Public versus Private Technological Incubator Programmes: Privatizing the Technological Incubators in Israel

Abstract

Private technological incubators began operating in Israel in 2000, and developed thanks to the rapidly growing private (venture) capital (VC) sector, which traditionally had not funded such projects. The present study examines the differences and similarities between two types of technological incubators—public and private. It addresses the question whether the need still exists for the Public Technological Incubators Programme (PTIP). Based on our empirical analysis and findings, the main conclusion is that private incubators cannot fully replace public incubators; even after the entry of the private sector into the area of technological incubator activity, there is still justification for the continuation of the PTIP. Private incubators tend to concentrate in selected fields, whereas public incubators sponsor a large variety of activities. The PTIP was found to provide answers to advancing national objectives, such promoting peripheral regions and providing special incentives to selected population groups (e.g. new immigrants) for whom such activities would otherwise be out of reach.

Notes

1. According to the Office of the Chief Scientist (OCS), which operates Israel's public-sector R&D incentives programmes, Israel produces the second highest absolute number of technological start-up companies in the world per year after the US (OCS, 1997). The electronics industry, which accounts for most of Israel's high-tech sector, increased its sales from $2 billion in 1986 (Association of Electronics Industries, 1996) to $15.8 billion in 2004 (www.iaei.org.il).

2. The total investment of VC funds in Israel from 1998 to 2002 amounted to a total of $8.1 billion. The peak came in 2000, before the high-tech market collapsed, when 62 companies operated 100 VC funds with a total capital of $5 billion, estimated to be 3% of gross domestic product (GDP) (by comparison, VC funds' share of US GDP is estimated at only 0.7%; Ber, 2002).

3. The data was updated in the website in November 2003.

4. Information obtained in a personal interview conducted with an official at the incubator administration on 15 March 2000 in Jerusalem.