As COVID-19 makes many investors fearful – Incubators are more relevant than ever
Israeli innovation has become so intertwined with the country’s brand DNA it is almost a cliché. At the very root of its start-up prowess lies the Israeli Innovation Authority (IIA) technological incubator program. This government-industry partnership was originally set up in 1991 and evolved over the years and the companies that graduated from this powerful initiative helped fix Israel’s Startup Nation epithet. Nearly 30 years later, the Silicon Wadi state has produced a few large, successful multinational companies that are headquartered in Israel and operate on a truly global scale, but Israel is still very much in the business of building innovative startups. In the face of the COVID-19 pandemic Israel continues to stand out as a model for the most efficient innovation possible and the IIA incubator framework is playing an important and effective role.
The spread of COVID-19 has had a negative global financial impact. As a result, it is now considerably more challenging for young startups to raise capital as investor appetites have dwindled. At the same time, the dramatic change in lifestyle and work routines have heightened the need for innovation. The requirement to provide remote support to patients who are at higher risk of suffering complications from COVID-19 infection, the increased importance and expansion of sanitary conditions, and the dramatic surge in the number of patients who require home care are just a few of the trends, all calling for innovation.
For Israeli tech companies, this was compounded by budget approvals being delayed due to the government not having yet been formed, resulting in a gap of funding from the Israel Innovation Authority (IIA) through Q1. Some 1,161 grant requests filed since the beginning of the year hung in limbo.
The onset of the COVID-19 pandemic, however, helped shake up Jerusalem as they set out to jolt the local market with some much-needed stimulus. In early April the government, through its tech investment arm, the IIA pledged to immediately infuse 650 million shekels, approximately $180 million, to tech companies; about 50 million shekels of which would be earmarked specifically for coronavirus-fighting startups and companies. The IIA announced that it would fast-track its review of the grant applications submitted since the beginning of the year.
We believe much of this capital will be invested into incubators placing them once more at the forefront of future tech innovations.
One of the drivers for this is that incubators present less risk because they are not solely reliant on ad-hoc external investments. This was highlighted by the fact that even when the NASDAQ dropped, it had little to no impact on IIA incubators because they have funds readily available for investments.
IIA Incubators, such as the MEDX Xelerator, can also be much more capital efficient. The shared resources and combined experience allow well-selected projects to reach proof of concept and meet significant value-creating milestones on less than $1 million – something individual startups struggle to do.
All of this makes now a great time to approach incubators with life-saving technology or procedure ideas that have yet to be explored, especially if there is a strong unmet clinical need.
For our part, MEDX Xelerator invests in projects that are focused on peripheral intervention, cardiology, imaging, orthopedics, surgery and medical robotics.
The incubator typically guides innovations that present a strong unmet clinical need from initial conception to a full company. This includes building the right team, market value, RA, intellectual property, and finding the right strategic partners to bring the idea to life.
Companies and entrepreneurs from abroad can also take advantage of the financial stimulus offered through the Israel Innovation Authority by incubating in Israel and indulging in the incubator’s strong web of local and international strategic partners. This option is available through the sharing of foreign patents and intellectual property. So, if innovative thinkers in the US, Europe or Asia have identified a strong unmet clinical need, we can work together to bring this idea to life in the incubator.
Where do we go from here?
The threat of COVID-19 has exposed the urgency to address many unmet medical needs – from readily accessible supportive devices for ventilation, to devices that allow for remote monitoring of patients –allowing health professionals to keep their distance while providing needed care. We see clearly the importance of boosting innovation – in fact, the need is urgent. Israel has long been at the forefront of technological advancements as the “Start Up Nation.” While investor appetite may remain low in some geographies, the newly approved influx of capital through the IIA could be the catalyst that Israeli incubators need to continue and lead the push for further progress with innovators from around the world. To paraphrase Warren Buffet’s saying, – when most investors are fearful is a perfect time for Incubators to be greedy.