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Newsletter on innovation from the European Commission's Enterprise DG





July 2003




Incubating methodology

    The availability of seed capital and incubator facilities can have a massive impact on the success of new high-tech businesses. Support schemes such as these have often played a role in innovative regions, and now a new PAXIS project aims to transfer these ideas to several of the acceding countries.


I n PAXIS's first phase, the IFISE project was able to transfer the methodology behind two successful Israeli schemes - the Yozma and Technological Incubator programmes - to Italy. In the ESTER project, in the new phase of PAXIS, some of the IFISE partners are working with new partners from Estonia, Latvia and Slovakia to transfer plan a similar to these economies still in transition.

"The ESTER project has a simple idea behind it, and a very clear methodology," says Charlotte Avarello, project officer in the Commission's Innovation Policy Unit. "Both of the Israeli programmes have demonstrated their effectiveness and value, but it is clear that they cannot simply be reproduced in a new environment. ESTER, and IFISE before it, concentrate on how that transfer can be made. The critical factor is understanding the environment in the target region, and adapting the methodology to suit local conditions." Successful models

The Yozma programme was set up in 1983, with the Israeli government investing up to 40% (no more than $8 million) in seed funds on condition that they concentrated on high-tech investments. The funds required to bring in local money and have experienced foreign partners. If they were successful, they could then buy out the government share for the price of the original investment. Some ten firms were created in this way in three years, leading to a huge increase in venture capital in Israel.

The Technological Incubator programme has run since 1991, providing government support for high-tech incubators. A total of 28 have been set up, with over 400 projects completed, and a further 200 are currently being supported.

"There is a market failure in the provision of seed capital for high-tech businesses," according to Vittorio Modena who is co-ordinating the ESTER project, "so in the IFISE and now in the ESTER projects we have set out to identify rules, or conditions, in which governments may invest in seed capital funds. One big problem is the EU's state aid rules which limit the possibilities for governments to invest. In depressed areas - those which benefit from EU Structural Funds - it is relatively easy to demonstrate market failure, and therefore have such investment approved, but usually much harder in areas where there is already significant high-tech activity." Learning possibilities

"With the two Israeli examples, we have tried to identify the factors which have made them successful, to try and develop rules to be applied in other environments," Modena emphasises. "The Israeli models were chosen for their long track record - they have been working on this for around 12 years. We need to enlarge our range of examples now, and do the same work as on the Yozma and Incubator programmes. There have been many programmes launched in the past few years, so there are more examples now."

The IFISE project created a plan for Italy, based on the two Israeli programmes. Some existing Italian programmes have already been influenced, according to Modena, and the team are shortly to publish their recommendations, with a view to convincing public authorities to implement them. The same methods will be used to develop principles to be implemented in Estonia, Latvia, and Slovakia.


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