Those who despair of our ability to inspire or fund start-ups could take a lesson from Israel’s Chief Scientist Office.  Here is how the CSO does it:

* Pre-seed, the CSO may fund 100% of costs.

*Promising ideas are funded for two or three years at 85%;  these companies are placed in incubators.  The CSO takes no equity and is repaid, if at all, from a royalty on sales.

*The incubators are for-profit private companies that fund the other 15%, so they have skin in the game.  The incubators get between 30% and 50% of the equity.

*The founders are not expected to invest their own monies.  They get 50% to 70% of the initial equity.

What kinds of life science companies are incubated?  About 55% are med device companies, and 30% are biopharmas.  About 200 companies now are resident in 25 or so government supported incubator facilities.  Recent experience is that about 90% of recently incubated companies have been successful in obtaining additional outside financing, reflecting an improving quality of enterprise being accepted into the program.

More mature companies may continue to get CSO funds, ranging from 30% to 75% of needs.  Additionally, the incubators themselves are free to participate in later equity rounds to increase or protect their stakes.

Israel invests about 4.5% of its GDP in life science, by far the highest percentage of any country, and about double the US percentage.  48% of incubated life science companies (all incubated over the last six years or so) have reached the revenue stage; 60 life science companies are listed on the Tel Aviv stock exchange (where, I am told [having no direct experience] that listing of very small companies is typical).

(Thanks to David Barone of Boston MedTech Advisors for some of the information and all of the statistics cited above.  David was addressing a presentation by emerging Israeli med device companies held January 29 at Newton Wellelsey Hospital.)