a process for the 3D printing of boron carbide. (Boron carbide).

 

The Division's Performance in Numbers:

  • Work plans of 11 consortiums were approved during 2021 as part of the Consortiums Program, for grants totaling NIS 175 million (NIS 47 for new consortiums and NIS 128 million for follow-up programs). Furthermore, 5 projects were submitted to establish new consortiums during 2021 and received preliminary approval. The final decisions on these requests will be made during 2022.
  • 21 new and follow-up requests were submitted to the MEIMAD Program of which 17 were approved for grants totaling NIS 12.5 million. 
  • In the R&D Infrastructures Program, a follow-up period was approved for the NLP Consortium and for the Smart Transportation Consortium totaling NIS 8.5 million. In addition, approval was given for the establishment of an R&D infrastructure in synthetic biology for grants totaling NIS 9.7 million for the first year of activity.
  • The Authority's Research Committee in the Applied Research in Industry Program discussed 22 requests for a total budget of NIS 82 million. Six new requests were approved for total grants of NIS 15.4 million and a further NIS 26.7 million was awarded to follow-up requests.
  • 85 requests were submitted to the Knowledge Commercialization Program of which 58 were approved for total grants of NIS 48 million.
  • 388 files were submitted to the Applied Research in Academia Program, with or without an accompanying corporation, including MEIMAD Academia, (205 new files of which 132 were approved) for total grants of NIS 107 million.

 

Advanced Manufacturing Division

The Advanced Manufacturing Division assists companies from the manufacturing sector and factories interested in developing products and implementing innovative technologies. The Division strives to strengthen the manufacturing industry and enhance its competitiveness by applying R&D processes and innovation.

 

The Division's Programs:

R&D Preparatory Program: The program aims to create an innovation-oriented change in companies from the manufacturing industry sectors, with the goal of enhancing the competitiveness of the participating companies. The program is operated as a complementary tool for the manufacturing industry and is intended to assist companies with the initial stages of R&D. The program offers companies without prior experience in R&D and in leading innovation processes, or companies that require focus and guidance with their R&D activities, the assistance of technology experts to bolster their R&D programs. The program provides various supportive tools including mapping and examination of possible R&D directions, testing of technological feasibility, resolution of engineering faults, improvements in the manufacturing process, and pre-manufacturing preparations for early-stage companies.

MOFET (R&D in the Manufacturing Industry): The MOFET Program leads technological R&D programs that have the potential to improve productivity of a company or factory, while at the same time creating technological differentiation that will achieve competitive advantages in the local and global markets. The MOFET Program is intended for industrial factories interested in implementing technological innovation processes by developing innovative products, improving and developing existing products, or developing and enhancing production processes. The program is for manufacture-oriented companies or companies preparing for manufacturing, and that meet the program criteria. As part of this program, a company may submit focused R&D programs including development of a new product, use of advanced materials, and development of an innovative production process.

Transition from Development to Production Program: This program aims to assist companies to successfully navigate the transition from development to production, with the aim of establishing production lines and factories in Israel using advanced technologies. The program constitutes a quantum leap for companies in developing a production process for advanced products, offers financial support, guidance, and assistance in removing obstacles during an early-stage company's transition from product development to that of mass production. The program accepts requests in which two thirds of the budget is allocated to the development of production processes. The program is intended for companies and factories producing or preparing to produce in Israel and that are interested in developing innovative production processes or production processes for globally innovative products.

 

New Projects:

Breaking the Paradigm and Introducing R&D into the Manufacturing Industry: The manufacturing industry is entering the world of R&D, as can be seen by the 30% annual growth in the number of R&D submissions and approved grants. About 50% of the submissions in 2021 were from industry that had not previously engaged in R&D (plastics, metals, food, etc.). Over 50% of the companies are located in Development-A Zones. 180 companies submitted a first-time request for support in the MOFET and R&D Preparatory Programs.

Establishing Factories in Israel with Advanced Technology: Two new calls for proposals were issued in 2021 in the Transition from Development to Production Program, that enables companies to develop production processes while setting up the factory and to strengthen its production activity in Israel. This program provides ongoing support for companies that have completed the product development stage and are developing the production processes, in fields such as medical devices, pharmaceuticals, energy, alternative proteins, and others. To date, 70 companies have submitted requests as part of this program, 50 of which were approved for total grants of NIS 85 million. Of these, approximately 70% of the submissions were in the fields of medical devices, pharma, and energy. About 85% of the companies are early-stage companies (sales of up to US 10 million) with significant growth potential in Israel.

Collaboration with Government and Innovation-Promoting Entities: For the first time, the Advanced Manufacturing Division initiated collaboration during 2021 with the Defense Ministry's Administration for the Development of Weapons and Technological Infrastructure in order to advance dual R&D programs in the manufacturing industry. 22 requests were submitted as part of this program to develop new products and production processes for advanced technological products that represent innovation in both the civilian and military markets, and which enable Israeli manufacturing companies to compete globally. In addition, collaborations were formulated and extended with the Ministry of Economy and Industry, the Ministry of Construction and Housing, the Ministry of Agriculture, the Ministry of Energy, and the Ministry of Health to advance R&D programs in manufacturing companies in various sectors.

 

The Division's Performance in Numbers:

  • 213 requests were submitted to the MOFET Program of which 145 were approved for grants totaling NIS 108 million. 
  • 90 requests were submitted to and approved by the R&D Preparatory Program for grants totaling NIS 6 million.
  • 42 requests were submitted to the Transition from Development to Production Program of which 33 were approved for grants totaling NIS 57.5 million.
  • 37. Final figures are expected only after the finalization of the winning companies’ funding agreements. Likewise, 2021 data has yet to be received.

More chapters at this report

Activities of the Israel Innovation Authority’s Divisions

The Israel Innovation Authority strives to provide solutions for the various challenges facing the Israeli innovation ecosystem via six operative divisions. Each division is focused on specific tasks and clients and offers a unique set of tools for contending with the different challenges throughout the technology lifecycle.

In 2020, the Innovation Authority’s divisions implemented a wide range of measures aimed at advancing the growth of the Israeli innovation ecosystem. Specifically, during 2020, it approved 615 requests submitted by new companies requesting support for the first time.

Distribution of Companies Submitting a First Request for Support to the Innovation Authority in 2020,according to divisionThis chapter presents the main activity of the various divisions during 2020 and the way in which they translated the Authority’s policy into action and specific policy tools.

 

  • Startup and Business Development Division

The Startup and Business Development Division supports earlystage businesses and startups in the ideation stage and corporations interested in exposure to open innovation via partnership in technology incubators and innovation labs. The Division assists the ideation process – from development of an initial technology idea to productization – and in advancing the initiative with the aim of reaching advanced stages of capital raising and sales.

 

The Division’s Incentive Programs:

Ideation (Tnufa) Program: The Ideation (Tnufa) program is intended for fledgling entrepreneurs who are interested in formulating and advancing an innovative technological concept to the initial R&D stage, in preparation for Proof of Concept (POC) and/or construction of an initial prototype. The program’s goal is to assist in the project’s technological POC and commercial applicability, thereby enabling it to raise private funding and/or recruit a business partner for further development. The program provides a maximum grant of up to 85% of the approved budget, with a maximum grant of NIS 100,000 for 12 months (or double for innovative solutions in the field of Bio-Convergence).

