Israeli high-tech maybe exiting itself to death for quick profits

An Israeli expert on technology transfer to foreigners warns of long term harm by Israeli startups that sells new technologies for a quick buck.

By Monika Rozalska

 

There are more than 3,000 high-tech companies and startups in Israel, making it the largest startup hub in the world in proportion to its population. Israel also has the highest venture dollar/GDP ratio in the world, seven times higher than in the US.

David Artzi, former head of Israel Aerospace Industries – Photo: i24news

 Nevertheless, there are only a few good examples of Israeli companies which succeed in ensuring that their brand (or at least their core R&D) stays in Israel. Most Israeli entrepreneurs dream of an “exit” scenario, rarely concerned about the future of their R&D or the general good of the country.

David Artzi, the former Chairman of the Israeli Export Institute and the former, long-time chairman of Israel Aerospace Industries, has recently been criticizing the exit politics and the lack of state incentive to encourage change in the mindset of Israeli startups.

Artzi understands that money pressure makes Israeli companies think about the short term, but argues that this is the first step to killing the Israeli ecosystem. And the reason is simple: if a company loses influence over its technology, which is usually transferred to India, China or other places, the scientists behind the idea lose their motivation. “If scientists remain with the technology, they remain devoted to it since they see the future of their invention in Israel,” says Artzi.

The result of these exits is that the second and third generations of technologies invented in Israel are then developed elsewhere. They only come back as a product developed abroad, with all the consequences: technology sold relatively cheaply comes back as an expensive commodity.

The long-term impact of the exit is not only the sale of a particular technology, but damage to the whole ecosystem. “These politics change Israel from being a leader into being a follower,” says Artzi.

The lack of a real strategy to counter these trends is intensified by the need for funds at a relatively early stage, in order to develop an idea. This is true not only of a private startup, but also Israeli universities. “Because universities and state institutes, such as the Weizmann Institute or Technion, are looking for funds, they sell the technology for very little,” says Artzi. “If young people see that their professor is doing that, why should they adopt a different strategy?”

One may argue that there is already an effort to keep the intellectual property in Israel: a company funded by the Office of the Chief Scientist cannot simply sell the IP and is obliged to get the Chief Scientist’s permission. But permission is always granted upon paying a fee for transferring the IP elsewhere. Artzi thinks this is a way of getting money back as a return on investment, but not a national strategy to encourage startups to have an IP plan.

How to handle the technology transfer? Artzi sees this primarily as a task for the state.

First of all, the state must suggest other ways of doing business – which is a marathon race and needs to be viewed as a 15 or 20-year process. “The business plan should contain a footnote about handling the technology in the long run,” says Artzi. If the startup is given a state grant, the co-founders should be supported and informed about the importance of the IP strategy and the long-term process of healthy company building.

Artzi also suggests making a technology transfer smart by building a company together with a third party, such as an investor, and transferring the IP into such a company. The company may be shared 50/50 or even 80/20 by the investor and an Israeli startup, but the decisions about the technology core and IP should be made by both actors. “It’s like a healthy marriage, where none of the parties is interested in a divorce, because it would cause damage to a venture. And this is a pure win-win,” says Artzi.

He thinks that the benefits of such a solution, with each party in the partnership having a clear role and devoted scientists who see their future in the company, make the model viable for both sides.

“This is when Israel becomes a real technological leader and a marathon runner,” says David Artzi.

 

About the Author:

Monika Rozalska is the Deputy Director of TheHive Ashdod by Gvahim, a non-for profit startup accelerator program for international companies and new immigrant entrepreneurs to Israel.

 

View original i24news publication at: http://www.i24news.tv/en/news/israel/54396-141214-is-israel-losing-its-edge-as-a-high-tech-leader

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