How Binational Innovation Can Lead to ‘Continuous Payback’

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In its recent board meeting in Tel Aviv, the Israel-U.S. Binational Industrial Research and Development Foundation (BIRD) approved $9 million for funding 11 new projects. The projects include a health care quality analytics and patient engagement portal to be developed by CliniWorks, which is based in Ramat HaSharon in Israel, and the U.S.-based pharmaceutical giant Pfizer; and a robotic dispensing device integrated with a nuclear pharmacy management system by Haifa, Israel-based RescueDose and ec2 Software Solutions of Las Vegas. 

“The projects approved by the board include innovative, relatively high-risk technology developments,” says Eitan Yudilevich, executive director of the BIRD Foundation. Adds Avi Hasson, chief scientist at the Israeli Ministry of Trade and Industry and co-chairman of the BIRD board: “The projects reflect the significant diversity and potential of the collaboration. They contribute to the economy of both Israel and the United States and encourage growth and job creation.” According to Hasson, the BIRD Foundation continues to be a key tool to facilitate strategic cooperation between Israel and the U.S. in the areas of research and development and technology. 

In addition to the 11 new projects approved by the BIRD Foundation, the U.S. Department of Energy (DOE) and Israel’s Ministry of National Infrastructure, Energy and Water Resources have selected four projects to receive $3.6 million under the 2013 BIRD Energy program. These projects address challenges and opportunities related to the energy sector in both countries, with special emphasis on commercializing clean energy technologies that can improve Israel’s economic competitiveness, create jobs and support innovative companies. The selected projects will also receive $8.8 million from U.S. and Israeli private sector firms.

A Broad Agenda

Established in 1977 by the governments of Israel and the U.S., the BIRD Foundation has approved 878 projects since its inception and has given more than $300 million in grants (about $500 million if adjusted for inflation). The funding comes from an endowment established by the Israeli and U.S governments. The BIRD Foundation accepts joint applications from any pair of companies — one Israeli and one U.S.-based — that can demonstrate that their combined capabilities and infrastructure can conceptualize, develop, manufacture, sell and support an innovative product based on industrial R&D. 

“The projects reflect the significant diversity and potential of the collaboration.” –Avi Hasson

Through participation in one of the projects, the U.S. companies potentially increase their competitive advantage by gaining access to cost-effective Israeli innovation; Israeli companies are hoping to acquire know-how and entrance to new markets. “Israel is a hotbed of activity for high-tech research and development. The culture itself encourages and rewards risk-taking and entrepreneurship,” says Yudilevich.

The BIRD Foundation funds up to 50% of each company’s R&D expenses associated with the joint project, money that must be repaid (up to 150% of the received amount) only if commercial revenues are generated as a direct result of the project. The repayments are a vital component to the continuation of the program. According to Yudilevich, about 30% of the projects funded by BIRD have reached commercialization, generating revenues of around $10 billion. A recently successful project is the ReWalk, a commercial bionic walking assistance system developed jointly by Israel’s Argo Medical Technologies and the U.S.-based Allied Orthotics & Prosthetics.

The BIRD Foundation has also been instrumental in helping preserve critical resources like water. For instance, it has approved several projects in recent years focusing on innovations in water technology. These include partnerships between Desalitech (Israel) and GE (U.S.), Stream Control (Israel) and American Water (U.S.), Curapipe (Israel) and Milliken (U.S.), and Water Flow Tech (Israel) and Mueller Water Products (U.S.). 

“Originally, our goal was to advance the Israeli high-tech sector. Today, the goal is much broader and includes supporting small and medium enterprises in the U.S. by giving them access to Israeli innovation through a BIRD project,” says Yudilevich, adding that BIRD’s support reduces the risk of such joint ventures and increases the chances of commercialization in the global market. 

According to Yudilevich, BIRD’s main challenges are increasing its funding capacity and growing its exposure to U.S. companies of all sizes. One of its notable successes in the former category, he adds, was establishing a program focusing specifically on energy. “We are working to achieve additional funding in other sectors, such as homeland security and cybersecurity [in the short term] and neuroscience [over the long term],” he notes. 

BIRD’s staff is relatively small, Yudilevich says, so the organization increases its reach and exposure by partnering with other groups, such as chambers of commerce.

‘Cheap Money’

According to Leonard M. Lodish, an emeritus marketing professor at Wharton and leader of the Wharton Global Consulting Practicum, the service that BIRD provides is “cheap money,” which he says is always good for entrepreneurial ventures, but is also an incentive for Israeli companies to partner with American companies early on in a project’s lifecycle. “It shows other [potential] investors that they have someone who wants to partner with them, represent them…,” he notes. “It takes out some of the perceived risk of venture capital and angel investments. If [companies] have BIRD money, it is easier for them to obtain other money, which is very important.” 

