Promoting Israeli High-Tech Industries: National Plan Review 2011-2012

1. Promoting Israeli High-Tech Industries 2011 - 2012 משרד האוצר Competitive AdvantageNational Plan Ministry of Finance

2. ~ Review ~ Summary • Program Highlights • Basic information • Strengths • Weaknesses ~ Appendices ~ The Program • Toolbox

3. Program Highlights “Israel related” concept No Silver Bullet Integrated Program Continuous Process

4. High-Tech Industries Space Industry Biotechnology Nanotechnology Innovation CentersStart-upsLarge companies Life Sciences Semiconductors Communications Software / Hardware Internet SecurityIndustries Clean-Tech

5. 41.2% of total exports in 2009 270,000 employees in 2008. c. 14% of total employees in Israel’s business sector 15% of Israel’s GDP Basic InformationIsrael’s High-Tech industries

6. Industry’s Strengths

7. Signs of Weaknesses

8. THERE IS A SIGNIFICANT RISK OF IMPAIRMENT TO THE CONTINUED GROWTH OF THE INDUSTRY IN ISRAEL

9. ~ Review ~ Summary • Program Highlights • Basic information • Strengths • Weaknesses ~ Appendices ~ The Program • Toolbox

10. Tool Box • Covers all phases of industry’s growth • Uses a wide variety of additional tools

11. Industry Flow chart Academe  research Basic / applicational Early -stage Seed Pre-Seed Large companies

12. Industry and Academic Partnership • The Chief Scientist formulated a set of designated tools to enhance the relationships between Academy & Industry(marketing, financing, business training, etc.) • Supporting basic research thathas the potential to be commercialized • Expanding existing programs ("Magneton", "Nofar," etc.) Tools 1-2 | Industry and Academic Partnership |Israeli scientists abroad

13. The Problem: Loss of human capital as Israeli scientists move abroad(“brain drain”) Goal : To encourage Israeli scientists and entrepreneurs, that have the power to influence and promote the high-tech industries in Israel, to return home to Israel Solution : Tax deductions on income from royalties, stemming from research abroad, to scientists who have returned to Israel and commercialized the product Israeli Scientists abroad 13 Tools 1-2 |Industry and Academic Partnership|Israeli scientists abroad

14. Updating the Chief Scientist’s Programs • Changing the R & D Act regarding the transfer and sale of franchise knowledge • Reducing uncertainty for investors • Improving the effectiveness of the Technological Incubators program • Matching the program to the industry's current characteristics • Changing the loan repayment system of the incubator franchises • Creating incentives to the franchises to reward excellence Tools 3-4 | Update of Chief Scientist Programs |R&D for the global financial industry

15. Developing R&D Centers for Global Financial Industries • The Problem: • Israeli high-tech is marginal in the global financial industry’s R&D, the biggest consumer of technology worldwide • Solution : • Government incentive to multinational financial entities to establish R&D centers in Israel • Description: • New program under the Chief Scientist Office to encourage R&D centers for global financial technology Tools 3-4 |Update of Chief Scientist Programs|R&D for the global financial industry

16. The Problem: Over dependence on ICT and a lack of investment and limited knowledge in the bio-tech and Life Science area Solution: Significant encouragement for the bio-tech industry in Israel Description: 4 public-private funds for bio tech. Government’s $104m to be leveraged with a minimum of $304m private funds. Status: Status: 4 managers were selected for the funds in April 2010. Development for Bio-TechIndustry 16 Tools 5-8 |Bio-Tech |Early stage capital |Institutional capital| Growing Large Companies

17. The Problem: Not enough money is raised by SEED-stage companies. SEED-stage companies raised approximately $39 million in 2009, a decrease of about 56% compared to 2008. Solution: Allowing investment in an R&D-focused company to be reported as an expense on “day one” Description: Deducting this investment as an expense against income from all sources, spread over three years Incentives for Early Stage investments Tools 5-8 |Bio-Tech|Early stage capital|Institutional capital| Growing Large Companies

18. The Problem: There is a dramatic decline in the ability to raise capital in the Venture Capital industry in Israel from local Pension Funds The percentage of Israeli institutional investors investing domestically is significantly lower than abroad, 0.2% vs. 2% Solution: The State will participate in the investment risk of Israeli institutional investors Status: The State has a budgetary commitment of about NIS 200 million for this program Israeli Institutional Investment 18 Tools 5-8 |Bio-Tech|Early stage capital |Institutional capital| Growing Large Companies