Seed Program: The program is intended for startups in the seed stage that are developing technologies in fields with stringent regulation, an extended timeframe until implementation, or technologies that are part of an evolving market. The support will be awarded to companies that have not raised more than NIS 3.5 million (before making their submission to the program) and that have already signed a memorandum of understanding with a venture capital investor experienced in high-risk investments who is interested in making an initial seed investment in the company. Find more details below.

Technological Incubators Programs: A technological incubator constitutes an entrepreneurial center, the role of which is to invest in companies in their early stages. The incubator provides a framework that supports the establishment of the company and the development of the idea into a commercial product. The Incubators Program aims to support initiatives with an innovative technological idea in the early R&D stages, that is having difficulty raising private capital and needs the incubator’s support to reduce the risks and enable it to reach a significant funding milestone.
The comprehensive support offered by the incubator includes: a physical site and infrastructures, administrative services, technological and business guidance, legal advice and access to partners, additional investors, and potential clients. No financial investment is required by the entrepreneur as part of the program – 85% of the budget is funded by the Authority (up to a maximum sum of NIS 3.5 million for two years, according to the type of project and geographical location of the incubator) and 15% is funded by the incubator operators.

Technological Innovation Labs: This program is intended for entrepreneurs in the preliminary stages of a project, who need unique infrastructures and expertise to prove the feasibility of a technological idea. The program is also intended for corporations interested in collaborating with Israeli startups. The assistance to entrepreneurs is provided through innovation labs operated by the industry’s leading corporations via an open innovation model. The program enables startups to access unique technological infrastructures, market insights, and unique channels of marketing and expertise to which they currently lack access, with the aim of proving feasibility on the way to transforming a technological idea into a commercial product. The program provides a grant of up to 85% of the approved budget, up to a maximum grant of NIS 1 million for up to a year. A grant of up to 50% of the approved budget, up to a maximum sum of NIS 1 million will be awarded for a further period of 1 year.

Advancing Technology Entrepreneurship in Haifa: This program is aimed at reinforcing and strengthening the city of Haifa’s status as a focal point of high-tech industry in the Israeli ecosystem. The program’s goal is to increase the number of startup companies and technological initiatives in Haifa, with emphasis on its Lower City neighborhood. The program encourages synergy and collaboration between principal city focal points such as City Hall, academia, industry, the business sector, and the non-profit sector, with the aim of bolstering urban infrastructures and the use of the city’s strategic assets, encouraging independence of entrepreneurial parties, and strengthening the Haifa entrepreneurial community while integrating populations such as ethnic minorities, Ultra-Orthodox, women and Ethiopian Israelis.

Young Entrepreneurship: The Authority is working in conjunction with the Ministry of Education to promote an entrepreneurship incentive program that will constitute an efficient tool for encouraging and educating young people in business, scientific, and technological entrepreneurship. The participants in the program will gain experience in developing knowledge and products while utilizing Ministry of Education scientific and technological infrastructures such as ‘Eshkol’ (Cluster) and ‘Tapuah’ (Apple) science centers and science museums as part of their initiative to transform a technology idea into a product of economic value.

The Division’s Numbers in 2020

New Projects:

Seed Program: This program, which began operating at the beginning of 2021, aims to encourage investment by experienced venture capital investors in high-risk startup companies, thereby encouraging the establishment of further startups in these fields. The Innovation Authority will finance 40% of a seed round up to a maximum grant of NIS 3.5 million for startups that have signed a term sheet with an experienced venture capital investor or 50% of the round up to a maximum grant of NIS 3.5 million for startups located in Israel’s geographical periphery or of entrepreneurs from population sectors under-represented in high-tech. The startup will issue the investor an option for the sum of the Authority’s grant, to be exercised up to 3 years after approval of the request. When exercising the option, the investor will transfer the proceeds to the company plus yearly interest of 5%, upon which the company will repay this entire sum to the Authority.

The New Technological Incubators Program: The goal of this program is to encourage investments in the early stages of technological initiatives by creating a framework that supports and spurs the transformation of innovative technology ideas in initial stages of development into advanced startup companies suitable for follow-on investments. The program also aims to encourage technological entrepreneurship and commercialization of breakthrough technologies from research institutes to industry in complex and high-risk fields, to strengthen Israel’s technological innovation environment in seed investment, and to assist startup companies in unique and sophisticated technological industries to formulate and test products, prove technological feasibility, conduct pilots and more. The technological incubators, which provide the assistance and support to the initiatives in their early stages, are located and operated by local and global commercial companies and by venture capital investors capable of offering high-quality added value and supporting early-stage startups and other initiatives. The incubators are selected in competitive procedures for a 5-year franchise period with the option of a 3-year extension. Investors and commercial companies that are awarded a franchise will benefit from leveraging up to 85% of their investments in startups from the Innovation Authority when establishing the incubator’s infrastructure.

Entrepreneurial Incubators in the Periphery Program: This program is aimed at promoting the development and strengthening of innovation systems, technological entrepreneurship, and employment in Israel’s geographical periphery via collaboration between specially designated incubators and higher education institutions, students, entrepreneurs, and startup companies. This collaboration is achieved via research activity, development, and commercialization of incubator companies that are based on local initiatives. As part of the program, a local project operating within the incubator will be entitled to a grant of 85% of approved budget from the Innovation Authority, up to a maximum budget of NIS 1 million, to supplementary funding from the incubator, and to follow-on funding. In a competitive process conducted by the Authority, three new incubators were chosen – in Karmiel, Bnei Shimon, and Yerucham – to promote different fields of technological entrepreneurship in these areas such as Industry 4.0, Ag-tech, plastics, and medical cannabis.

 
  • The Growth Division

The Growth Division supports startups and companies in growth stages, mature companies, and R&D centers operating throughout Israel. The division helps to advance companies’ competition and technological leadership with the aim of increasing the pace of their growth and their potential.

 

The Division’s Programs:

R&D Fund: This program supports commercial companies currently developing new products or upgrading an existing technology. The program offers the largest financial incentive awarded by the State of Israel for Israeli corporations’ R&D activity and is offered to all sectors with the aim of strengthening and advancing the Israeli economy. The fund’s activity also includes specially designated programs to support startup companies owned by members of Israel’s minority populations and/or ultra-Orthodox and/or women and another specially designated program supporting breakthrough generic research and development in R&D-oriented companies.

Joint Government Support for High-Tech Technological Innovation (Pilots): This program allows technology companies to conduct R&D, including programs for operating pilot sites in a variety of innovation systems, including those with rigorous regulation and with governmental influence, while enhancing the perception of the economic value created in Israel. Collaborating with government entities via the incentive programs increases their influence in strengthening innovation systems in fields under their responsibility, provides the public with better access to regulation, state assets, and public infrastructures, and improves the level of knowledge and professionalism of both the Innovation Authority and government in advancing these innovation systems. This incentive program is intended to support research or development and to provide a response to market failures that exist in new and growing innovation systems, including those resulting from regulation and government impact. These market failures are expressed by high levels of technological risk, complex implementation, limited access to pilot testing sites, or difficulty in receiving regulatory approval.

