NZ eyes Israel's start-up model
The former chief executive of one of Israel's most successful business incubators has been advising local government and private investors on how to get faster growth in New Zealand start-up companies.
Incubators have become an important link in the worldwide tech start-up scene in particular, and New Zealand already has several operating here.
Oren Gershtein was chief executive of Israel's leading technology incubator, Van Leer Ventures, in Jerusalem for nine years.
He was brought to New Zealand by AUT University and the Auckland Council's economic development agency, ATEED, to advise the best way of setting up a private sector incubator in Auckland's new Wynyard Innovation Precinct.
The council had hoped to attract incubator Icehouse, which has been operating in Auckland for the past 12 years, to the precinct.
However, Icehouse chief executive Andy Hamilton said they "hadn't been able to find a commercial deal" due to inflexibility around space. The Icehouse has instead leased larger premises close to its existing base in the Auckland suburb of Parnell.
But Hamilton said he hadn't ruled out moving to the precinct at some stage, and was particularly interested in the Israeli incubator model which matches the Government's moves announced in the Budget to consider new ways of funding start-ups.
The Ministry of Business, Innovation and Employment (MBIE) is finalising its policy on a new government funding stream around repayable grants similar to the Israeli incubator model.
Gershtein said that rather than funding incubator managers, the Israeli government invests in start-up companies to the tune of US$500,000-US$750,000 ($630,000-$940,000). The government provides 85 per cent while private sector investors make up the remainder of first-stage investment.
"There is no free meal to start-up companies. When they succeed, the grants are paid back by royalties," he said.
New Zealand's incubator model is focused more on providing mentoring advice and training than helping out with funding, but Gershtein said the Israeli model has been successful because the government takes the majority of the risk at the early stages of the start-up.
This encourages private investors to also invest in the start-ups.
While taxpayers have to accept that some start-ups failed and the government input was lost, the overall payback to the economy was worth it, he said.
Under the Israeli model, government had injected US$500 million to US$600m in start-ups over the past 20 years. This investment had sparked additional money from foreign investors to the tune of US$3.6 billion over the same period which was a significator contributor to the country's GDP.
AUT and ATEED are exploring the feasibility of setting up a pilot business incubator with government assistance in Auckland based on the Israeli model, preferably in the Wynyard Innovation Precinct.
The Government's Budget announcements also indicated companies that receive funding for research and development projects would have to pay it back if they moved overseas within three years.