University of Haifa

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University of Haifa

The center for Organization Research and Human = Resources=20 Management

ESTER Project Report-

Incubators in Israel:

An Analysis of Experiences of Entrepreneurs From = Former Planned=20 Economies

EU Contract IPS 2001-41063

Workpackage No. 2

By: Dr. Arie Sadovski, Dr. Benson Honig, Leora=20 Rothschild-Shakked

January 2004

Table of Contents

Introduction=20 = *=20

Research field and methods = *

1) R&D fields undertaken by projects = *

2) Former occupation of interviewees = *

3) Former entrepreneurial experience = *

4) Age = *

5) Immigrant status = *

6) Reasons for joining an incubator = *

7) The roads not taken = *

8) Occupational identity = *

9) Defining success = *

10) The essentials for success = *

11) Difficulties = *

12) Background related difficulties = *

13) Incubator services = *

14) Strongpoints and shortcomings = *

15) Scientists=92 Suggestions on how to improve on the current = situation=20 = *

Incubator privatization Status of the government-run incubator = project in=20 Israel = *

Conclusions and recommendations for policymakers from former planned=20 economies considering setting up a government-run incubator=20 program = *

Appendix A: ESTER Project Questionnaire = = *

Introduction

The following report set out to pinpoint the = difficulties=20 encountered by entrepreneurs originating from former planned economies = (i.e. the=20 former USSR) , when trying to set up their own companies through = technological=20 incubators in Israel. Research results point to a variety of ways in = which the=20 Israeli government-run incubator program has attempted to cope with = these=20 difficulties, and suggests some new ideas on how to approach this = communities=20 special needs. Data suggests that the incubator program has, over the = years,=20 implemented an array of services and support mechanism aimed at this = end. Our=20 analysis tries to pinpoint those aspects which have been the most = helpful, as=20 well as those that may need to be fine-tuned or even replaced in order = to=20 further assist such ventures. The conclusions of this study are intended = to=20 serve the workpackage=92s main objective, that is, to use the lessons = learned from=20 the Israeli experience of the government- run incubator system, for the = benefit=20 of policy makers in the former planned economy states in their endeavors = to=20 encourage entrepreneurship in these countries. It is assumed that = cultural and=20 educational similarities of Israeli technological entrepreneurs = originating from=20 former planned economies with their counterparts in these countries may=20 facilitate extrapolative corroboration of this sort.

Research field=20 and methods

Research for the current work package was conducted = by=20 interviews with scientists from twelve incubators in=20 the government incubation system at locations all over Israel, = ranging=20 from Kiryat-Shmona in the North to Ashkelon in the South. Background = data was=20 collected from interviews with managers of most of these incubators. = This=20 incubation system was studied and characterized in a previously EU = supported=20 study (IFISE IPS 029032, http://ifise.unipv.it) and in various other = studies.=20 Therefore, the details of the system are not presented in this report = but may be=20 retrieved form the official internet site: www.incubators.org.il. = Nevertheless,=20 some fundamental features need to be noted. The government of Israel had = installed a Technological Incubation system in the early 1990's with two = main=20 objectives: To provide employment opportunities for many new=20 immigrant-scientists and professionals who came from the former USSR = states and,=20 to encourage entrepreneurship of high technology by supporting = initiation of new=20 ventures. Technological entrepreneurs=92 projects that were admitted = into an=20 incubator, were incorporated as an LTD. company and received = accommodations,=20 managerial and financial support for a period of two years. While a = majority of=20 funds was provided by the government, the entrepreneurs, with the = support of the=20 incubator=92s management, had to enlist a complimentary investment of = ca. 20% of=20 the approved budget from non-governmental sources. A business manager = was=20 appointed to each project to compliment the scientist=92s professional = leadership.=20 The apparent dichotomy of the project management as well as the = entrepreneurs'=20 self-perception is addressed in this study and reported further on. For=20 simplicity, we have referred to the technological entrepreneurs as=20 "scientists".

Twenty seven in-depth interviews were conducted with = scientists=20 originating from the former USSR over a 3 month period. These in-depth=20 interviews were accompanied by a questionnaire (Appendix A) aimed at = gathering=20 the information relevant to this specific workpackage, while allowing = for the=20 conversation to flow freely, giving our respondents ample room and time = to=20 express any and all thoughts they wished to share with us. All those = interviewed=20 had entered an incubator for a period ranging from 2 to 3 years between = the=20 years 1991 and 2003. In accordance with the = work=20 package plan, the interviews were divide into three different = categories-=20 those who had completed the officially prescribed incubation process=20 successfully (meaning that their company is viable, and/or has = raised=20 substantial additional funds), those who failed to set up viable=20 companies originating from their idea and those still under the=20 incubation process. We had hoped that this division into categories = might=20 yield important information as to the unique characteristics of each of = these=20 groups. While some differences did surface, on the whole, no great = discrepancies=20 were found among these groups. When distinct differences were found, we = made an=20 effort to both point them out and explain them. Interviews, ranging from = 45 to=20 90 minutes were recorded, transcribed and translated into English = (except of=20 course in cases when the interview was held in English to begin with). = The=20 qualitative analysis of data from these interviews is presented in the = following=20 sections.