Support Program for Space Innovation: This program, operated jointly by the Innovation Authority and the Israel Space Agency in the Ministry of Space and Technology, encourages support in R&D for finding technological solutions and developing advanced products in the different fields of space, with the aim of strengthening the knowledge and technological development ability of Israeli industry in the field of space. The support is also intended to increase Israeli industry’s use of scientific knowledge in the fields of space technology at Israeli research institutions and of their research capabilities, to encourage the growth of startups in space technology fields, to reduce the knowledge gaps vis-à-vis global space markets, and to enhance the competitiveness of Israeli industry in these areas.

The Division’s Numbers in 2020

New Projects:

Two new programs were launched during the second half of 2019 to increase the involvement of capital market and institutional entities:

  1. Promotion of Analysis Capabilities for Investment in the High-Tech Industry by Institutional Capital Market Entities: The goal of this program is to assist institutional entities operating in the Israeli capital market to build the capability to identify and analyze investments in Israeli high-tech companies and incentivize them to broaden the trend of growing investment, both direct and indirect, of Israeli institutional investors in the local high-tech industry. In so doing, the program seeks to accelerate the expansion of total investments by institutional investors in the Israeli high-tech industry. This support is provided via a variety of avenues and investment tools and is intended to strengthen the connection between the Israeli capital market and the local high-tech industry.
  2. Encouraging Institutional Entities’ Investment in the High-Tech Industry: As part of this program, the Innovation Authority secures the investments of Israeli institutional investment entities in Israeli high-tech companies. This policy is aimed at encouraging short and long-term research and development in the local high-tech industry.

The Israeli Center for the 4th Industrial Revolution (WEF), C4IR Israel: The center operates alongside local regulators and policymakers to advance the development and assimilation of innovative technologies while safeguarding public interests (such as safety and privacy) by adopting flexible regulation suited to technological developments. The center’s primary areas of operation are autonomous vehicles, drones, assimilation and development of AI tools in various fields, state procurement of innovative technologies that will serve the government and facilitating access to government information in order to advance challenges of public systems, with an emphasis on information in the health field.

In 2017, the WEF formed the network of C4IR Centers (Centers for the 4th Industrial Revolution) to assist the adaptation of government regulation to rapidly changing technology. The network’s members include parties from the private sector, governments, and civilian experts. The goal of the network is to create and share knowledge and best practices related to regulation of innovative technologies. The Israeli Center for Regulation of Innovative Technologies was established in Israel as part of a Government Resolution No. 4481 adopted in January 2019 and in collaboration with the World Economic Forum (WEF).

 
  • The Societal Challenges Division

The Societal Challenges Division strives to develop expert human capital to lead future technologies and to increase the skilled human capital in high-tech, as part of a governmental effort in this field. The division operates incentive programs and harnesses the market to advance these efforts. In addition, the division is responsible for advancing impact innovation: encouraging developments that provide a solution for challenges in social and public fields and support for entrepreneurs and companies with solutions in these areas.

 

The Division’s Programs:

Human Capital Programs

Coding Bootcamps Program: In response to the shortage of skilled high-tech personnel, the Authority has been operating a program since 2018 that supports extra-academic courses (coding bootcamps) aimed at increasing the supply of programmers and data science graduates in Israel. These intensive and practical programs locate candidates with significant potential, provide them with the necessary theoretical and practical knowledge, and train them, in a short period of time, for work in the high-tech industry. The graduates can therefore make a real and immediate contribution to the company. The program’s goal is to increase the number of graduates acquiring relevant practical training who are placed in high-tech development jobs at salaries of over NIS 14,000 (within 15 months of completing the course). The bootcamps were chosen in a competitive procedure for a period of three years.

The Advanced Technology Studies Workshop (HaSadna) Program: The huge demand for experts in advanced technology professions requires innovative models for training experts in this field and for upgrading skilled professionals already employed in the high-tech industry. The Workshop Program focuses on support of a joint advanced training framework for engineers in high-tech companies, led by the industry, in advanced development professions. Proficiency in algorithmics in the field of Artificial Intelligence (AI) has become vital and relevant in almost every field of technology. The Innovation Authority’s initiative to assist high-tech companies in training their employees stems from the need for high-quality expert personnel and is aimed at enhancing the important activity taking place in academic institutions and providing training in further AI areas that are required by the industry.

High-Tech Specialization Program: In response to the challenge of recruiting inexperienced workers in the high-tech industry, this program offers grants to high-tech companies that create employee specialization programs. As part of these programs, new graduates with a university degree or a degree in practical engineering in technology professions ("juniors”) will be accepted and trained for entry-level development roles. The company will receive a grant of NIS 50,000 for every candidate they hire for a minimum of six months with a monthly salary of at least NIS 15,000 and who receives on-the-job training. The juniors’ training model will be adapted to each company’s needs and may be based on the company’s internal resources and/ or external organizations and trainers.

Human Capital for High-Tech Fund: The Human Capital Fund is a unique program aimed at encouraging the creation of innovative solutions coming from the market, to expand entry routes to high-tech employment and to upgrade or improve the existing high-tech human capital in R&D positions.

The fund offers grants for budget requests according to the following rungs:

  • For budget requests of up to NIS 1 million – 50%, 60%, or 70% of the approved budget.
  • For budget requests of NIS 1million-15 million – 30%, 40, or 50% of the approved budget, according to the committee’s decision.

 

Impact Programs

Gov-Tech ("Mimshal-Tech”): This program has been operating since 2016 and is the result of collaboration between the Innovation Authority and the national "Digital Israel” project. The program is intended to encourage and assist companies and NGOs offering innovative technological solutions for public sector challenges in the fields of education, health, welfare, economy, law, local government, human capital, and others. The program intends to improve government service to the public, to streamline and enhance processes in the public sector and public services, provide the public with access to information, protect the public sector databases and more. The program creates an initial meeting between companies and public sector entities and encourages Design Partnership aimed at resolving different social and public challenges prior to advancing pilots and assimilation.

This program has been operating since 2011 and is the result of collaboration between the Innovation Authority and the National Insurance Institute funds. Assistive technologies possess the potential to generate dramatic change in the lives of people with disabilities and to enable them to conduct healthy, independent, and respectable lives as well as integrating into all spheres of life: employment, education, leisure etc. The program’s goal is to encourage R&D of industrial products that provide technological solutions for the disabled and thereby enabling them to integrate into society and the labor market.

Grand Challenge Israel ("Etgar”): This program is the joint initiative of the Innovation Authority and ‘Mashav’ (Israel’s Agency for International Development Cooperation at the Ministry of Foreign Affairs) as part of the global Grand Challenges Initiative that aims to develop technological solutions for health, water, and food security challenges in developing countries. The program’s goal is to assist the funding of R&D directed at finding innovative technological solutions in developing countries, to encourage Israeli technological innovation in this field, and to enable entry to new markets. At the same time, the program expresses the State of Israel’s commitment to participate in the global effort to advance sustainable development goals (SDGs).

> The Division’s Numbers in 2020

New Projects:

18 different programs were chosen as part of the first call for proposals in the Human Capital Fund Program. Most of them focus on advancing populations underrepresented in the high-tech industry – women, Arab society, ultra-Orthodox, and residents of Israel’s geographical periphery. The programs were awarded total grants of NIS 19 million and will train 2,800 participants over the next two years. In addition, 3 operating entities were chosen to integrate new immigrants and returning Israelis with R&D experience. For the next two years, these entities will operate programs to locate, select, and place these participants in the local high-tech industry while providing them with technology training and soft skills workshops.

