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Spreading ‘Start-up Nation’ around Israel

Three technology incubators announce move to country’s periphery

When people think of Israel as the “Start-up Nation,” their first thought is often of Tel Aviv, the country’s financial and technological hub. Yet the government is now trying to spread the wealth, particularly to the periphery, by encouraging start-ups to set up or transfer there.

The Israel Innovation Authority (IIA) announced this week that three technology incubators, companies that help start-ups succeed, will be set up in three towns in the periphery: Karmiel in the North, and Rahat and Yeruham in the South. The incubator in the last locale will assist start-ups in the medical cannabis sector.

The effort is a combined venture of OurCrowd, Perrigo Company PLC and Breath of Life International Ltd. The first is an equity crowdfunding platform. The latter two are in the pharmaceutical and medical cannabis spheres, respectively.

Elad Yeori, co-founder and CEO of Southup, helped establish the nonprofit startup incubator two and a half years ago in the so-called Gaza envelope, in the western Negev. Southup has since brought 14 start-ups to the area around the Gaza Strip.

“The idea behind the technology incubator here is to create an economic engine for the Gaza envelope,” he told The Media Line. “We bring start-ups here. We help them grow, and in return, they stay in the area for a few years.”

For businesses that make the periphery home, the bottom line helps make the move more appealing.

“From a financial aspect, it is much cheaper to maintain the office, and employees [have lower salaries],” Lee Shafrir told The Media Line.

Shafrir is vice president of marketing and business development at Brooks-Keret Financial Management, a financial services firm that assists hi-tech companies and start-ups.

Yeori says the IIA’s financial incentives are what first and foremost attract start-ups, followed by the “ecosystems” that companies like Southup create. These ecosystems help emerging enterprises succeed, for example by providing investors and mentors.

Under certain IIA requirements, Yeori explains, these types of private businesses are eligible for grants. Such enterprises can receive even more funding if they go to the periphery.

“Start-ups in Tel Aviv that meet the criteria can get 50% of their budget from the IIA. If the startup comes here [to the periphery], it can get 75% of its budget,” he said.

Yet companies face challenges when moving to the periphery.

“The periphery poses… difficulties because it doesn’t have too much of a population. It’s difficult to find specific [types of] employees,” Yeori explained.

Political violence can also present problems, particularly around the volatile Gaza Strip.

“When there are tensions with Gaza, it’s an issue,” he said.

Eyal Waldman, president and CEO of Mellanox Industries, which has a branch in the northern periphery town of Yokne’am Illit, agrees that government policies help incentivize start-ups to move.

“There are benefits the government gives you, like tax holidays,” he told The Media Line, using the business term for tax breaks.

Yet there’s more.

“You can find good employees in the periphery… because there are universities out there,” he said.

Waldman argues that despite all the perks, many start-ups still prefer to set up shop in or near Israel’s tech capital.

“For the most part, these companies prefer Tel Aviv to the periphery,” he said.

Brooks-Keret’s Shafrir contends that this is due in part to the amount of red tape involved when having to work with the IIA.

“Some companies don’t want to deal with the Innovation Authority because they request reporting, and there is a lot of bureaucracy around it,” she explained.

“They have many requirements. One of them is to keep the IP [intellectual property] in Israel,” she added.

She says that to induce more companies to move to the periphery, the government will have to provide more assistance, and tech incubators will have to provide more highly developed ecosystems.

“We need to [see] more benefits and more support, and then we can see more start-ups there,” she said.

Still, Southup’s Yeori is optimistic about start-ups coming to areas like his.

“We think we have the potential to become the [next big] hi-tech industrial park,” he stated.