Research findings

The research findings are reported in fifteen = sections that=20 correspond the key issues that were discussed in the interviews. The = first five=20 provide background details and relevant characteristics of the = respondents.

In order to give our readers a depiction of the = various fields=20 of interest and different backgrounds our research subjects came from, = we will=20 begin with some descriptive information.

R&D fields=20 undertaken by projects

The most common fields of R&D undertaken by = projects we=20 encountered during our research dealt in the fields of medical equipment = (9=20 projects, a third of those in our study) and materials (8 projects). = Other=20 R&D fields were (in declining order): electronics, measuring = equipment,=20 medical drugs, mechanical engineering, and transport.

Former=20 occupation of interviewees

The majority of persons interviewed came from a = physics,=20 chemistry or medical background. Additional former occupations included: = electrical engineering, mechanical engineering and aeronautics.

It may be interesting to note that the fields of = R&D do not=20 necessarily correspond to scientists=92 original field of expertise. = Many of the=20 scientists, who had very specialized fields of research in their country = of=20 origin, realized that there was no way for them to continue their work = in=20 Israel. These scientists decided to take their know-how in specific = fields (such=20 as aerodynamics or nuclear physics) and utilize them to new (at least = for them)=20 fields of R&D (which could have some practical application in the = current=20 Israeli reality and be better suited for the incubation system.). Thus, = we found=20 mechanical engineers who had worked with big machinery all their lives = designing=20 medical equipment and physicists who had worked with nuclear weapons = working on=20 development of civilian electronics devices.

In addition, when asked our subjects about their = occupational=20 history, all but a few of the scientists interviewed reported having = held=20 central positions in: large industrial companies, large teaching = institutions or=20 the army. In other words, these scientists came from what was the = cutting-edge=20 of their respective fields of science and essentially worked for the = Soviet=20 government. They worked in very large organizations, with practically = all the=20 support they could possibly wish for in terms of physical facilities = (equipment,=20 etc.) and scientific environment; as members of teams of large number of = other=20 leading scientists. These people were engaged either in teaching, = scientific=20 research or R&D, with a stable salary and practically no = interference or=20 stress in their day-to-day work. Which brings us to our next point of=20 interest.

Former=20 entrepreneurial experience

Two thirds of the interviewed scientists were the = projects=92=20 entrepreneurs themselves, meaning the project at hand was their idea, = while the=20 rest were partners in the venture.

Of the persons interviewed, around a third had = previous=20 incubator experience, meaning that they had been accepted into = an=20 incubator twice. Among failed and successful projects, two had = participated in=20 an incubator twice, while among those currently in an incubator 5 (!) = had=20 already completed an incubator project in the past.

Only 3 of the persons interviewed reported having any = previous=20 entrepreneurial experience, and these also reported having very = little=20 background preparing them for the type of R&D environment existing = in an=20 incubator. As mentioned above, most of these scientists were used to = working=20 under little, if no financial or physical limitations- all the = facilities,=20 existing know-how and money needed to conduct their research were = provided by=20 their place of work. Planning a budget, looking for investors and market = research were all things they knew virtually nothing about. This in = turn, leads=20 us to another important issue concerning the background these scientists = came=20 from.

Age

Although not a subject we had initially set out to = probe, as=20 data was being collected it became increasingly obvious that age = played a=20 pivotal role in many of our respondents decision to join an = incubator.=20 Ages ranged from 40 to 75 with no great differentiation among the 3 = groups=20 (40-65 presently in an incubator, 50-75 in failed projects and 50-65 in=20 successful ones), although it does seem that failed projects seem to = have a=20 greater representation of older scientist on them. As we will = demonstrate later=20 on, age proved to be an important factor in the decision of these = scientists to=20 join an incubator.

Immigrant=20 status

All 27 interviewees immigrated to Israel from the = former USSR.=20 The great majority came with the big influx of immigrants to Israel at = the=20 beginning of the 1990=92s. The great majority of immigrants came from = Russia=20 (mainly Moscow) and a few came from the Ukraine, Georgia, Moldova, and=20 Byelorussia.

We now turn to the experiences these people had in = various=20 technological incubators throughout Israel, as related to us in the = interviews=20 we conducted with them.

