Chief scientist says startups boom but fail to grow into mature companies

Report offers insight by presenting both accomplishments and areas of concern in high-tech sector.

By NIV ELIS
Computer keyboard [illustrative]. (photo credit: ING IMAGE/ASAP)
Computer keyboard [illustrative].
(photo credit: ING IMAGE/ASAP)
Though Israel’s startup scene is thriving, very few of the small companies are developing and maturing to large ones, according to the first annual Innovation Report, released by the Economy Ministry’s Chief Scientist’s Office on Monday.
“We cannot approach the hi-tech industry as a single unit,” Chief Scientist Avi Hasson said. “The young industry and the mature industry behave differently and require different tools to continue driving the economy forward.
Despite a record year in Israel’s startup industry, we are far from successful at reaching the industry’s full potential.”
According to the report, which is intended to offer an annual snapshot of Israel’s hi-tech scene by presenting both accomplishments and areas of concern, Israel’s startup industry produced $7 billion in exits and raised $3.4b. in capital in 2014.
That disparity indicates startups’ preferences for selling to larger companies instead of attempting to develop into large companies in their own right.
A “hi-tech index” compiled for the report accentuated how startups and mature companies respond to economic circumstances. The former are far more vulnerable to impacts from global economic and financial conditions.
Though companies such as Outbrain and ironSource offered counter examples, such cases were few. Incentives for growing companies, therefore, had to be increased, the report concluded.
Israel is also highly dependent on foreign investment, the report found. Just a fifth of the funding came from local venture capital. Alternative funding sources such as crowd-funding and greater investment from institutional investors are beginning to offer plausible supplements.
Another development that could help push Israel’s economy forward would be branching out from hi-tech and focusing on innovations in traditional manufacturing.
Government intervention should be more focused and efficient, with its various policies consolidated. The industry as a whole faces a shortage of engineers, the report said