Investing in start-ups or funding incubator managers?

Published: Thu 25 Jul 2013 04:13 PM
Investing in start-ups or funding incubator managers?
The CEO of one of the most successful Israeli business incubators is in New Zealand to advise government, private investors and the innovation community on how to achieve greater growth momentum in our business incubator system. Incubators have become an increasingly important part of the tech startup scene worldwide.
Oren Gershtein, was the CEO of Israel’s leading technology incubator, Van Leer Ventures, Jerusalem, for nine years. Israel company listings have been number two on the NASDAQ for many years and have only just been replaced by China.
AUT University in partnership with Auckland Tourism, Events and Economic Development (ATEED), has brought Oren to NZ to provide advice on how to set up a private sector incubator in Auckland’s Wynyard Innovation Precinct.  The visit is timely as the Ministry of Business, Innovation and Employment (MBIE) finalises its policy on a new government funding stream around repayable grants. MBIE is considering placing investments with start-up companies in line with the Israeli incubator model.
The Israeli model is successful because the Israeli government, rather than funding incubator managers, invest in start-up companies to the tune of $500k to $750k. The model integrates 85% government and 15% private first stage investment, with the government input reducing risk at the early stages of a company. The government is repaid through royalties.
The New Zealand incubator currently primarily provides new entrepreneurs with mentorship, advice and practical training on technical, business and fundraising topics to help them get from idea to product to launch and beyond. By contrast, the Israeli system is focused around rapid business growth through expert management and has produced an ongoing stream of extremely valuable exits, commonly up to $500m in value.
AUT is working with ATEED to explore the feasibility of setting up a pilot business incubator in Auckland based on the Israeli model and preferably in the Wynyard Innovation Precinct.  If government commits to the pilot we are confident that it will receive private investor support and follow-on investment.
By comparison with Israel, NZ has a history as a low risk society and this has limited the levels of investment in early stage ventures, and limited the growth and value of companies emerging from our incubator system. We need to address this not only by how we invest, but also by creating a new generation of entrepreneurs who are less risk averse.
NZ also needs to break down the barriers around small companies with like technology not wanting to work together, and give greater momentum to high quality early stage companies that have critical mass through a stronger investment environment that then attracts multi-national companies to participate in developing our high tech sector.
Oren Gershtein is meeting with potential investors, MBIE staff, parties from ATEED, Callaghan Institute and Waterfront Auckland to discuss reproducing the Israeli model in New Zealand.   ENDS
Auckland University of Technology is a university for the changing world, an increasingly powerful force for learning and discovery. A contemporary, connected and relevant study destination, it has differentiated itself through its commitment to widening university access and participation, and its engagement with business, industry and communities.
·         AUT, New Zealand’s fastest growing university, has an enrolment of around 19,000 equivalent full-time students across three campuses – City, North Shore and Manukau.
·         QS World Rankings ranks AUT in the top 500 (or top 5%) of the world’s universities.
·         The 2012 Australasian Survey of Student Engagement (AUSSE) report found that AUT outperformed all three benchmark groups on all measures of student engagement, including academic challenge, active learning, student and staff interactions, supportive learning environment, enriching educational experiences and work integrated learning.

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