Reasons for=20 joining an incubator

When asked for the motivations for joining an = incubator, the=20 following reasons were listed by our subjects (the numbers represent the = number=20 of persons citing a category, most cited more that one):

Project status/ Reasons given	Successful	Failed	Current	Reasons=92 Total count
Making a living	3	4	2	9
Something to do	2	5	0	7
Financial backing	3	6	4	13
Practical work	3	2	2	7
Peace of mind	1	0	3	4
Age	0	4	0	4

The above table warrants some explanation and = comment. First,=20 we wish to explain and elaborate on what each of the categories, listed = as=20 reasons for joining an incubator, means:

Making a living: simply means being able to bring = a=20 pay-check home at the end of the month. These scientist came as = immigrants,=20 above the employment age, with little or no language skills, to a = country with=20 far less teaching or research facilities in their former fields of = research.=20 Thus, an incubator was viewed as a relatively safe and comfortable = environment=20 for them to continue their scientific work in. As one subject told us: = "The=20 incubator does not discriminate according to age."

Something to do: Many of these scientists, faced = with the=20 above drawbacks, stated that with all their knowledge and experience, = and with a=20 lifelong history of constantly working, thinking up new ideas and = contributing=20 to the advance of science, it would be unthinkable, or at least = unbearable for=20 them to sit at home and do nothing. The incubator provided an = environment in=20 which to continue their research and make use of their expertise.

Financial backing: The incubator program provides = initial=20 funds for R&D, which would otherwise be virtually impossible for = these=20 people to attain. With limited language skills, no previous business = experience=20 and little networking capabilities, the incubator provides initial = funding which=20 gives access to otherwise unattainable resources.

Practical work: Many of these scientists regard = themselves=20 as frontier-breakers in their respective fields and look at the = incubators as an=20 opportunity to turn an idea, a theory, into something practical- a = tangible=20 solution to an existing problem or need.

Peace of mind: The incubator symbolizes for many- = an=20 island, a sanctuary protected from the worries of the outside world-=20 organizational backing, lawyers, bookkeeping services, are all provided = by the=20 incubator, enabling the scientists to do what they know best- R&D. = If one=20 keeps in mind the backgrounds these people come from- work in large,=20 government-run institutions, one might even say that in some way, the = incubator=20 serves as a buffer from the new world they have come to live in. Whereas = in the=20 past, the communist government provided the setting, now they can count = on the=20 incubator (or rather, the capitalist government) to do so, if only for a = short=20 period of time.

Age: As mentioned above, age was not a factor = considered by=20 the incubator projects=92 screening personnel, thereby opening a door of = opportunity closed to older scientists in other perspective places of=20 employment.

Other categories listed by the interviewees were: = hearing about=20 it while working at the Technion (Israel Institute of Technology), = hearing about=20 it while working on a government-run program for new-immigrant scientist = (the=20 Shapira fund), reading a notice in the paper, geographical proximity to = an=20 incubator, inability to attain work at a university and wishing to gain=20 entrepreneurial experience.

Let us turn to examine the differences among the = three groups=20 in regard to the above categories:

The one common reason, which seems to have the = most weight=20 in the decision to join an incubator, regardless of one=92s eventual = success,=20 is the financial backing the incubator provides. The incubators = are the=20 one place where seed money can be attained in order to kick-off such = R&D=20 ventures. A fact also mentioned by the incubator projects=92 manager, = Rina Pridor.=20 It is interesting to note, that this backing was mentioned most by = scientist=20 from projects that eventually failed, perhaps due to the fact that for = these=20 projects, other ways of attaining initial funds were difficult to = realize.

In the successful group of projects which had = been in=20 an incubator, the issues most important to the scientists were: making a = living,=20 financial backing and practical work. A third of this group mentioned = each of=20 these categories as the reasons for joining the incubator.

In the unsuccessful group of projects, = financial=20 backing, something to do, making a living and age, were the main reasons = cited=20 for joining an incubator. It is important to note, that this was the = only group=20 which cited age as a reason for joining the incubator. It may then = perhaps be=20 less surprising that older scientist with few other occupational = opportunities=20 decided to join an incubator as a means of providing for themselves and=20 continuing their occupation, even for a short time. A number of = interviewees=20 mentioned that they arrived in Israel with no pension, as a reason for = looking=20 for employment at their age.

Those currently in an incubator cited mainly = financial=20 backing and peace of mind as reasons to join an incubator. If one keeps = in mind=20 that of these, nearly two-thirds had already been in an incubator, one = can see=20 the importance of peace of mind- the ability to concentrate on R&D = is a=20 major factor for returning.

The great majority of scientists interviewed had no = previous=20 knowledge about incubators and what they had to offer. A small = number had=20 heard about incubators as a place providing funds and organizational = services,=20 either via their previous place of work, or via friends who had been = accepted=20 into an incubator.

