Abstract

Public funding for entrepreneurial hubs and start-up financing is nothing new. Many of the world’s most successful innovation hubs bear the stamp of governmental invention (i.e. Silicon Valley, Bangalore or Guangdong), but not all attempts were successful.

The newest, most successful approach was taken by Israel. It shows how innovations pushed by governments and the promotion of entrepreneurships could look like in the future, also in many other countries. It also gives a clue on how to prevent the most common mistakes, e.g. to name areas of innovation, to overlook a lack of related supporting infrastructure (i.e. not enough skilled employees, no suppliers cluster,…).

With the help of the Israeli government’s venture-capital fund (founded in 1992 with $100m of public money) Israel attracted lots of foreign venture capital and foreign expertise. In contrast to most other concepts, it lets foreigners decide what to invest in, and then government provided the needed public money. As a result, foreign venture capital poured into the country, high-tech companies boomed, domestic venture capitalists learned from their foreign counterparts and many new jobs and ideas were created.

In 2008, Israel attracted as much venture capital as France and Germany combined. The country has more start-ups per head than any other country (a total of 3,850, or one for every 1,844 Israelis), and more companies listed on the NASDAQ exchange, a hub for fledgling technology firms, than China and India combined.

Driver 

Economic / Industrial

Increasing unemployment and global competition, the fact that in the last decades start-ups have accounted for almost all of the net job creation in most industrialized countries.

Political

Policymakers from Berlin, to Beijing and Washington are beginning to look for ways how to create tomorrow’s jobs, rather than trying to save yesterday’s after the financial crisis.

Obstacle

Social

Possible resentments in taking foreign money and accepting foreign influence, fear of becoming a financial football and in the long run lose jobs.

Political

Scrap for the best concept between political parties – i.e. degree of foreign venture capital allowed in a certain country or attempts to decide which area shall be promoted and which not.

Indication

Change in current innovation patterns

If more countries follow the Israeli model it could lead to a massive increase of international venture capital flowing around the world. Especially those countries so far not attracting much venture capital could profit from that. In the end, new and more innovations from different countries all over the world might be realized. The Israeli model is characterized by a great openness towards foreign capital and governments acting in the background as money provider. This could reduce the risk of governmental bad disinvestments, as the private secretor decides which ideas to promote.

On the other side, as strict economical criteria would determine investment decisions, and as economists tend to reduce risks, innovative ideas, which are at first sight unprofitable, would not be supported. This would bring up the need for alternative financing concepts for social innovations and those bringing a general benefit for the environment or the society.

Sector specifics / cultural specifics

Example of Israeli innovation policy, could also work well in other countries

Source

Internet

www.economist.com/businessfinance/displaystory.cfm