Two large groups of leading companies were selected as part of the Workshop ("HaSadna”) Program to train the participating companies’ employees in Artificial Intelligence professions. The lecturers leading the programs will be senior high-tech personnel from the participating companies and the syllabuses will be submitted to, and approved by, the Innovation Authority. 800 employees will be trained in the two groups over a 3-year period with an investment of NIS 10 million and a funding rate of 66%.

More than 8,000 allocations have been made as part of the Emergency Training Program. These were distributed between development positions and development-supporting technology and business jobs. The training, with a budget of NIS 16 million, will also be conducted in periphery areas and will be adapted to underrepresented sectors of the population with an emphasis on the ultra-Orthodox and Arab sectors. The training will be conducted by 29 different entities and with the participation of 18 employers who have undertaken to train and later place the graduates.

 

  • International Collaboration Division

The International Collaboration Division helps create a competitive advantage for Israeli companies via international collaborations in fields of research and innovation. The Division strives to facilitate access to knowledge, partnership in global research and innovation and market pilots, as well as collaboration with multinational corporations, public entities, and leading research institutions worldwide. The Division is responsible for the Innovation Authority’s global connections that advance research and innovation collaborations on strategic issues. Operating under the auspices of the division is the ISERD (Israel- Europe Research & Innovation) Directorate responsible for Israel’s interface with European R&D programs.

 

The Division’s Programs:

Bilateral R&D Incentive Program: This program provides support to Israeli companies working with foreign companies on commercialization-directed R&D projects to develop new technological products or to significantly upgrade an existing technology. The program also provides Israeli companies with an opportunity to work with foreign partners via a financial incentive that enables to share the risk in funding the project and helps with finding foreign technology partners.

Pilot Programs with Prominent International Beta Sites: This program supports Israeli companies’ technology pilot programs in different fields that will be conducted at foreign companies or that will be based on their capabilities, data, or information. The program grants Israeli companies an opportunity to test their technologies in real conditions via a financial incentive that enables to share the existing risk in funding the project and assistance with finding international Beta sites for the pilots. Products submitted as part of this incentive program must be ready for testing (after proof of feasibility and development of most of the product) and without additional significant R&D content.

Bi-National Funds Incentive Program: This program provides support for Israeli companies collaborating with foreign companies in the US, India, Singapore, and Korea on R&D projects of new technology products or the significant upgrade of an existing technology. The program’s financial incentive, financed by the bi-national funds, enables to share the risk of funding the project and offers support in the search for foreign technology partners.

There are currently four bi-national funds:

  • I4F – Israel-India
  • BIRD – Israel-United States
  • SIIRD – Israel-Singapore
  • KORIL – Israel-Korea

The ISERD Directorate - European Program for Research and Innovation – Horizon Europe: The European Framework Program for Research and Innovation is the world’s largest platform for collaborations in this field, with a total budget of EUR 95 billion. Israel is an associate member of the program and Israeli entities are entitled to submit requests for grants. ISERD – the Israel-Europe Research & Innovation Directorate is responsible for advancing Israeli activity in the European research arena and aims to provide Israeli entities with access to the European Framework Program. The program provides direct funding for a vast range of sectors and entities according to calls for proposals and strives to advance technological excellence in Europe. The program is intended for any organization or legal entity that would benefit from cooperation in international research, development, and innovation processes: companies, startups, corporations, research and academic institutions, government agencies, hospitals, municipalities, non-profit organizations, and others. A new program – the Accelerator EIC Program – has been opened for small- and medium-sized groundbreaking companies. This program offers grants and equity investment proposals. There are also several sub-programs in preferred fields in which the Authority is participating:

  • The ECSEL Micro-Electronics Program
  • The M-ERA.NET Program in materials science and engineering
  • The MANUNET Program in advanced manufacturing
  • The PRIMA Program for Mediterranean cooperation in fields of food and energy
  • The QuantERA Program for research in the field of Quantum Technologies
  • The Graphene Flagship for graphene and brain research
  • The ICT AGRI Program for research in the field of precision agriculture
  • The CHIST-ERA Program for collaborative research in ICT fields
> The Division’s Numbers in 2020

 

New Projects:

Specially designated programs in the field of Bio-Convergence with Germany and Korea, that included focused B2B events aimed at helping Israeli companies find international partners.

A unique program together with the Inter-American Development Bank that enables Israeli companies to examine and integrate their technological solutions via pilots in Latin American water corporations. Three projects were approved for IDB funding in 2020 in fields of locating leaks in municipal water infrastructures and urban sewage treatment.

Covid and Green Technologies as Part of Horizon 2020: Two new programs in the field of Covid and green technologies were operated this year as part of the European program. Nine Israeli entities were awarded total funding of EUR 4.5 million in a call for proposals issued as part of Horizon 2020 to contend with the Covid outbreak. These entities were partners in 8 of the winning 23 global projects, as part of an urgent call for proposals for funding R&D and implementation of swift solutions for contending with the Covid pandemic.
The submitting groups were required to propose solutions in four different fields that can be implemented quickly in response to the spread of the virus and its ramifications: immediate conversion of production lines to manufacture of critical medical equipment; medical technologies, digital tools and Artificial Intelligence for treatment, monitoring, and control; social and economic influences of the pandemic; construction of patients’ databases to create new models for response to new health threats.

Green Deal: The European Green Deal Program is a European Commission "road map”. Its objective is to advance the goals determined by the UN for achieving climate resilience by 2050. In order to reach this goal, the program defines specific challenges relating to climate change and damage to the environment. The strategy formulated by the Green Deal labels a course of fundamental economic and social changes in Europe which advance the efficient use of resources and transition to a clean circular economy, preservation of biological diversity, reduction of environmental pollution, and use of research and innovation to adopt equal and sustainable social changes that includes everyone.

To advance the initiative and contend with the challenges it identifies, the European Commission published initial calls for proposals in late 2020, for a total of EUR 1 billion. These calls for proposals invited groups of researchers, companies, and stakeholders to suggest relevant ways and solutions to contend with the challenges at hand. The Commission will continue to fund projects and advance the initiative for the duration of the new Horizon Europe Framework Program.

 

  • Technological Infrastructure Division

The Technological Infrastructure Division is responsible for advancing the development of groundbreaking generic and pre-product technology, transfer of knowledge from academia to industry, the establishment of R&D infrastructures, and for supporting the development of dual civilian-defense technologies. The Division’s programs are open to entrepreneurs, companies, and research institutions interested in sharing knowledge in the field of preproduct R&D.

 

The Division’s Programs:

MAGNET Consortiums Program – Consortiums of Israeli industrial companies and academic research groups working together to realize a common vision of self-development of groundbreaking pre-product technology in important fields on the global market, and in which Israeli industry has or may have a competitive advantage. The program enables the distribution of knowledge and cooperation between the consortium partners, which may be otherwise difficult to achieve. The program enables the formation of different consortiums for a period of 3 years, via broad-based partnership of industry entities, that are focused on a limited number of companies or those aiming to build an infrastructure of knowledge via research institutions that are directed by the industry.