The roads not=20 taken

When asked what would have = happened to=20 their brain-child if the incubator program did not exist, the following = answers=20 were given (in this order):

"I don=92t know", "I would have abandoned it", "I = would have=20 tried to get funding elsewhere", and :"I would have become a = street-sweeper",=20 which is the immigrants=92 way of saying that they would have found any = work=20 available, no matter how demeaning (many street sweepers in Israel today = are new=20 immigrants). Which brings us to the next question.

Occupational=20 identity

All but two of our subjects = identify and=20 think of themselves as scientists. One = told us he=20 now viewed himself as an entrepreneur another that he was now a little = of both.=20 This is an important finding. The manner in which one identifies and = thinks of=20 oneself says a great deal about how both the subject and his/her = surroundings=20 view and acts towards them. The fact that most regard themselves as = scientist=20 first and foremost testifies a great deal as to the chances of eventual=20 financial success. If one regards success in an incubator as something = other=20 than pure scientific success, having people that regard themselves = solely as=20 scientist can have some grave implications. Which is why we then asked = our=20 subjects to define what they considered success to be.

Defining=20 success

When asked to define success, = or what they=20 would consider as their own project=92s success, the following criterion = were=20 cited:

Scientific/technical success (i.e. a working = prototype, a=20 tangible form of the original idea); financial success (i.e. = moving into=20 the manufacturing stage, making money); finding investors; and = having=20 a job (i.e. being occupied, having work).

It is interesting to note that among the successful = group,=20 scientific success was the criterion most cited, among the unsuccessful = group=20 business success was the one most cited and among those currently in an=20 incubator both were cited to the same degree. As one interviewee put it = : "I=20 view scientific success as the minimum and financial success as the = maximum",=20 meaning that scientific success is least one could expect, whereas = financial=20 success is what one should aim for.

The essentials=20 for success

When asked what was needed in = order for=20 their respective projects to succeed, respondents cited the following=20 subjects:

More money- which is of course not = surprising, but when=20 pressed to tell us what they would do with more money, they told us that = they=20 would use it to hire better professionals to assist them in each = of the=20 following fields:

Marketing, good management (on the business = side), or=20 the interlacing (or "synergy" as one put it) of = science with=20 business, namely that both the scientist and the business = manager get=20 along or that the scientific manager have a business background, and = finally for=20 finding investors.

In addition, a few told us that having a good = idea to=20 begin with is essential (some of the failures attribute their = failure to=20 an idea that could not be realized to begin with) and that more=20 time would have enabled them to complete their project.

Difficulties

We then asked what the main = difficulties=20 encountered during their stay in the incubator were:

Marketing was considered by all to be THE = major=20 difficulty facing an incubator project. Many of the respondents = commented on the=20 fact that at the best of times an incubator has only one marketing = specialist,=20 which is obviously not enough to handle anywhere between 7 to 15 = projects at a=20 time. All are aware of the fact that marketing is an important factor in = any new=20 marked-aimed venture. They are also painfully aware of the fact that = they=20 themselves do not have the skills to handle this issue. Most would have = liked to=20 have had a good market-survey before even entering the incubator and = many would=20 have liked to have had more money in order to be able to pay a good = marketing=20 consultant during their stay in the incubator.

The political situation in Israel- a number = of=20 respondents mentioned that because of the current political situation in = Israel,=20 potential investors who had considered investing in them had backed out = and=20 others just don=92t show interest in Israel.

The combination of science and business- As = mentioned=20 before, while the persons we interviewed are top-grade scientists, they = are for=20 the most part, not business oriented. It seems that those who are very = aware of=20 this (some seem to be less so) would have preferred to have had a = business=20 manager with some scientific background, or to have had some business = training.=20 This would have enabled both worlds to work together better, and would = enable=20 both types of specialists to speak to each other in a common = language.

Background=20 related difficulties

Respondents were also asked if = in addition=20 to the above difficulties, there were difficulties associated with the = fact that=20 they were new immigrants:

In general, most indicated that difficulties are = usually=20 related to forms of networking within the scientific and or the business = environments.

Language was of course a problem. If one = cannot explain=20 oneself to others in a way that will help them understand your idea, it = is=20 difficult to gain their interest, let alone their assistance. It is = interesting=20 to note, that among failed projects, there was a greater number of = people that=20 never learnt Hebrew.

Mentality differences also = accounted for=20 some difficulties. Most mentality issues were related to the transition = that the=20 scientists had made from an employee status in a large organization in a = planned=20 economy environment, to a managerial status in a relatively small = organization=20 operating in a free market environment. Running a project with budget = constrains=20 and a constant need to meet business success measures, was generally = perceived=20 as an intimidating obstacle.

Social and scientific ties (or rather the = lack of them)=20 were also considered to hinder a projects progress. The respondents were = well=20 aware of the importance of having a network one could rely on for = assistance,=20 not having studied in Israel, or even not serving in the army were = considered as=20 a hindrance to success.

