By Liz Segrist
Published Feb. 2, 2012
South Carolina could learn a lesson from Israel’s funding model that supports innovation and entrepreneurship and earned it the nickname “The Start-Up Nation.”
“Israel’s key export is knowledge,” said Jonathan Zucker, president of Charleston-based The InterTech Group. “A country the size of Rhode Island has a level of innovation happening there right now that exceeds that which is happening in our country right now.”
Israel didn’t have much in the way of venture capitalist support for innovation and R&D until the early 1990s. The government created a model that supports entrepreneurial growth — one that could be duplicated in South Carolina, said Nili Shalev, the Israeli government’s economic minister to North America.
“In 1991, there was virtually no venture capital in Israel and the government made an intervention. Now, not all of government interventions are smart or successful,” Shalev said, receiving laughs from more than 100 people attending GSA Business’ Power Breakfast event Thursday. “But, this is one model that can be exported to other places.”
Shalev and Zucker were panelists at the event, along with Tom Glaser, president of the American-Israel Chamber of Commerce, Southeast Region.
The Israeli government offered $100 million and called for proposals from the private sector worldwide, especially to the U.S. Any group of companies that could bring $10 million to the table would receive a government match. The private group would then buy out the government, allowing the companies to flourish on their own in the private industry.
“This was such a huge success,” Shalev said. “Many foreign investors came to tap into Israel’s innovation. The smartest part was that the government quickly pulled back and let private industry continue investing.”
Israel also supports innovation through a chief scientist, which serves as the intermediary between businesses, universities and the government and manages an annual fund of $300 million specifically to support R&D research and industry. Money is allocated through a competitive process for innovation or new technologies. No preference is given to specific industries.
As Israel did two decades ago, South Carolina struggles with garnering enough capital or angel investors on a consistent basis to fund entrepreneurial growth. A new collaboration that focuses on getting access for Israeli companies to S.C. markets and creating jobs for residents could help, Zucker said.
The South Carolina-Israel Collaboration began in January 2011. It’s a group of S.C. businesspeople from a variety of sectors, including the leaders of the state’s three research universities, major state hospitals, private and public sector, elected officials and R&D companies.
By creating relationships, S.C. and Israel businesspeople want to unite investors, partners and customers from both places and offer incentives to establish operations in both locations, Glaser said.
The collaboration proposed creating a South Carolina-Israel R&D fund to support possibly three joint venture projects between companies or universities in both places, Glaser said. Companies with R&D or universities’ programs with similar goals would collaborate to receive the funding.
Zucker said getting the S.C. General Assembly on board to support a venture capitalist community in the state is vital for this effort to work. This support could come in the form of a funding plan or creating incentives in place to bring businesses here, past the usual skilled workforce or available land mantra.
Panelists said there needs to be seed money, knowledge and innovation for an Israeli company to set-up shop in South Carolina, therefore bringing jobs and investment with it.
“This would help us walk the walk. We say we have the knowledge-based economy, but we don’t have the critical mass that Silicon Valley or Boston has,” Zucker said, chairman of the collaboration’s steering committee. “We have to create it to put incentives in place for people to bring business here.”
Israel’s ability to commercialize on research; its compulsory military service that renders intelligence and technology; a major influence from immigrants; and a business-supportive government that created a country-wide system of 26 technology incubators in the 90s make Israel a desirable business partner. These incubators now generate an average of six to 12 start-ups each year.
Israel has a population of 7.7 million and is about a fourth of the size of South Carolina. It’s renowned for its technology in a variety of industries, such as medical and life sciences, electronics and computers. South Carolina is known for its strong manufacturing base, especially in the aerospace and aviation industries.
Twenty-seven travelers promoted South Carolina as the gateway to the U.S. for Israeli businesses during a trip to Israel in November. The trip directly produced 50 active projects in biomedical, aerospace, health care, transportation and research projects, among other sectors. One Israeli company is considering S.C. for its new headquarters. S.C. currently has seven Israeli companies.
In 2010, exports from South Carolina to Israel totaled more than $68 million, and imports from Israel were at $44 million.