Academic Knowledge Transfer Program: This program incentivizes biennial applied research with innovative technological feasibility originating in academia and its advancement to the stage at which an Israeli industrial company will adopt it to develop as a commercial product. The program’s goal is to bridge the knowledge gap between academia and the industry’s needs, with the option of leading a project that attracts the interest of business entities and, ultimately, achieve a commercialization agreement between the two parties. The program allows the project research to be accompanied by a corporation that envisions its subsequent commercial potential. Adding a corporation to the consortium will therefore be allowed at all stages of the project, to increase its chances for commercialization in Israeli industry. This program includes 3 subprograms: Knowledge Transfer with an Accompanying Corporation, Knowledge Transfer without a Corporation, and Preferred Pharma Knowledge Transfer that allows for triennial activity.

Knowledge Commercialization Program: A program promoting cooperation between academic research groups and an Israeli industrial company, with the goal of proving technological feasibility of the preliminary academic research’s achievements. The program is intended to enable a company to absorb the knowledge developed by the academic institution and to adapt it to its needs for developing groundbreaking products. The R&D program will include transfer of knowledge from an academic institution to a corporation, primarily via repetition of the research results, their validation, adaptations to industrial conditions, and industrial application.

The program includes three biennial sub-programs – MAGNETON, Knowledge Import, and Continued MAGNET:

  • MAGNETON and Knowledge Import – the R&D program will include the transfer of knowledge from one or more research institutes (Israeli or foreign respectively) to an Israeli industrial corporation, primarily via repetition of the research results, their validation, adaptations to industrial conditions, and industrial application.
  • Continued MAGNET – continued joint R&D activity of an industrial corporation member in the consortium and a research institution on a selected project conducted in the consortium.

MEIMAD – Dual Military, Defense, and Commercial R&D Program: This incentive program is a joint venture of the Innovation Authority, Ministry of Finance, and the Defense Ministry’s Administration for the Development of Weapons and Technological Infrastructure. The program supports the development of creative pre-product solutions for military needs and commercial markets. The program’s goal is to promote military and commercial R&D of dual use technologies, which on the one hand contribute to national security, and on the other hand possess commercial potential. This program includes three sub-programs: MEIMAD Academia (see Knowledge Transfer above), MEIMAD Industry (see Knowledge Commercialization above), and MEIMAD Pre-Product – groundbreaking pre-product technology developments with dualuse potential (the project is for up to 2.5 years).

R&D Infrastructure and Equipment Program: This program enables the establishment of collaborative infrastructures for innovative R&D based on inter-organizational collaborations or the subsidized procurement of designated R&D equipment for a single corporation providing R&D services. The program is relevant for R&D equipment that is currently inaccessible to Israeli industry, and which has the potential to significantly advance Israeli industry. The program enables to support establishment and long-term operation of R&D infrastructures – up to six years in the case of an association of users, and up to two years in the case of a single corporation (without the ongoing operational support).

>The Division’s Numbers in 2020
 

New Projects:

CRISPR IL (Gene Editing) Consortium: CRISPR technology is identified by many as a scientific breakthrough that will change the worlds of medicine, biotechnology, and agriculture in the 21st century. This revolutionary technology enables to repair / turn off genes that are active in disease, to enhance genes that influence the quality of agricultural produce and food (plants, fish, livestock) and to make industrial manufacturing processes greener and more efficient. CRISPR technology is in its initial stages of development and therefore still faces significant challenges – increased efficiency, precision, safety, and wider accessibility to a range of spheres. The consortium, that includes companies in the fields of bioinformatics, biotechnology, and agriculture (both animal and vegetable) and Israel’s leading research groups, aims to develop a generic, AI-based solution the goal of which is to increase the efficiency, precision, and safety of gene editing tools to levels that will in the future allow its commercial use.

NLP (Natural Language Processing) Union: The Union was established in conjunction with the national "Digital Israel” project and the Innovation Authority to advance the understanding of the Hebrew and Arabic languages by computerized systems. The Union’s goal is to create an R&D infrastructure (primarily text corpora of tagged sentences) that will enable a foundation for not only identifying structural models and elements that make up the linguistic system but also to map the way in which they are used. This infrastructure will allow to advance the digital services currently provided in the State of Israel and enable Israeli companies to develop NLPbased applications and market them globally, based on pilots and POC in Israel. Approximately 20 companies and institutions are currently members in the Union, including developers and potential customers of products and services based on natural language identification technologies. The potential clients are from a diverse range of sectors such as high-tech, banking, insurance, communications, healthcare, education, tourism, placement agencies, government ministries, defense and intelligence systems, etc.

A joint project in the Knowledge Commercialization (MAGNETON) Program of Spring Biomed Vision and Sheba Medical Center: development of a method of spectral photography for imaging the oxidation in retinal tissue: A sensitive, non-invasive, and simple to perform technology has been developed at the Sheba Medical Center that enables to map the level of oxidation in biological tissue. The technology transferred to the company is based on acquiring and processing a multi-spectral picture based on a series of specially designated algorithms to form a map of tissue oxidation, similar to a topographic map. While the method for mapping oxidation in the retina’s blood vessels exists in an expensive hyper-spectral device, this solution is low-cost as it can be integrated in multi-spectral devise that include a fundus camera installed on a slit lamp. The technology will be examined, both on lab animals and in the company’s diagnostic devices, to confirm its verity and to adapt it for clinical use. Spring Vision develops and manufactures ophthalmology imaging products that are based on multi-spectral technologies, and which will enable to diagnose eye disorders and systemic diseases earlier than was possible until now, via relatively simple and low-cost means. This project is the continuation of a project submitted as part of the Knowledge Transfer Program.

A joint project in the Knowledge Commercialization (MAGNETON) Program of Nurami Medical and Prof. Boaz Mizrahi from the Technion: development of a perishable synthetic sealant for preventing the leakage of pancreatic fluids following pancreatomy. An innovative technology has been developed at the Technion for a biological adhesive that binds and seals living tissue. Nurami Medical, experts in the electro-spinning production of patches made from nano-/micro-fibers for the market of soft tissue substitutes. The MAGNETON project combines these technologies to produce a synthetic sealant aimed at preventing post-surgical leaks. The sealant will be inserted in the patient’s body during surgery, is intended to remain in the area operated on, and its material is resistant to the extreme physiological conditions at the point of surgery. Moreover, there is no need to remove the sealant which dissolves naturally, thereby further encouraging the patient’s recovery.

A Hebrew University project as part of the Knowledge Transfer Program, led by Prof. Lioz Etgar and prof. Haim Rabinowitz to develop an innovative technology that enables the production of photo-voltaic electricity on the roofs of existing greenhouses without impairing agricultural production: Researchers from the Hebrew University have developed an innovative technology that combines knowledge and research from the worlds of engineering, chemistry, and agriculture, aimed at producing electricity with unique solar panels developed by Hebrew University chemists. The panels will be placed on the roofs of existing greenhouses and will replace the existing roof surface. The research breakthrough enables optimal light absorption and the preservation of reasonably efficient energy transformation via both the solar panels and the plants. This in turn enables the land’s continued agricultural use and the preservation of agricultural output while at the same time generating benefit for the farmer and maximizing the production of renewable energy.

 

  • Advanced Manufacturing Division

The Advanced Manufacturing Division assists companies from the manufacturing sector and factories interested in developing products and implementing innovative technologies. The Division strives to strengthen the manufacturing industry and enhance its competitiveness by applying R&D processes and innovation.