Reputation is in many ways connected to the = above, but=20 is more profound a difficulty. Some respondents told us that while in = their=20 country of origin they were well know scientific figures who could = contact a=20 wide range of their peers for collaboration of any sort, upon becoming = newcomers=20 in a new country, they had lost this reputation and found it to be = extremely=20 difficult to create new relationships and ties in their field of = research.

This is the place to emphasize that the transition = from the=20 former USSR to Israel was a traumatic one (as most immigration is) in = many ways=20 for the persons we interviewed. Not only were they leaving a place where = they=20 were familiar with the language and costumes, they were also leaving a = society=20 based on completely different social values and norms. The differences = between a=20 Soviet and a capitalist social system are obvious, but one must add to = our=20 knowledge of these differences some specific implications such a = transition has=20 on scientists. These are people who worked their entire lives in the = same=20 organization (all answering to the government), where they were free to = indulge=20 in high-leveled, mostly academic-type research, even if they were not = free to=20 publish it overseas or share it with others (especially those working = for the=20 Soviet army=85). Coming to a country where they had to find a new job, = rely on=20 past reputation in a given field, worry about things like budgets, = negotiating=20 with investors and market-surveys and share information with others = (some of=20 whom turned around and stole it from them for self profit) is a great = shock to=20 one=92s system, even if you are a scientific genius.

Incubator services

When asked what kind of assistance provided by the = incubator=20 (in practice or potential) would have helped them the most, subjects = cited:

Financial- of course, was mentioned by the = majority of=20 respondents, but when asked to elaborate on where they would spend it, = we were=20 told:

Help with finding business partners- all = three groups=20 mentioned this kind of assistance as being important to their projects = and=20 implied that better management of the incubator would help with this = aspect.

Help with marketing- Was mentioned by both = failed and=20 present incubator projects, but not by successful ones, this is probably = due to=20 the fact that successful ones did not experience great difficulties with = marketing or fund raising and could hire additional help in this area, = which=20 made up for the incubators=92 shortcomings in this field.

Help during negotiations with business = partners- was=20 considered very important by successful projects, probably because they = had=20 greater experience in this area.

More time in the incubator- was needed in the = eyes of=20 both failed and current projects.

Strongpoints=20 and shortcomings

Having questioned our subjects about the difficulties = they came=20 across during their stay in the incubator, we requested that they try = and give=20 us a more general picture of what they thought were the strongpioints or = the=20 shortcomings of the incubators they had been in. We asked in what areas = the=20 incubators were more or less successful in aiding their specific = projects. The=20 answers we received were as follows:

Strongpoints: Good organizational services = (bookkeeping, secretarial, etc.), which enabled them to concentrate on = more=20 critical issues; networking, which assisted them in contacting = mainly the=20 business community and outsourcing providers; occupation and=20 salary, for scientist who might otherwise not have continued to work = in=20 their given field of expertise; showcasing, because the incubator = often=20 brought potential investors to tour their facilities; reputation, = because=20 when one mentions belonging to an incubator, one automatically benefits = from the=20 association, in a manner not possible for most private ventures; = prevention=20 from making mistakes, because the incubator has both the personnel = and the=20 regulations to prevent novice entrepreneurs from making business = mistakes which=20 could put their project at risk; and finally- financial backing, = which=20 would be otherwise very difficult for such ventures to attain.

Shortcomings: marketing, this was the main = point=20 raised over and over throughout all interviews- not enough effort or = funds went=20 towards this end; an inherent conflict of interest between the = incubator and=20 the projects within- a number of people thought that the incubator = wants to=20 get a greater turnover of projects in order to profit from the overhead = fees=20 collected from each of them, and would "sell out" projects for a = pittance, in=20 order to make a profit, rather than negotiate a better deal for the = project=20 personnel; a conflict between scientific and business managers in the = project- many felt that the fact that these two managers came from = different=20 worlds and spoke a different "language" undermined the projects=92 = progress; and=20 finally- budget restrictions- while the scientist appreciated the = fact=20 that the incubator helped them to avoid making mistakes, they still felt = that=20 the regulations they had to adhere to were too stringent, and would have = liked=20 to have had more freedom in running their own budget.

Scientists=92=20 Suggestions on how to improve on the current = situation

Before summing up the above findings from our = research and=20 making some suggestions to our ESTER project partners, we would like to = put=20 forth the suggestions we collected from our interview subjects, which = came in a=20 wide range of topics:

Improving on marketing: was a very common = suggestion made,=20 people felt that if there would have been more than one marketing = specialist in=20 an incubator, or more funds to pay a good marketing director to work on = their=20 specific project, chances of success would have been greatly = enhanced.

