How to make high-tech the basis of the economy

20 years ago, the innovation economy in Israel began with government programs. Having given them a go, the authorities stepped aside and are now reaping the benefits: more than 10% of Israel’s GDP and more than half of Israel’s exports are provided by high-tech.

The great future of the Hebrew University in Jerusalem was to some extent ensured by Albert Einstein himself, who bequeathed to him the rights to his manuscripts and a recognizable image
Photo: Sebastian Scheiner, AP

OLEG KHOKHLOV

Scientific income

“If you think of the Israeli high-tech ecosystem as a necklace, we would be the first pearl,” says Dana Gavish-Friedman, director of marketing at Yissum, a technology commercialization center at the Hebrew University of Jerusalem. “It all starts here, with amazing science. Then there are startups, incubators, venture funds, companies and corporations."

On the university campus in the Givat Ram district, I am greeted by a cardboard Albert Einstein on a bicycle - the scientist bequeathed his manuscripts and letters to the Hebrew University, as well as the rights to commercially use his name and image. I check the map in the Wayz iPhone app (Google bought the Israeli navigation service for $1.1 billion in 2013) and realize that a bike would be useful for me too. This campus (the university has six in total) is almost like the Old City: from the main entrance to the High Tech Village, where the Yissum office is located, it is about two kilometers. High Tech Village really does feel like a village. On the hillside there are several dozen one-story buildings. Once home to students, these are now the offices of high-tech companies, many of which came out of the university.

The Hebrew University was opened in 1925, the Yissum technology commercialization center in 1964. This is a commercial organization that makes money on technology transfer - unlike a university, which is not a commercial organization. Among the 12 members of the board of directors, only three are representatives of the university, the rest are business people. The center's task is to protect intellectual property through patent registration and search for partners for the further development of scientific discoveries and technologies.

“Our name (translated from Hebrew as “application” - “Money” ) reflects the essence: Yissum turns intellectual property into products,” says Dana Gavish-Friedman. “University R&D is always very early stage science. As a rule, this very far from something that can be packaged and put on the shelf, we are looking for R&D companies that would be willing to license our research to bring it to the market in the form of finished products." Technology commercialization centers operate at all Israeli universities, and they all follow the same model: the researcher gets 40% of the income that his discovery brings, 20% goes to the laboratory in which he works, and Yissum takes the rest. In the total volume of academic research, the share of the Hebrew University (its staff includes about 1 thousand researchers) is 30%. The annual turnover of products based on technologies developed at the university exceeds $2 billion (Yissum does not disclose the volume of royalties, it is only noted that we are talking about tens of millions of dollars per year).

Dana Gavish-Friedman calls the Yissum site a technology store. It really looks like an online store. On the main page there are areas of research, and in fact - product categories. We choose, for example, Life Science & Biotechnology. Then, going to the list of subsections, go to, say, Medical Devices. There are 12 patents available, each with its own card with a description, a list of patents, contact information for researchers and representatives of the relevant Yissum department (in this case, Healthcare), links to other studies on this topic, etc. Let's say we need a device to fight with obesity: click on the Add button - the card is sent to the basket.

The Hebrew University of Jerusalem is the oldest in Israel. According to the ranking of Shanghai University, this is the first university in the country. Jerusalem University is ranked 59th in the world. The top hundred includes three more Israeli universities - the Israel Institute of Technology (Technion), the Weizmann Institute and Tel Aviv University. In other rankings, Israeli universities also occupy high places. Last year, Bloomberg included Technion among ten universities that train the best leaders for IT companies. Data on universities that graduated from 250 CEOs of American technology companies with a capitalization of more than $1 billion was taken into account—Technion was the only non-American university to make the chart.

Israel spends 8.5% of GDP on education - this is the highest figure among countries belonging to the Organization for Economic Co-operation and Development - OECD: in 2010, spending amounted to $1.7 billion, in 2011 - $1.85 billion, in 2012 -m - $1.99 billion. According to the information service of the European Commission CORDIS, in Israel the share of academic centers in the total volume of R&D is 30%, and if we exclude research conducted in the interests of the military, it is 45%.

Israeli startups are growing well not only in cloud technologies, but also, for example, in agriculture
Photo: AFP

Jewish Big Brother

Based on the most promising technologies, Yissum itself creates startups: assembles a team, forms a board of directors, and finds investors. In these projects, a university researcher may become a scientific advisor or chairman of the board of directors. At the same time, he will almost certainly not leave his job at the university.

The most resounding success of the Yissum center is the drug for the treatment of Alzheimer's disease Exelon, which is produced by Novartis: sales volume in 2012 was $1.2 billion. Professor Marta Weinstock-Rosin, who invented Exelon, continues research. She created another drug, Ladostigil, and became a co-investor in Abraham Pharmaceuticals, which she founded with Yissum.