 

The Division’s Programs:

R&D Preparatory Program: The program aims to create an innovation-oriented change in companies from the manufacturing industry sectors, with the goal of enhancing the competitiveness of the participating companies. The program is operated as a complementary tool for the manufacturing industry and is intended to assist companies with the initial stages of R&D. The program offers companies without prior experience in R&D and in leading innovation processes, or companies that require focus and guidance with their R&D activities, the assistance of technology experts to bolster their R&D programs. The program provides supportive tools including mapping and examination of possible R&D directions, testing of technological feasibility, resolution of engineering faults, improvements in the manufacturing process, and pre-manufacturing preparations for early-stage companies.

MOFET (R&D in the Manufacturing Industry): The MOFET Program leads technological R&D programs that have the potential to improve productivity of a company or factory, while at the same time creating technological differentiation that will achieve competitive advantages in the local and global markets. The MOFET Program is intended for industrial factories interested in implementing technological innovation processes by developing innovative products, improving and developing existing products, or developing and enhancing production processes. The program is for manufacture-oriented companies or companies preparing for manufacturing, and that meet the program criteria. As part of this program, a company may submit focused R&D programs including development of a new product, use of advanced materials, development of an innovative production process, or implementation of advanced manufacturing methods.

Transition from Development to Manufacture Program: This program aims to assist companies to successfully navigate the transition from development to production, with the aim of establishing production lines and factories in Israel using advanced technologies. The program constitutes a quantum leap for companies in developing a production process for advanced products, offers financial support, guidance, and assistance in removing obstacles during an early-stage company’s transition from product development to that of mass production.

The program accepts requests in which two thirds of the budget is allocated to the development of production processes. The program is intended for companies and factories producing or preparing to produce in Israel and that are interested in developing innovative production processes or production processes for advanced products.

>The Division’s Numbers in 2020
 

New Projects:

Breaking the Paradigm and Introducing R&D into the Manufacturing Industry: The manufacturing industry is entering the world of R&D, as can be seen by the 30% annual growth in the number of R&D submissions and approved grants. About 50% of the submissions in 2020 were from industry that had not previously engaged in R&D (plastics, metals, food, etc.). Surveys conducted among Israeli companies implementing Industry 4.0 solutions reveal that approximately 80% reported an increase in productivity; 70% reported a reduction in waste during production; and 60% reported a saving in energy expenses.

Establishing Factories in Israel with Advanced Technology: Two new programs were launched in 2020 to assist companies with a tangible product to successfully make the transition from development to production. The "Preparation for Production” Program within the R&D Preparatory Program enables early-stage companies yet to generate income to receive guidance from a technology expert with the product’s optimization programs and to build a production portfolio. The "Transition from Development to Production” Program enables companies to develop production processes while setting up the factory and to strengthen its production activity in Israel. This program provides ongoing support for companies that have completed the product development stage and are developing the production processes, in fields such as medical devices, pharmaceuticals, energy, alternative proteins, and others. Approximately 80% of the submissions to the program related to the sectors of the economy with the highest levels of productivity (more than NIS 450,000 a year gross added value per job).

Client Survey and MOFET Programs Evaluation: Two processes were undertaken during 2020 to improve the precision of the government support programs for innovation in manufacturing industries, and to evaluate the impact of this support on the companies’ growth. Some of the main conclusions drawn were that:

  • The support for innovation in the manufacturing industry tripled the chance that a company would fully complete an R&D program.
  • 40% of the companies approved for R&D programs reported an increase in sales and employment.
  • 30% of the companies reported an increase in exports.
  • The companies reported that after performance of the R&D program, they enjoyed more success in developing new products and that they increased the use of Israeli sub-suppliers and collaborated with other Israeli companies.

 

More chapters at this report

An Innovation Driven Economy in the Periphery

A National Priority

Innovation activity in Israel is concentrated predominantly in the Tel Aviv metropolitan area and does not exhaust the resources of innovation in the periphery. The Innovation Authority is leading a national strategy to promote an innovation-driven economy in the periphery, which will benefit both the regional economy and the entire national innovation system

Is the State of Israel worthy of its description as “the startup nation”? The initial answer is surely “yes” – Israel is a world leader in terms of the number and quality of its startups. However, another question arises: is Israel the Startup Nation or is it just the Tel Aviv metropolitan area that can justifiably make this claim, and not the country as a whole?

This chapter seeks to examine this question – not only with regard to startup companies, but also in regard to the entire Israeli innovation system. It will propose a practical agenda with a dual goal: optimal use of the innovation resources that exist beyond the Tel Aviv metropolis for the benefit of the Israeli innovation system, and innovation-inclined economic growth throughout the country. We believe in a plan of action that will benefit both the Israeli innovation system Tel Aviv and the areas in the eographical periphery. However, this requires implementable solutions that consider the market forces acting on national innovation systems, that are adapted for each individual region. For example, an attempt to duplicate Rothschild Boulevard’s high- tech activity in the Galilee or the negev may fail, or worse, come at the expense of successful practical solutions better suited to these areas.

 

Geographical Specialization in Israel and its Ramifications

When examining the geographical distribution of the various economic sectors in Israel, we must distinguish between results that are the consequence of economic forces at work in Israel and wishful thinking. The premise we must accept is that high-tech companies tend to concentrate in certain geographical areas, frequently in urban metropolises. The most prominent example of this is San Francisco although other centers such as London, Beijing and Berlin have followed suit in recent years. This phenomenon has many advantages, both for the companies themselves and for the regional economy. The companies inspire each other with technological knowledge, exchange skilled human capital, and attract investors. The trend has grown over the past decade, for reasons that include increasing technological complexity necessitating greater collaboration, and because of the increasing attraction of workers to vibrant urban areas.1 In practice, today, more than 50% of venture capital investment in the world is concentrated in only ten urban metropolises.2   

The other side of the coin is that the area in which they are concentrated benefits from accelerated growth and high-quality employment. As these regions develop, they become a powerful magnet, attracting most of the “talent”, investors and entrepreneurs. While they serve as an economic growth engines, attracting innovation resources may harm the potential growth and quality employment in other areas. This dynamic can also have negative ramifications for the national economy by potentially increasing disparities and leading to an under-utilization of skilled workers who, for various reasons, are unable to work in these centers.

similar “centralization” trend in high-tech also exists in Israel: more than 60% of all high- tech jobs in Israel are located in the Tel Aviv and central regions, and as Diagram no. 1 illustrates, approximately 77% of the companies operate in this area. Diagram no. 2 reveals that this trend has even intensified in recent years with the growth in high-tech employment in Tel Aviv constituting approximately 70% of the total increase in this sector in Israel.3

Diagram 1: Startups in Israel by Region - 2018; Diagram 2: Salaried High-Tech Employees Growth Between 2015-2017 (Thousands)
Source: Startup nation Central and CBS Data, Personnel Survey (excluding the communication sector)

As mentioned above, this trend is not surprising. Access to skilled human capital is decisive for high-tech companies and they therefore tend to locate themselves at the center of innovation activity. Other considerations, such as the high cost of office space in city centers are of only secondary importance for them, because of the relatively small office space required per employee. This is in contrast to other sectors such as manufacturing and agriculture that generally require large space, occasionally even far from population centers.
It is not surprising therefore that approximately half the jobs in mass manufacturing industries and about 80% of all farmed agricultural land is located in the north and south of Israel.4 The high availability and low cost of land in these areas lead to specialization in mass manufacturing, agriculture and food, and as will be presented below, we believe that these advantages should be leveraged and strengthened by connecting them to Israel’s advanced innovation system.