Specialized incubators: many felt that the fact = that today=20 most incubators accept projects from a wide range of scientific areas is = counter-productive for the projects within. People told us that had the=20 incubator been specialized (accepting projects in one given field: = chemistry,=20 medicine etc.), this would have helped in numerous ways: they would have = been=20 able to set up an equipment room filled with jointly purchased = facilities and=20 materials, or at least buy these jointly and save money, as well as be = able to=20 sell them later, upon leaving the incubator, to other projects; = specialization=20 would have also helped with marketing (as a corollary for the above = suggestion),=20 because instead of having to explain one=92s project to a marketing = director who=20 did not necessarily have any scientific knowledge in a given field, one = could=20 hire a marketing director specializing in a filed, thus enabling a = better=20 understanding between projects and marketing directors and enabling the=20 marketing directors to focus on one filed and not spread himself too = thinly over=20 many different ones. He/she could then better represent projects while = at=20 conferences or fairs specializing in a given field. Another point raised = by=20 scientist was that because incubators tend to have only one or two = projects in=20 similar fields, their opportunities to network within the incubator or = form a=20 group of peers able to support and consult with each other were very=20 limited.

Courses for beginner entrepreneurs: Many felt = that some=20 sort of preparation for entering an incubator was warranted. A course = explaining=20 the basics of the finance and business worlds would have enabled them, = they=20 thought, if not to become experts (as they were in science), to at least = understand the fundamentals and the jargon. As one successful project = manager=20 told us: "First=85.(there should be) courses for the projects=92 = managers. Where you=20 talk about=85 what a product is, what marketing is, what a presentation = is. Teach=20 them how to manage=85 Before I was a scientist, and (later on I) needed = to learn=20 how to be an entrepreneur and a manager."

Better screening practices for projects' = admittance: some=20 of those interviewed felt that had there been better screening = practices, two=20 fundamental errors on the part of the incubators could have been = avoided. The=20 first, was that perhaps projects with little technical or marketing = feasibility=20 would not have been let in, preventing the eventual disappointment (this = was=20 expressed by failed projects, who got their hopes up, only to be let = down) and=20 more importantly the waste of funds. The second is, that had the = screening=20 devices been better, some projects that were not new technologies or = even ideas=20 would not have been let into the program. It appears that some projects = which=20 had already been developed in the former USSR were let in, as no one = discovered=20 they had been attempted before. This last issue might have been avoided = if=20 incubators were specialized, in which case, the board would be made up = of=20 experts in a given field, less likely to make such an oversight. = However, this=20 issue also stresses the fact that upon coming to Israel, some scientist = were in=20 such distress and need for work, they turned to such measures. On the = other=20 hand, some very successful projects that eventually developed into = multi-million=20 dollar companies, had to go through several rejection stages before they = were=20 finally admitted. Again, in a specialized incubator with a number of = experts in=20 its given field on the board of directors, this might have been=20 avoided.

Better protection or more extensive explanations on = the issues=20 of project ownership and the entrepreneurs' dilution by investors: = The=20 incubators=92 regulations state that the ownership distribution will be = such that=20 the scientist is to hold at least 50% of shares, while key employees- = 10%, the=20 incubator- 20% and outside investors- 20%. In projects where additional=20 investments were successfully realized, each of the initial shareholders = were=20 diluted in proportion with the new investments. Some of the interviewees = felt=20 that the incubator management could do better in negotiating the = valuations of=20 the projects, thus retaining a higher share for the scientists and other = original shareholders.

Before turning to our summery of the above data, we = wish to=20 describe a change taking place in the Israeli government-run incubator = program-=20 the partial privatization of incubators.

Incubator=20 privatization Status of the government-run incubator project in=20 Israel

Commencement of this study occurred more than a year = after the=20 research plans were prepared. In the meantime, the incubation system had = undergone a privatization process. The basic transition in this process = is that=20 private for-profit organizations have taken ownership positions of = incubators,=20 in return for investment in some of the incubators of the government = initiated=20 incubation system. This has happened in 12 out of the 24 incubators that = are=20 currently functioning in Israel. The transition included change of = management in=20 most incubators.

While this subject was not a part of our original = research plan=20 we feel that it needs to be addressed. As it happened, this change = slowed down=20 our research progress since our initial step before communicating with = the=20 scientists was to communicate or meet with incubator managers, many of = whom were=20 new appointments.

To attain a better perspective of this change, we = also=20 interviewed Mrs. Rina Pridor the incubator program=92s general manager. = The=20 following are the highlights of this interview:

The enticement of private money to invest in new = ventures of=20 high technology has been a continuous objective of policy makers in = Israel. An=20 example of such successful undertaking is the YOZMA program that = rendered the=20 establishment of the venture capital industry in the early 90's. Today, = the=20 government still provides funds for the individual incubator projects, = alongside=20 with the private investor. The lure for the investors, is a buy-out = option of=20 the project holdings, given to them by the government. The actual = benefits=20 derived from the privatization scheme are the improvement of the = potential=20 success rates of the incubators' projects by involving business = organizations in=20 their management and the fact that the scheme has become an effective = pre-seed=20 financing instrument.