Another example is BriefCam, the developer of the Video Synopsis program. One of the founders is Hebrew University professor Shmuel Peleg, who previously took part in the emergence of the company HumanEyes, which develops software for creating 3D images. Video Synopsis technology allows you to view video recordings made at different times in one frame. An hour's worth of surveillance camera footage can be viewed in one minute. In this case, objects falling into the frame are indexed. Video Synopsis is essentially the Google for video archives. BriefCam President and CEO Dror Irani shows me how it works. Here, for example, is a busy highway. In a minute, all the cars caught on camera in an hour flash across the screen. Next to each is the time when he was noticed. What are we looking for? Let it be only red cars. We enter this query into the search bar - now we see only them. Big Brother can find anyone. In another video filmed indoors, we look for people wearing a certain color of clothing. We can select those who interest us and follow them.

“I joined the company two years after its appearance, Shmuel Peleg was my teacher at the university 25 years ago (at BriefCam, Professor Peleg is a scientific consultant . - “Money” ),” says Dror Irani. “This technology began with pure science, without any connection with what we are doing now: the first patent was related to the creation of dynamic panoramas. We are now working with companies that operate thousands of cameras. We just installed a system for a client who has tens of thousands of cameras at sites around the world. which are managed from an office in the USA."

Dror Irani does not name BriefCam clients, citing the terms of the contracts. It is known, however, that Video Synopsis is used by the company Total Recall, which is responsible for video surveillance on Liberty Island in New York, where the famous statue stands. In addition, Dror Irani makes it clear that the rumors that it was BriefCam technology that helped identify the Boston terrorists in April 2013 are most likely true. However, the system can be used not only by security companies and intelligence services (it is suitable, for example, for traffic analysis), and BriefCam connects its future not only with corporate or government orders, but also with the consumer market. “In the future, we want to be in any video,” says Dror Irani. 40% of the company's clients are in the USA, 40% in China, 20% in other countries. There are clients in Israel, but this market will never be a priority for BriefCam, as for the vast majority of local high-tech companies.

Glasses for the blind

“While still in graduate school, I started working on computer vision, creating models that would allow a computer to analyze an image - to actually see,” says Hebrew University computer science professor Amnon Shashua, co-founder and chairman of the board of directors of MobilEye and OrCam. “I always thought about big projects , about something that could go beyond the academic environment. While you are working at a university, you have a grant, some equipment and a dozen students. You can create a model, an algorithm, but hardware and software can only be made in a company. ".

Professor Shashua set up a meeting at the office of MobilEye, one of the most successful companies to emerge from the Yissum Center. In the high-tech center Har Hotzvim, a large business park in northwest Jerusalem where MobilEye, the largest developer of electronic equipment for preventing car accidents, is one of the most prominent residents along with Intel and other international companies.

The main elements of MobilEye systems are a miniature camera and a microprocessor that processes the incoming image in real time, determines the distance to objects ahead (cars or pedestrians) and displays this information on a display in the car or on a smartphone screen. The company was founded in 1999, entered the market in 2007 (the first clients were BMW, GM and Volvo), in 2013, when sales volume amounted to 1.5 million chips, its value exceeded $1.5 billion. According to Wall Street Journal, MobilEye plans to go public this year on NASDAQ to raise $1 billion, which would give the company a $5 billion valuation.

Israel, not counting on a small domestic market, is forced to capture the international
Photo: Reuters

Having become the chairman of the board of directors of a successful international company, Amnon Shashua continued his research. In 2010, this work led to the birth of another startup - again with the support of the university's technology commercialization center. Last year, his new company, OrCam, introduced its first development - glasses for the blind and visually impaired. This is not an analogue of Google Glass, although comparisons with this Orcam gadget cannot be avoided. In the large black box that the company's vice president of technology and business development, Erez Naaman, hands me, I find a small camera connected by a wire to a massive piece of plastic. Following the instructions of my interlocutor, I attach the camera to the temple of my glasses, pick up a newspaper and point my finger at one of the notes. A split second passes, a signal sounds - and OrCam reads the text to me in a pleasant female voice.

In the video presentation that I found on YouTube before the meeting, the device read street signs, helped me find the right plastic card in my wallet, and did everything else. The current version of the software does not do everything. But while I tested them, they coped with text flawlessly, remembered what my notepad looked like and learned to recognize it, and also told me what denominations of dollar bills were in my wallet.

Unlike Google glasses, the OrCam device does not need the Internet - calculations do not take place in the cloud, but in a plastic block that can be put in your pocket or hung on your belt. The software is also not updated over the air - you need to remove the SD card and send it to the OrCam office. Erez Naaman says that for those who want to purchase this device, accuracy, reliability and speed are fundamental, and suggests comparing it not with Google Glass, but with medical devices. He also uses this analogy to justify the high price - $3.5 thousand. A high-quality hearing aid, a less technologically advanced device, costs about the same, Google Glass glasses - $1.5 thousand.