Although the geographical distribution described here is based on economic logic and relative regional advantages, it creates several economic and social challenges for the Israeli economy. The first of these challenges is a significant productivity disparity between the country’s periphery and center that is reflected in salaries which are approximately 35% lower than the average in central Israel.5,6 32% of this disparity can be explained by the difference between the different sectors i.e., by the fact that the high-tech sectors, which are concentrated in the center of the country, are characterized by high productivity compared to the average in developed countries, whereas the mass manufacturing and agriculture sectors, concentrated in the periphery, are typified by lower productivity.

A further challenge arises in light of the shortage of skilled high-tech workers. As we mentioned in the “High-Tech in Israel 2018” chapter, there are an estimated 15,000 unfilled jobs in the high- tech industry. Due to the concentration of high-tech in the center of the country, skilled workers living in the periphery have lower access to high-tech employment. Consequently, the Israeli high-tech industry fails to fully utilize the human capital potential in the periphery.7        

 

A Strategy for an Innovation-driven Economy in the Periphery

The challenges described above lie at the foundation of a strategy formulated by the Innovation Authority that is aimed at promoting an innovation-inclined economy in the periphery areas and serve as a clear guiding light for the Authority: a successful policy is beneficial, both for the local economy in the periphery, and the innovation system as a whole. 

The Innovation Authority Consistently Invests in Technological Innovation in the Periphery

This policy was not created in a vacuum. For years, the Chief Scientist’s Bureau in the Ministry of Economy, from which the Innovation Authority was born, endeavored in a number of ways, to promote technological innovation in the periphery. Firstly, companies from all sectors located in the periphery8 received increased grants. Secondly, as part of the Technological Incubators Program, incubators operated, and still operate today, in a range of peripheral areas. Furthermore, large high-tech companies that established development centers in the periphery received special benefits. Approximately a third of the Authority’s annual grants budget was allocated in recent years to R&D activity in the periphery – a total of about half a billion shekels ($140 million) a year.

The need to formulate an updated and comprehensive strategy for innovation in the periphery arose from the very outset of the Innovation Authority’s operation. The Knesset, with the legislation that founded the Authority, placed explicit emphasis on promoting technological innovation in the periphery as one of the Authority’s central policy objectives.8 Accordingly, throughout 2018, we conducted an in-depth examination of policy alternatives for promoting technological innovation in the periphery regions, while considering prior experience in Israel, in other countries, and a current situation report. In addition, we conducted a comprehensive field study among a range of relevant local entities: local authorities, innovation centers, higher education institutions, entrepreneurs and companies.

The study clearly revealed that a national policy for promoting an innovation-inclined economy in periphery areas must be based primarily on regional competitive advantages. In other words, effort should be made to strengthen the local center of gravity of economic activity in the periphery – specifically, mass manufacturing, agriculture and food processing – by encouraging technological innovation and entrepreneurship. The study also found that quality high-tech employment should be made more available to periphery residents – both in order to increase wages and productivity in the periphery, and as a solution for the shortage of human capital in the high-tech industry. Accordingly, the Innovation Authority’s strategy to promote technological innovation in the periphery is based on four central objectives:   

The Innovation Authority’s strategy for promoting technological innovation :periphery is based on four central goals in the :periphery is based on four central goals

1. Promoting Technological Innovation in the Manufacturing Industry and in the Agriculture and Food Sectors in the Periphery

The manufacturing industry in Israel in general has suffered from under-investment in technological innovation for many years. Among the variety of causes for this were a lack of financing solutions, only loose affiliations with technology and research players, a shortage of technicians, difficulty in allocating managerial resources, and the lack of a sufficient knowledge infrastructure for implementing innovative technologies.9

On the other hand, the agriculture and food processing sector in Israel has always been typified by development and adoption of advanced technologies.10 However the challenges facing it today, particularly lower than average productivity compared to other developed countries, expected population growth, and the need for more efficient water use – require increased investment in innovation and its implementation in agricultural production. In its survey of agricultural policy in Israel, the OECD points out that extensive investment in research and development and the transfer of knowledge between R&D bodies and farmers will ensure a future increase in the productivity of this sector.11  

Peripheral areas in all countries are characterized by low accessibility to skilled personnel, financing and knowledge networks. This hinders the capability of companies operating in these regions to implement,12 thereby magnifying the obstacles to investment in innovation in the manufacturing, agriculture and food processing sectors in Israel. Removing obstacles to technological innovation in these sectors is the key to promoting an innovation-inclined economy in the periphery.

The Innovation Authority is already providing approximately 120 million shekels (approximately $34 million) a year for support of technological innovation in the manufacturing industry. In order to focus efforts on companies located in the periphery, the Authority will primarily strive to increase their participation in the various incentive programs. In particular, the Authority will operate the Preparatory R&D Program – aimed at aiding companies without prior experience in technological innovation processes and companies in need of focusing and direction in their R&D activity – at a number of focal points throughout the periphery. The Authority will also cooperate with the clusters of local authorities that are forming in the negev and the Galilee to market and provide access to incentive programs for manufacturing companies in the periphery.

The Authority will simultaneously endeavor to encourage technological collaboration between industrial, agricultural, and food processing companies and hi-tech companies, technology entrepreneurs and applied research institutions. The Authority will actively promote the appropriate incentive programs and assist in creating connections between the different entities.

 

2. Encouraging Local Entrepreneurship in the Periphery with a Link to Regional Anchors

Most of the technological entrepreneurship in Israel is concentrated in the center of the country: the overwhelming majority of venture capital funds in Israel are located in the center, and 77% of all startup companies are located in the Tel Aviv and central regions (see Diagram 1).

The low presence of technological entrepreneurship in periphery areas severely reduces the possibilities for local entrepreneurs in these areas . The development of technology entrepreneurship communities in the periphery will assist local entrepreneurs to realize their potential, will strengthen the connection of local industrial, agricultural and food companies to technological innovation, will contribute to the development of high-quality local employment, and will improve the overall quality of life.

Furthermore, studies show a positive correlation between direct exposure of children to technological innovation activity in one’s home area and the probability of engaging in innovation as adults.13 Increasing exposure to technological innovation among children and youth in the periphery will therefore help them realize their high-tech entrepreneurial and employment potential in the future. naturally, at the same time, teenagers in the periphery should be encouraged to acquire sciences, engineering and mathematics skills at their high school and university – a goal towards which several government departments are working on.14

The Innovation Authority will therefore encourage local entrepreneurship in the periphery, with special emphasis on an affiliation with regional anchors such as academic institutions and centers of industry, agriculture, and food, via support of local "entrepreneurship incubators". These incubators will promote the establishment of local startup companies by local entrepreneurs while connecting them to the needs of local industrial, agricultural, and food companies and to regional applied research centers. The incubators will thus contribute towards the development of a local innovation ecosystem. 

 

3. Creating Connections Between Human Capital in the Periphery and the Leading High-Tech Companies

In recent years, the high-tech industry in Israel has suffered from a shortage of engineers and programmers that is threatening to cause a slump in its growth. Alongside government efforts to increase the supply of human capital to high-tech, the Israeli industry must vary the sources of human capital to which it turns. Previous innovation reports dealt extensively with the potential human capital sources among women, Arabs, Haredim and older workers. The human capital for high-tech among the residents of the periphery is yet another group the potential of which remains unfulfilled, in this case due to the concentration of high-tech in the center of the country.