Conclusions and=20 recommendations for policymakers from former planned economies = considering=20 setting up a government-run incubator program

The above research findings demonstrate the diverse = ways in=20 which the Israeli government=92s technological incubator program = provided support=20 to immigrant scientist from the former Soviet Union and the ideas they = set out=20 to develop by encouraging their transformation into technological = entrepreneurs=20 and setting up their own start-up companies.

Over a decade after this program was set up, it seems = that most=20 of the program's goals have been attained, to a certain degree. The = scientists=20 we spoke to had many compliments to pay those in charge of the program, = as well=20 as incubator managers and staff. They were greatly appreciative of the=20 organizational, managerial, and networking support they received during = their=20 stay in the incubator. There were however a number of drawbacks which = they=20 willingly pointed out to us, such as marketing issues and lack of = funding and=20 time to complete all they had planned for their stay.

From the in-depth, qualitative interviews, we have = gathered=20 some issues that policy makers in the former planned economy states may = want to=20 consider, upon setting up an incubation program in their respective=20 countries:

8 Providing marketing = support and=20 expertise- As this was the major concern identified in our research = data,=20 this should be an issue given serious consideration by any country = considering=20 setting up such an entrepreneurial environment. Sufficient funds should = be set=20 aside in order to ensure expert marketing personnel, preferably more = than one=20 person per incubator, and market surveys should be conducted as a = preliminary=20 requirement for entering an incubator. These suggested changes would = provide a=20 sound business basis for a project, and perhaps even provide for a = better=20 understanding among science and business oriented experts involved in = such=20 ventures. We elaborate on this last point below.

8 The prevention of = brain=20 drain: If this is a concern in these countries, it would more than = likely=20 benefit them to implement a rule stipulating that the incubators in = question=20 would hire only scientists from the country or area in which the = incubator will=20 be set up.

Consideration should also be given to the issue of = transition=20 from a planned economy to a free one. For a scientist who was used to = working=20 with no real financial or timetable limitations, such a transition can = be a=20 traumatic one. If one hopes to keep these human resource assets, and not = loose=20 them to other countries, one should be prepared to aid them in making = this=20 transition in as smooth a way as possible. Additional opportunities for=20 employment, entreprenuership and financial gain from successful ventures = would=20 go a long way towards this end.

8 Setting up = specialized=20 incubators- We have touched upon this subject a number of times = during this=20 report. While we are aware of the fact that policy makers have attempted = to=20 addressed this issue in the past (some specialized incubators do exist = in=20 Israel), we would like to stress the potential such specialization = holds. A=20 number of findings should be kept in mind while addressing this issue: = Most=20 persons interviewed expressed their concerns regarding the issue of = marketing.=20 The main problems were the lack of personnel dealing with it (one for = each=20 incubator) and the lack of expertise these people had in certain areas. = We also=20 found that a large number of projects we came across dealt in two main = fields-=20 medical equipment and materials. Many scientist told us that because = incubators=20 were, for the most part, made up of projects in a wide range of R&D = fields,=20 there was no opportunity to set up an occupational or scientific = community=20 within the incubator, enabling collaboration networks. Finally, some = concerns=20 were raised as to projects having been accepted into incubators either = with=20 little chances of practical success, or having already been attempted = elsewhere.=20 With these findings in mind, we would strongly suggest to other = countries=20 setting up nation-wide incubator programs to give serious consideration = to=20 setting aside at least a portion of these incubators as specialized = ones-=20 specifically in fields that make up a majority of R&D in a certain = country.=20 Doing so, would go a long way towards overcoming the difficulties = presented=20 above- if one can only provide for one marketing director in an = incubator, at=20 least one can assure that he/she has some experience in a given field of = R&D, so that he/she can better grasp, and therefore represent = projects to=20 prospective investors and markets. In addition, a specialized incubator = could=20 better provide specialized research facilities for the projects within, = thus=20 saving each individual project money on the purchase of equipment and = materials.=20 Having such facilities would, in turn, contribute to the creation of a = network=20 of peers within the incubator, enabling them to assist each other in = anything=20 from every-day problems of management to advanced research problems. And = finally, a specialized incubator would, no doubt, have on its board of = directors=20 persons with extensive backgrounds in the given field of science, thus = bringing=20 down to a minimum the number of projects accepted with little chance of = success,=20 as well as projects already attempted elsewhere.