The first few hundred gadgets sold out instantly as soon as pre-orders were announced on the OrCam website. Now, on the eve of the official launch of sales in the United States, the company expects to sell 10 thousand devices by the end of the year. Soon, the developers promise to release an update that will include recognition of faces, bus numbers, and colors, such as traffic lights. While OrCam only speaks English, German, French and Spanish are next in line.

Not only Amnon Shashua and his colleagues believe in the prospects of the project - in April, the Intel Capital fund invested $15 million in OrCam. “The history of MobilEye began with the realization that over time every car will be equipped with computer vision technologies. We had to start somewhere, before entering the consumer market, we began to cooperate with concerns,” says Amnon Shashua. “The same with OrCam, mass devices will appear very soon, and these will definitely not be glasses. Such technologies may be really in demand, if you don’t feel it. them on yourself: the camera will have to look like a button or badge."

The army teaches Israelis to think quickly, and many military developments are being converted into civilian ones
Photo: IDF/AFP

Incubation progress

11% of Israel's GDP is high-tech products. Of the $70 billion in exports, more than half are high-tech goods. In a state with a population of about 7 million people, there are almost 5 thousand startups. Last year, 13 Israeli technology companies announced public offerings. The total volume of the IPO amounted to $1.2 billion. The volume of transactions in the mergers and acquisitions market exceeded $6.5 billion. Calling these results the best in the last ten years, the Israeli office of PricewaterhouseCoopers does not exclude that the results of 2014 will be even more impressive.

The high-tech sector of the Israeli economy is only 20 years old. One of the most important institutions in the history of its development was the office of the chief scientist in the Ministry of Industry, Trade and Employment (the modern name is the Ministry of Economy), which was created in 1973 to distribute government grants. At first, the authorities' experiments in the field of venture financing did not bring much success. The system began to operate normally only in the early 1990s, when the Ministry of Industry, Trade and Employment launched the state program Yozma ("Initiative").

The Yozma program budget was used to create ten venture funds, each with a capital of $20 million. One of the conditions for the creation of such a fund was the presence of one Israeli partner and one American or European one. The state invested only $8 million; the partners had to find the remaining $12 million themselves. The state did not interfere in the work of the funds in principle (the management of the Yozma program received $20 million at its disposal for independent investment); later the funds could buy out the state’s share at an acceptable price. The program paid off: the annual flow of foreign investment into Israel increased from $400 million in 1992 to $5 billion in 2000.

The launch of Yozma coincided with mass emigration from the USSR - more than 1.5 million people came to Israel during the Great Aliyah. In order to employ such a number of new citizens, many of whom managed to receive a good education in their first homeland, the state launched another important program - technology incubators. They were privatized in the mid-2000s and are now run by private companies (a competition is held every eight years to obtain the appropriate license).

In Russia, when it comes to startups, investors are interested almost exclusively in Internet technologies and software. The most notable successes of Israeli companies in recent years are related to these same areas. But the largest segment of the high-tech industry in terms of exit volumes last year was Life Sciences. The largest incubator operator, the Trendlines group, specializes in medical and biotechnologies, as well as agriculture. Trendlines reviews 200-250 projects a year and invests in five. When I made an appointment with representatives of this company, I was promised that I would see one of the “high-tech greenhouses.” I decided that this was a place where some unprecedented plants were grown. When I reached what looked like an open field on Google Maps, I found only a few office buildings. It turns out that incubators themselves are called greenhouses in Israel.

“At the very beginning it was only for immigrants from Russia, but then the state discovered that the model worked and began to allocate more money to incubators,” says Nitza Kardisch, CEO of Trendlines Agtech. “The task of creating jobs is still relevant today: the state -still invests 85% of the money in the startup in the form of a grant, and you have to return it only if you succeed. But if you want to sell the company to foreigners, you will have to pay a very large commission. To transfer R&D or production to another country - a little less."

While venture money in Israel was mostly local in the 1990s, it is now international. In 2013, according to the IVC Research and KPMG study, the share of Israeli funds in venture investments was only 25%. “Today you will most likely raise money in a foreign fund, which has a representative office in Israel than in one hundred percent Israeli,” says Amnon Shashua. “When you start a startup, you need to immediately decide where your future customers are. It is extremely rarely the Israeli market To be the main one.

At the same time, the elimination of the state from the management of incubators and funds is part of the general trend, the amnon Shashua explains: in the 1990s the state headed the movement, and then moved aside. Today his task is to simply not interfere.

Innovation the Israeli way