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Monday, January 19, 2015

Israeli high tech needs to take a more long-term view

Israelis are a very impatient people. They want everything yesterday. And that's hurting our high tech industry.

While many entrepreneurs and investors have made lots of money from Israel's start-ups over the past two decades, increasingly firms acquired by foreign buyers are then either shut down, with their intellectual property moving abroad, or turned into R&D centres for the parent company.
Israel's high tech industry is a major growth engine and investment magnet, attracting multinationals like Apple , Intel and Google, who have been eager to snap up local start-ups.
High-tech goods and services account for 12.5 percent of Israel's gross domestic product (GDP) and half of its industrial exports, government data shows. Israel leads the OECD when it comes to R&D, spending 4.3 percent of GDP on it, nearly twice the OECD average, according to Ernst & Young.
Companies often tap into the skills of workers trained in the military or intelligence sectors and start-ups benefit from tax breaks and government funding.
But Karin Mayer Rubinstein, head of the Israel Advanced Technology Industry association, said that while M&A brought money into Israel, patents were being "vacuumed" out.
"In the last few years, most of the companies being bought don't stay here as a separate entity," she said.
...

There are 282 R&D centres in Israel, most owned by foreign firms. Eight out of 10 Israeli technology firms bought by multinationals become a foreign R&D centre in Israel, or are integrated in existing foreign R&D centres, said the Israel Venture Capital (IVC) Research Center.
Entrepreneurs say investors are often looking for high returns as quickly as possible. 
"To build a long-term success story takes hard work, many years and lots of patience," Brenmiller said. 
Patience is not a strong point in Israel's start-up culture, where entrepreneurs like to move from one idea to the next. 
Israeli venture capital-backed companies take an average of 3.95 years from the first round of funding to acquisition, compared with 6.41 years in Britain and 6.66 in France, according to third-quarter 2014 figures from Dow Jones VentureSource.

I hear these stories every day. At one company I know, the entire company was shut down and moved to the US. At another, everyone with six years or more of seniority has been fired. In both those cases, those fired included some or all of the company's founders. Employment in Israeli high tech has actually contracted by 2% in the last two years. And there's no end in sight.

Read the whole thing.

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