8 Providing courses = for beginner=20 entrepreneurs- While the incubator program set out to back scientist = performing preliminary R&D work and provide them with a work = environment=20 free of mundane organizational activities (i.e. secretarial services,=20 bookkeeping etc.), it is a mistake to think that an entrepreneur need no = business skills in order to succeed. By providing short, informative = courses for=20 such people, which would include an introduction into the business = world, as=20 well as an explanation of the workings of incubators, one could provide = a common=20 set of goals and a platform of understanding on which scientist and = business=20 managers could work in harmony. By taking people that are experts in one = field=20 (be it science or business) and treating them as people that could = contribute to=20 the overall effort, one could perhaps prevent some of the friction = existing=20 between scientist and business managers. We expect marketing experts to = have=20 background knowledge on the market they work in, why not expect (and = encourage)=20 the same of scientists?

8 The issue of = differentiation of=20 the support package- A number of concerns were raised as to the fact = that=20 certain fields of R&D need different support than others. It is for = instance=20 common knowledge that a project dealing with medical equipment or drugs = needs an=20 extended period of time to allow for clinical trials and FDA approval. = Perhaps=20 projects dealing with the creation of new materials may need different = funding=20 than projects dealing with transport (or vice versa). Therefore, = consideration=20 should perhaps be given to a system in which not every project entering = the=20 incubator project be provided with the same amount of time and money in = order to=20 complete the incubation period.

8 The implementation = of rules and=20 regulations in regards to: age of employees within projects, the = number of=20 times one can enter an incubator and even other work opportunities = available for=20 applicants. Again, this would all depend on the aims of such a project- = if the=20 county=92s aim is to prevent brain-drain and provide employment, then = one need not=20 implement such rules. But if, however, the aim is solely an economic = one, one=20 might benefit from such restrictions.

8 Early seed = funding: By=20 involving for-profit business organizations in the incubation set-up, = the=20 program may serve as an effective early seed funding scheme.

Our hope is that the research presented in this = workpackage=20 will enable other countries contemplating the set-up of a government-run = incubation program to learn from the Israeli experience.

Appendix A: ESTER=20 Project Questionnaire

Date:

Location:

Role: Entrepreneur/Project staff

Identification of interviewee and entrepreneurial=20 project:

The project=92s field (attain short description of = what they=20 do)-

Date of entry into incubator-

Country of origin and number of years in = Israel-

Occupational background-

Background about reasons for joining the enterprise = and the=20 incubator program:

What motivated you to be an entrepreneur/to join = this=20 project? (to earn a living, wanting to work in one=92s field of = expertise=20 etc.)?

Had you previously been involved in such a form of = private=20 entrepreneurship (in Israel or abroad)?

Did the existence of the incubator program = influence your=20 decision? What aspects of the incubator project contributed to your = decision=20 to join (government backing, economic backing, etc.)?

What if the incubator program had not existed? = (Would you=20 have gone ahead and set up an enterprise of your own? Would you have = abandoned=20 the idea?)

What were your expectations from the incubator?

How would you describe yourself- as an entrepreneur = or as a=20 scientist/researcher? Why one more than the other?

Current status of the project:

What is the current status of the project?

How many rounds of external fund-raising has the = project been=20 through? (Try and get information on number, sources and amounts).

What signifies success in your eyes (or lack of = it?) [e.g.-=20 sales, profits, additional investments, number of employees, business=20 cooperation agreements etc.]

What in your opinion are the necessary conditions = needed in=20 order to assure a project=92s success?

Difficulties:

What difficulties did you encounter while setting = up the=20 project? What are they at

present? Pleas specify in decreasing order (most = difficult to=20 less difficulty- try to reach as many difficulties as possible!).

Were there any specific difficulties due to your = being an=20 immigrant? (Ask them to arrange cards in declining order of = importance:=20 language, social ties, acquaintance with local bureaucracy and = institutions,=20 different mentality.)

Do you think your chances of success would have = been=20 different in another country?

Assistance:

In light of the above mentioned difficulties and = assuming=20 that you attained aid from the incubator in order to cope with them, = please=20 list the areas in which the incubator was more successful in assisting = with=20 and those it was less successful in assisting with.

What are your suggestions for improving the = incubator=92s=20 efficiency in aiding projects?

From the options below, please arrange in a = declining order,=20 the importance of the following kinds of assistance (from the most = important=20 to the least important):

 Scientific aid (such as gaining access to experts in = the=20 project=92s field)	 The incubator taking greater responsibility for = raising funds=20

 A longer stay in the incubator=20	 Finding business partners=20

 Provision of information and assistance in marketing = issues=20	 Product design (shape, color, human-engineering etc.) =

 Financial aid =	 Legal aid =

 Assistance in negotiations with business partners = (ensuring the=20 attainment of a fair agreement for all sides involved)=20	 Guidance on complying with international quality = regulations=20 (i.e. ISO, FDA regulations)=20 =

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