Worldwide innovation needs global incubation

The more support, mentoring and connections you give a startup in its early years, the better its chance of success

I HAVE BEEN a fan of startup incubators since the 1990s, when I invested in Compugen (NASDAQ: CGEN), a drug discovery company nurtured at the Israeli government’s high-tech incubator in the Negev desert.

Compugen, then housed in the tiny Kibbutz Sde Boker, known mainly for its most famous resident David Ben-Gurion, Israel’s first prime minister, is a classic Israeli tech success story. It was founded by graduates of the Israeli military’s elite Talpiot program, one of whose wives was working on the early stages of the human genome project at the Louis Pasteur Institute. The founders had the then revolutionary notion that the same hidden markov models and signal to noise research pioneered by the IDF Communication Corps could be applied to reduce noise and increase the signal in genomic hunting for therapeutic drugs.

I loved the idea, invested in the company, and enjoyed a handsome return when it went public on Nasdaq in August 2000. Compugen later gave birth to Evogene (NASDAQ: EVGN), another success.

Along the way, I introduced the company to Martin Gerstel, previously the CEO of ALZA Corp., which he had steered toward its $12 billion acquisition by Johnson & Johnson in 2001. Martin eventually became the Chairman of Compugen and a critical contributor to its accomplishments.

Personal relationships

My experience at Compugen taught me the benefit of incubators, and the power of the personal relationships that can play a pivotal role in the life of a company.

Compugen is just one of many wins from some 2,500 companies nurtured at nearly 50 tech incubators established by the government-backed Israel Innovation Authority since the 1990s. They have been shown to benefit everyone – startups, investors, and taxpayers. In a study published in 2019, the IIA estimated that each dollar of public money invested in the incubators and their companies was returned 5 to 10 times to the Treasury in taxes, while creating thousands of new jobs. Another study found that incubator companies were several times more likely to succeed than companies that had not passed through an incubator program.

That’s why I have encouraged OurCrowd , alongside its core business of investing directly in startups, to become Israel’s most active incubator operator . Together with some impressive partners and strategic investors, OurCrowd helps to manage five tech incubators here in Israel, another in New Zealand, and we have just announced our seventh in Montevideo in Uruguay , to serve Latin America. Our partners and co-investors are leaders in their relevant sectors and come from around the world.

While there are also private equivalents, the IIA has developed an impressive model for its incubators, which are put out to public tender. The licenses are usually won by a consortium of VCs, investors, and industry partners.

Partners

Our partners in the five Israeli incubators include India’s Reliance Industries, Israel’s largest food company Tnuva, Israel’s largest drinks company Tempo, Finistere Ventures, and Perrigo (NYSE: PRGO) the giant over the counter pharmaceuticals manufacturer. Finistere is also a partner in our Sprout incubator in New Zealand, which specializes in AgTech, along with Fonterra, the giant New Zealand dairy cooperative.

Israel’s incubator model, originally introduced in the 1990s, is both innovative and effective. The Israel Innovation Authority typically invests up to 85 percent of the seed capital for the startups selected, but does not take any equity. That means an immediate 6X multiple for other investors, including OurCrowd.

But the incubators provide much more than capital.

“We call it smart money,” says Adi Lavi, OurCrowd’s Director of Government Relations, who is responsible for our incubator portfolio and sits on the board of Sprout in New Zealand. “As well as funding, the companies receive mentorship and expert advice from the incubator partners, who are experienced industry professionals. The consortium that runs each incubator is made up of VC and industry leaders who can provide introductions, business development advice and the contacts that can make all the difference for a small startup trying to release a new product or technology onto the market.”

Our Israeli incubators range from a specialization in FoodTech at the Fresh Start Incubator in the northern town of Kiryat Shmona, to deep tech and automation at the Labs/02 in Jerusalem, to HealthTech at NGT HealthCare II in Nazareth. Many of the incubators are situated in Israel’s periphery, bringing investment and employment to areas beyond the traditional business districts. The location of NGT in Nazareth allows easier engagement for the underserved entrepreneurs from Israel’s large Arab minority, who make up most of the residents of the surrounding area.?

As the companies grow, they can more easily raise funding rounds from the incubator partners already familiar with them, providing attractive deal flow. In the few years since OurCrowd inaugurated its first incubator, we have invested more than $36 million in 66 incubator portfolio companies. We have seen some notable growth with startups that have thrived and increased their valuation by 3X, 4X and even 8X. Some are potentially poised to achieve an impressive exit.

In March, a consortium led by OurCrowd was selected by the government-backed Uruguay Innovation Hub program to operate OurCrowd LATAM Labs , the country’s first government-backed accelerator.

The Montevideo consortium is a partnership between OurCrowd, local business incubators Ingenio Incubadora de Empresas (LATU) and Centro de Innovación y Emprendimientos (CIE) - Universidad ORT Uruguay, as well as Mana Tech, a leader in Miami's high-tech ecosystem.

“We aim to empower Uruguayan startups, helping them consolidate in the national market and expand globally,” says Pablo Brenner, President of the Board of the new project and a key figure in Uruguay’s high-tech ecosystem.

Access

The program will provide approximately 15 local startups with access to internationally renowned mentors over a three-year period. Each startup will receive customized support tailored to their specific needs.

“We have created a powerful triangle connecting local and global capabilities from Israel, the US and Uruguay,” says Maayan Schrieber, CEO of the OurCrowd LATAM Labs. “Together with our partners, we will combine high-quality deal flow, validated acceleration methodologies, an unprecedented network of investors and multinational corporations and global expansion channels, to bring opportunities into the Uruguayan ecosystem and propel local talent globally.”

The accelerator plans to tap into Uruguay's entrepreneurial ecosystem and elevate it to an international level.

“Positioned in Latin America, the program is expected to draw regional companies into the local ecosystem, introducing new perspectives and business practices. Uruguay has already attracted international conglomerates, which we are confident will join and support the accelerator's activities, enhancing its international presence,” Schreiber says.

Investing in Latin America presents OurCrowd with a unique opportunity to tap into a region teeming with unrealized potential. With a growing tech ecosystem, an expanding middle class, and a youthful population eager to embrace innovation, Latin America offers fertile ground for investment. The region’s emerging startups span various industries, including FinTech, AgriFoodTech, HealthTech, ClimateTech, cybersecurity, logistics and e-commerce, providing diverse investment prospects. A strategic investment in Latin America offers access to a market of over 600 million people, with global partnership and expansion opportunities.

As I learned from my experience with Compugen, the more support, mentoring and connections you give a startup in its early years, the better its chance of success. That applies to startups anywhere, not just in Israel. We are proud to be helping in the globalization of Israel’s incubator model for the benefit of innovators, investors – and taxpayers – everywhere.

About ‘Investors on the Frontlines’

I’m the CEO and Founder of OurCrowd , the global equity investment platform that gives individual accredited investors access to private market startup deals alongside top-tier VCs. If you are an investor, private family office or financial advisor, subscribe here for my biweekly commentary or follow me on Twitter . I welcome your comments in the response section below.