19. Encouraging high-tech Israeli companies to acquire small Israeli high-tech companies Encouraging the creation of clusters Allowing the amortization of goodwill for tax purposes Promoting M&A activity 19 Tools 5-8 |Bio-Tech|Early stage capital |Institutional capital| Growing Large Companies

20. The Problem: Low rate of Arab minority and Ultra-orthodox employees in the high-tech industries Solution: Incentives for high-tech employers to employ underrepresented communities Description: Adjusting the Ministry of Industry’s support programs, which subsidize the cost of salaries for the high-tech industry Examining other options to encourage employment via the Chief Scientist’s programs • Minorities & Industry 20 • Tools 6-9 |Encouraging Underrepresented Communities|Dual R&D |CIO | Science / Technology Education

21. The government purchases more than a billion shekels worth of technology and services each year from the high-tech industry The CIO will see all the needs of the government, set strategy and work to create standardized tools and infrastructure The CIO will have direct responsibilityto initiate, lead and operate all horizontal projects for thegovernment The CIO will create a supportive environment to promote innovation in Israeli industry • Appointment of a Government CIO 21 • Tools 6-9 |Encouraging Underrepresented Communities|Dual R&D |CIO | Science / Technology Education

22. Strengthening Technological Education Shortage of teachers in technological education Structured combination of high-tech industry retirees /young people Retraining program by the Ministry of Education for teaching technological subjects Industry Ministry of Finance Ministry of Education 22 • Tools 6-9 |Encouraging Underrepresented Communities| Dual R&D | CIO|Science / Technology Education

23. Governmental Focus on R & D Clean-Tech? Homeland Security ? Bio-Tech? • TheProblem: • No preference or system for integrated national R&D efforts • The Solution: • a body responsible for: recommendations for research focus areas, formulating an action plan and coordinating between governmental bodies • Members of the Body: various government bodies that are in charge of investment in research and development 23 • Tools 10-11 |Bringing Back Israeli Scientists|Governmental Focus on R&D

24. ~ Review ~ Summary • Program Highlights • High-tech Industries • Strengths • Signs of Weakness ~ Appendices ~ The Program • Toolbox

25. Academe  research Basic / applicational Early -stage Seed Pre-Seed Large companies New track for supporting basic research with applicational potential in academe Changes in the chief scientist’s tools Encouraging angel investments in seed companies Expanding the support in the Nofar track Encouraging Israeli companies to acquire Israeli startups Encouraging Israeli institutional investment in venture capital investments Expanding the support in the Magneton track Brain gain Focusing and prioritizing government R&D Bringing additional populations into the industry Dual R&D Technological / scientific education Government CIO Expanding into additional branches of technology

26. THANK YOU

27. ~ Review ~ Summary • Program Highlights • High-tech Industries • Strengths • Signs of Weakness ~ Appendices ~ The Program • Toolbox

28. Exports ofHigh-Tech Industries as a % of ExportsIn 2009, the share of exports of high-tech industries in Israel was 41.2% Emerging markets Developed economies

29. Export of High-tech IndustriesAverage Growth Rate 2004 - 2006 Developed countries Emerging markets Source:EuroStat, CBS.

30. High-Tech Employees by Sub-Branches 2008, thousands 85% 15% Source: Central Bureau of Statistics, Manpower Survey

31. InnovativePatents Registered byEmerging Markets in the U.S. in 2008 (Patents per million people) Source:USPTO.

32. U.S. Patent Applications by Country of Source2008

33. University Degrees by Field of Study 1987-2008 Source: CBS.

34. Israeli Requests for Patents in the U.S. From 1995-2008

35. Students Studying Abroad Vs. Students Studying Domestically, 2002-2007 Source:OECD - education at glance.

36. Israeli Students in the U.S. After Receiving a Ph.D.(% Staying and Returning) *לפי תוכניותיהם בשנה לאחר קבלת התואר

37. Forecast inVenture Capital Investment Activity in 2010 Source: NVCA.

38. Failure of Large CompanyDevelopment Large companies Over 450 employees>$100 M 1% companies 25% employees 5 9% companies 30% employees Growth companiesSales >$10 M 90% companies 45% employees “Start-Ups” • According to CBS: • There are 36 companies with sales greater than $100M • There are 12 companies which were established after 1992 • 4 companies were established after 1995 Source: IVC.

39. Expenditure on IT by Sector Source: Gartner.

40. THANK YOU