How to build and maintain an echo system at a designated innovation district.

Dear friends and colleges,

After 4 successful years at IN-VENTech Haifa. I am moving forward and will no longer manage the program.?

I wish to thank the previous mayor of Haifa, Dr. Einat Kalisch, and all colleges, partners and employees of IN-VENTech and HiCenter Haifa for allowing me to take a major part in the creation of the innovation echo-system and innovation district in downtown Haifa.

IN-VENTech program has brought a remarkable change in the innovation landscape of Haifa during the hardest time of the Corona crisis and global wars.

In 3.5 years, the program has accepted 67 companies to its growth program that managed to raise over half billion NIS with over 80% success rate in crossing “valley of death”.?

I do believe we have created the most successful formula for building an innovation district bottom-up, and I thought it will be a loss of valuable knowledge if I won’t try to do whatever I can in order to pass it forward.?

So, despite my usual habit of post reading only, I decided to write this long and unusual post that will summarize my experience and provide valuable insights on how to build and maintain an echo system at a designated innovation district.

And last before the main,

The below reflects my personal experience only with given resources at a specific location.

Many adjustments need to be considered duplicating the model presented below to any other location.

The rise of Innovation district

Promoting an innovation ecosystem is central in its importance to the economic development of the city and to the creation of employment opportunities.

In 2019, The city of Haifa has decided to allocate substantial resources in order to create an innovation district of start-up community in downtown Haifa with a main goal of creating an economic growth engine to the city.?

As an entrepreneur, a mentor in leading accelerators in Israel, and as a former manager of an Angels club, I was called to build and execute a program that will promote this valuable target.?

My first step as in any task was to collect any important insights from those who already investigated this topic, and the most relevant model I found was the one published in 2016 by Bruce Katz and Julie Wagne : https://www.brookings.edu/articles/rise-of-innovation-districts/

This brilliant research points the 3 main factors that any flourishing innovation district requires and will be based upon:

1.???? District physical assets:

Shared workspaces, offices, public transportation, culinary facilities, nightlife, and a young fertile environment.

2.???? Industrial and academic assets:

Corporations, academic institutions, hospitals, and companies that promote and utilize technological innovation

3.???? Initiating Drive-Engine:

The most important part for the success and growth of the innovation district.

An entity that will act as a drive-engine that supports and creates social and business connections between the entrepreneurs and the start-up community to the city assets stated above.

The Drive-Engine:

The IN-VENTech program was designed in order to perform as the perfect drive-engine. From one hand, it will map, engage and present value creation channels to the city assets (described above in 1 & 2),

and from the other hand, will present a comprehensive and long-term value creation program that will attract the BEST start-ups in Israel, connect them to the above city assets, cooperates and global players, and will provide them everything they really need in order to succeed and flourish in the designated district.

It was not enough just to design another acceleration program that will provide some financial benefits along with structured lectures, mentors, advisors and a list of lead connections, Israel is blessed with over 80 of these and one more will not make the change.

The IN-VENTech program was designed for 12-18 months, many companies stayed longer. The financial support included grants of 300,000 NIS along with monthly reimbursement of rent and lunch card for employees (to be used in Haifa only).

But it wasn’t the financial support that made the difference,

Creating and supporting an echo-system means value creation for every player you wish to engage and maintain. It addresses the 3 main factors mentioned above:?

1.???? Supporting echo-system physical assets:

One of the main tasks in creating a community of start-ups is to make sure they stay and grow within the city innovation district.

The one thing we learned from companies operating in peripheral area’s is that the main factor that connected them to the ground was their employees.

If a company grows to 30-40 employees that half of them live within the city limits, it is most likely that the company will stay and become the requested economic growth engine for the city.?

The program has allocated designated funds to reimburse the companies for office rent within the district (shared-locations or independent office), in addition, the program reimbursed lunch cards for company’s employees to be used only in the city in order to provide value to culinary players in the district.

Another activity that proved valuable supporting this goal, was to map available resident manpower including university alumni network, and try fill every open position in portfolio companies with an employee that lives or is a resident of the city.

2.???? Creating value to industrial and academic assets:

As a hub for innovation, the program mapped needs, business models, and personal connections with all local players (Hospitals, Academic institutes, local commercial entities, global players with territorial presence and more).

The method of work with the portfolio companies allowed the guidance of how and when to approach each, generating endless of connections, business cooperations and financial transactions.

3.???? Start-up growth acceleration program - Crossing the “Valley of death”

90% of the start-ups in Israel fail to reach profits and pass the break-even point.

They fail to pass what we call: “The valley of death”?

The main value-added activity that proved most valuable the success of the portfolio companies, was the ability to provide (along with cash financing), valuable business support focusing on the 2 major tasks and barriers every start-up face from birth to profitability:

1.???? Enabling the company to close the next round of investment.

2.???? Assisting the company in planning and implementing its business model and generate initial revenues.?

After years of screening start-ups for investment, I have learned that fundable companies were those who presented a comprehensive and complete Data-Room for investors, that presented the company’s DD information and roadmap as a blockbuster story.

Aiming to provide value to as many as possible, we have formed a set of state of the art templates that included EVERYTHING: from file structure of a Data-Room, ?financial P&L and legal set to business MOU’s and LOI’s.

The method of work was through separate weekly sessions with each company,

In which the program’s team operates as an outsourced BizDev unit and conducts “hands on” tasks according to the needs:

???????? Company introduction deck

???????? Complete legal set including investment agreements

???????? Business & Revenue models with GTM strategy

???????? Financial budget and P&L supporting business roadmap

???????? Financing model of investment needs

???????? Market exposure and PR

???????? Presentation simulations – telling the story right

???????? HR & open positions recruitment

???????? Identifying and connecting to city assets

???????? Identifying and connecting to clients, partners & investors.

???????? Constant follow up on tasks, connections and closing business loops

It is important to state that a team that can operate such model needs to work and operate as a start-up team that complete each other and play together as a Jaz band. Exactly as we would expect from every founding team we invest in.?

The success of the program was the ability to provide the added value of knowledge and connections in order to overcome barriers along the mountain ride of any start-up. ?I truly recommend every entity that wishes to provide real value to its SU portfolio to take the benchmarks from the way the program ??

Unlike most acceleration programs in Israel, the program in Haifa took nothing from the companies. No equity, no management fee not even success base fees.

The only thing asked from the companies was the signed obligation to base their center of operations for 5 years in the heart of the designated innovation district and grow within the city limits.

Many have asked why not to take equity in exchange for the measurable direct financial benefits mentioned above (and create future source of financing)?

The answer splits:

The target was to create an innovation district and echo system and to attract top start-ups to move in and grow within the city limits.

If one wishes to attract the BEST start-ups and create high success rates, it should show an attractive offering that shows one interest of the program of making the company grow.

Having no other interest but that, the program’s team received the cooperation and the confident of all stakeholders related to the company, and mostly by the founders.?

However, the split answer relates to the next phase, and after the success rate shown in first years, the next phase should have been relied on a global growth continues program, that will further support the best companies of the program, but this time, with a model that will allow equity or profit-sharing stocks.?

Unfortunately, the new municipal management of Haifa has decided to change the program and not to pursue next phase.

Happy to share any thought or insights if you managed to read to this point…??

Nimrod Elmish.

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