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2016/17

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High-Tech & Technology -

DUN’S

100

13

Status Change– The Story of the Israeli

Innovation Industry in 2016

By Avi Hasson – Chairman of Israel’s Innovation Authority and Chief Scientist of the

Ministry of Economy

I

n 2016 the Israeli innovation ecosystem

registered strong entrepreneurial and eco-

nomic activity in continuation to the posi-

tive trend of recent years. At the same time, both

the opportunities and the challenges became

clearer, indicating a current critical junction for

the Israeli High-Tech industry.

A prominent positive shift in recent years has

been the strengthening of growth companies.

These companies aim to lead the global mar-

kets in which they operate and prefer to risk it

all rather than sell the company and continue

to the next challenge.

This activity indicates the industry’s maturity:

the entrepreneurs are more experienced, the

global connectivity is better and the investors

are more prepared to make additional invest-

ments at later stages.

Indeed, this trend was also expressed in this

year’s statistics: IVC reported a new record of

capital-raising in 2016 (4.8B dollars in com-

parison to the previous record of 4.4B dollars

in 2015) and the average deal size that stood

at 7.2M dollars per round in 2016 (19% above

the past five year average). This occurred while

the extent of exits declined in comparison to

previous years ($5.6B and $3.5B as reported by

IVC and by PWC, respectively – excluding Play-

tika), a possible indicator for the shift towards

growth strategy of the industry’s companies.

However, we must not ignore the warning signs

and barriers which prevent the industry from

breaking its glass ceiling. First and foremost,

the lack of skilled workforce is intensifying.

Over the past two decades, the Israeli High-

Tech industry has steadily built its reputation

as a leading innovation hub, a reputation which

led the world’s leading technology companies

to establish innovation centers in Israel.

Alongside them, many Israeli-established

companies became leaders in their fields and

this increased the demand for engineers and

programmers who are able to handle the most

advanced technological challenges. Add anoth-

er 1,000 newly established start-up companies

each year, and you’ll get a large demand sur-

plus against the supply of engineers in Israel.

We estimate that the current gap in the industry

amounts to several thousand engineers, and

is steadily increasing.

This situation constitutes a major and serious

barrier for the industry’s growth, both because

of the labor shortage and because of the ris-

ing costs of employing engineers in Israel – an

increase which impacts the Israeli’s industry

global competitiveness.

This competitiveness impact is especially

problematic in light of the increase in inno-

vation investments in many foreign markets.

Many countries were already wise enough to

realize – what the Israeli economy understood

several decades ago – that innovation is the

most effective driver for sustainable growth. If

in the past the main competitors of the Israeli

economy were the developed economies in

Europe and in North America, currently we are

witnessing an impressive raise in activity of

innovation in developing economies as well.

However, it is important to note that the in-

crease in innovation activities in these markets

is not just a threat, it is also an opportunity.

This depends on our level of success in creating

high-quality bridges and cooperations between

the Israeli industry and the emerging industry

in these markets.

In order to handle these issues and others, in

recent years we worked hard to establish the

Innovation Authority. This, from the deep famil-

iarity and years-long mutual work with the in-

novation industry, and the understanding that

it is impossible to provide a proper response

to its needs under the traditional structure of

the Chief Scientist Office. In the past year – our

efforts bore fruits.

Following the enactment of the correction to

the Research and Development Law, the In-

novation Authority was established, moved to

its temporary offices in Airport City and recently

hired a new CEO. Nowadays, innovative solu-

tions and processes for the burning issues are

already being formulated within the Innovation

Authority. These include developing broad ac-

tions concerning human capital including pro-

grams for multiplying and upgrading High-Tech

professional trainings and increased integra-

tion of excluded populations; introducing a

new program called “innovation labs”, which

will provide physical and research infrastruc-

ture for start-up companies; and formulating

a program, in collaboration with the Ministry

of Finance, that provides guarantees to banks

against loans they give to growth-stage tech-

nology companies.

As is the case of every change of such magni-

tude, we are experiencing complex challenges

in the process of transferring to the Authority’s

new framework.

Therefore, I wish to use this platform to ask our

customers – the Israeli Innovation Industry–

for their patience and endurance. I am confi-

dent that within several months the activity of

the new Authority will stabilize and the service

provided to the industry and the entire Israeli

economy will be more valuable, more efficient

and goal-oriented.

I wish to all of our partners in the industry that

2017 will be a fruitful year, in which the growth

trend will continue and that with mutual work,

we at the Innovation Authority, will succeed in

becoming a significant factor in your success–

which is our success.

Signed,

Avi Hasson.

Photo By: Amnon Hass