Many of those possessing high-tech academic education are interested in living in the Galilee or the negev for proximity to family, for quality of life or other reasons. Data gathered in the Chief Economist’s Bureau at the Ministry of Finance reveals that more than half the students of science and engineering studies returned after graduation to live as adults in the area in which they grew up (See Diagram 3). Furthermore, approximately only a quarter of science and engineering graduates who grew up in the Israeli peripheral areas move to live in the center as adults .15 It should be pointed out that the tendency to remain in the same area throughout their lives is especially strong among the Arab population. 

Diagram 3: The Tendency of Science and Engineering Graduates to Live as Adults in the Area in which they Grew Up

Source: Chief Economist in the Ministry of Finance’s Adaptation of Administrative Data 

Due to the concentration of high-tech activity in central Israel, science and engineering graduates living in the periphery may have difficulty finding employment to suits their skills. Although there are some focal points of high-tech activity in the north and the south, the labor market in these areas is a “thin” market. A thin market is characterized by a small number of “buyers and sellers” – in this case employers and workers – and by an equally low number of employment transactions. This fact leads to employers having difficulty in finding suitable employees and difficulty for workers in finding suitable work or professional advancement. In other words, the upshot is unrealized potential of human capital for the industry and a compromise regarding employment on the part of the workers.

Great importance is placed therefore on the development and enhancement of the high- tech labor market in the peripheral areas. In order to achieve this objective, the Authority will provide incentives to innovative high-tech companies interested in increasing their scope of search for potential employees to open branches in the periphery, while supporting necessary training and adjustments via a specially designated program (See box below).16 Because experience teaches us that excellence and innovation are key to the growth of sustainable activity in the periphery, the program will emphasize the establishment of local anchors of technological excellence, based on local “talents”, with the intention that these will grow and become prominent and independent centers of the companies’ activities.

 

4. Strengthening the High-Tech Ecosystem in the Large Cities: Haifa, Jerusalem and Beersheba

Haifa, Jerusalem and Beersheba already have in place the essential foundations for a high-tech ecosystem, yet their full potential has not been realized: Research universities with strengths in exact sciences and engineering (the Technion, Ben-Gurion University and the Hebrew University), university and research hospitals (Rambam, Hadassah and Soroka), technological entrepreneurship, and R&D centers of large multination corporations. Haifa is especially characterized by a high level of multi-national R&D centers that are responsible for approximately one quarter of total multinational corporations’ R&D expenditure in Israel.17 Leading high-tech companies such as Mobileye and OrCam have established themselves in Jerusalem and dozens of startups are already operating in Beersheba where the national Cyber Directorate (a civilian cyber and cyber security center) has been founded.

 Potential exists in Haifa, Beersheba and Jerusalem for development of a complete high-tech ecosystem

These cities, already functioning as regional employment centers also have a critical mass of government and municipal activity supplying a supportive environment for high- tech activity, such as allocation of suitable facilities, municipal innovation, investment in education and mass transportation. Furthermore, most of the country’s regions are located within a 50-kilometer radius of these cities,18 they are connected or will soon be connected by high-speed rail to Tel Aviv,19 and they already constitute regional employment centers.20

nevertheless, none of the above cities have a complete high-tech ecosystem. In order to realize the potential of Haifa, Jerusalem and Beersheba as high-tech employment centers for the peripheral areas, the Innovation Authority will strive towards establishing a high- tech ecosystem in these three cities. To this end, the Authority will promote technological entrepreneurship, will bolster cooperation between players from academia, IDF technology units and industry, and will develop crucial R&D infrastructures for Israeli industry as a whole in these cities while collaborating with the three city municipalities. This will naturally be alongside the ongoing support of existing R&D projects in these cities.

Already in 2018 a new program for encouraging technological entrepreneurship in Haifa was approved by the Authority’s council. Its goal is to promote technological innovation and to increase the number of high-tech companies in Haifa with an emphasis on the “Lower City” borough. The program will include the establishment of hubs and accelerators and the activation of programs to encourage entrepreneurship, and to connect between the different players in the municipal ecosystem. The program will be run by a body selected in a competitive procedure and will receive funding of 25 million shekels (approximately $6.9 million) from the Innovation Authority for an operating period of 4 years. During 2019, an innovation laboratory in the field of Fin-Sec (Cyber-Financial Technology) will be opened in Beersheba in cooperation with the national Cyber Security Authority and the Ministry of Finance; it will aim to leverage Beersheba’s cyber assets, such as the existing Cyber Directorate for ecosystem development. At the same time, the Authority will conduct an in-depth examination of the cyber assets and the obstacles to the development of a complete ecosystem in Jerusalem and Beersheba, on the basis of which it will formulate broad plans of action.

  • 1. Katz, B. and Wagner, J. (2014). The Rise of Innovation Districts: A New Geography of Innovation in America
  • 2. Florida, R. (Oct 3, 2017). Venture Capital Remains Highly Concentrated in Just Few Cities. Citylab
  • 3. CBS Data, Labor Force Survey, High-tech sectors excluding communications sector
  • 4. CBS Data, Annual Yearbook 2017, Table 20.12, excluding high-tech, and the Ministry of Agriculture & Rural Development, Agricultural and Rural Planning Policy Paper (2015)
  • 5. National Insurance Institute Data. Only a small part of this disparity is offset by lower living costs in the periphery – according to National Economic Council analysis, expenses in the periphery are lower by approx. 300-1000 shekels per month than expenses in central Israel
  • 6. The National Economic Council in the Prime Minister's Office, 2018. Towards 2040 – A Metropolitan View of Economic Development
  • 7. It should be pointed out that this estimation relies on the assumption that there are people living in the periphery with high-tech skills who fail to find quality employment in the field – an assumption that still requires empirical confirmation. An indication to this appears later in this chapter
  • 8. The Encouragement of Industrial Research and Development Law, 5744-1984, Clause 1
  • 9. Ministry of Economy and Industry (2018). National Strategic Plan for Advanced Manufacturing in Industry
  • 10. For example, according to the OECD, Israel is the world leader in recycling wastewater for agricultural use and sustainable agricultural production in arid areas. Source: OECD (2010). Review of Agricultural Policy: Israel
  • 11. Ibid
  • 12. Ibid
  • 13. Lost Einsteins – Innovation and Opportunity in America, Chetty, R. (2017)
  • 14. Especially the Planning and Budgeting Committee (PBC), the Ministry of Education, and the Ministry for the Development of the Periphery, the Negev and the Galilee
  • 15. Both universities and academic colleges
  • 16. Based on a sample of people born between 1975-1985. This may be an undervaluation because of possible unreported residential address changes
  • 17. Amendment to Benefit Track No. 15 – Assistance for R&D centers of large corporations in the periphery
  • 18. CBS Data, R&D survey, 2015
  • 19. (Except for the 'Galilee Finger' the Golan, and the Southern Negev)
  • 20. Already today, the three cities serve as a regional employment center: 350,000 salaried employees work in the Jerusalem area, 240,000 in the Haifa District, 200,000 in the Beersheba District (2017)

More chapters at this report