“Stable and predictable funding for a significant period unaffected by market changes has been a key ingredient in BIRD’s success.” –Eitan Yudilevich 

Lodish suggests that with the “the entrepreneurial climate in Israel heating up and growing,” the demand for funding from the BIRD Foundation is only expected to grow. “I see it having a very bright future [especially] because there is continuous payback. It’s a good use of government funds and is beneficial for the countries and for the companies.” 

Phillip Singerman, associate director for innovation and industry services at the National Institute of Standards and Technology in the U.S., sees BIRD’s success ensuing from a well-designed program in terms of its goals and its structure. The Institute’s role is to examine the practical and technical reviews of the proposals. “The joint U.S.–Israeli board which funds the projects has a regular business model, a rigorous evaluation system, and a talented staff,” says Singerman. He adds that BIRD is an international model of bi-national cooperation in promoting technology and economic development. “The Foundation has demonstrated over 30 years of success of the efficacy of the bi-national model combined with a focused mission.” 

In June 2012, the strategy and economic research unit (SERU) of the Israeli Ministry of Industry and Trade ran an evaluation of the BIRD Foundation’s operations, which was presented to the Foundation’s board. Uri Gabai, director of the unit, explains that BIRD’s flexibility is a major factor in its successful operation. “It has the ability and foresight to revise its goals, as well as its method of operations, in accordance with trends and changes in industry; to assess where government support is needed, and retract from projects where it is not [needed].” 

Thirty-seven years ago, when the program was first conceived, there were very few large Israeli high-tech companies. The idea was for large U.S. corporations to partner with small Israeli companies. “Looking at the picture from the beginning of the 1990s, the distribution of companies on the U.S. side in the last decade [has] veered from very large to medium and small size companies. [This mix] changed as the number of large Israeli companies increased,” says Gabai. 

BIRD funds projects that are risky by nature, so “unsuccessful projects are expected — otherwise we would not be doing our job,” Yudilevich notes. 

Yudilevich divides the unsuccessful projects into two categories: Those that stop during the R&D process and those that complete the R&D phase, but aren’t able to achieve revenue during the commercialization phase. “For the first category, in most cases the initiative to stop the project will come from the companies,” he says. “In such cases, we closely engage the companies to understand the situation…. If it’s clear the project will not continue, we halt BIRD’s funding and we may even require [the partners] to return funding that was previously provided, if the companies have not fulfilled their contractual obligations — mainly, submission of technical and financial reports, as required by the contract.”

“If [companies] have BIRD money it is easier for them to obtain other money, which is very important.” Leonard Lodish

As far as projects that fall into the second category, BIRD grantees submit sales reports every six months, and Yudilevich says BIRD staff often engages with companies to discuss that information. “It’s interesting to study the reasons for a project not to reach successful completion and/or commercialization,” he notes. “These reasons can be divided into three categories: technology, market and partnership. Our statistics show that in about 50% of the cases, the reasons are related to the partnership and some development at one of the companies. In about 30% of the cases, the reason is market-related. Only in about 20% of the cases, the reason is related to technology.”

Changing Times

Over the past decade, the BIRD Foundation has also altered the composition of its projects. It found that in the software sector there was enough private money to sustain those companies, so it relocated its own funding to sectors like life sciences, clean tech and energy. Funding in life sciences projects, for instance, has grown from 10% in the 1990s to around 35% to 40% at present. 

The SERU evaluation also noted that revenue generation is an indicator of the economic success of a project. Based on a statistical analysis, the evaluation concluded that the BIRD Foundation is choosing its projects wisely, and is not being blinded by the illusion that a big company is always successful. Rather, it is guided by the level of the seriousness and cooperation of a company with its partner in the project. 

According to Yudilevich, since its inception, the BIRD Foundation has always responded to environmental changes. For instance, in the mid-1990s, it focused on increasing the number of partnerships in biotechnology, and today, the number of life science partnerships has grown considerably. In 2009, an energy efficiency program was initiated resulting in many new partnerships. Today, there are new projects in cybersecurity, an area that is vital for both countries. 

“Stable and predictable funding for a significant period unaffected by market changes has been a key ingredient in BIRD’s success,” says Yudilevich. In addition, broad coverage in all sectors and expertise in “matchmaking” between companies with compatible needs have played an important role. He adds that BIRD will continue to promote U.S.–Israel partnerships in diverse areas like cybersecurity, homeland security, neuro-technology and advanced manufacturing. “We will continue to promote U.S.–Israeli partnerships in all sectors and encourage companies of all sizes to participate in the program,” notes Yudilevich. 

Looking forward, he adds that U.S companies face global competition, and the need to reduce government spending will likely have a negative effect on many businesses. Israel is also implementing government spending cuts. “U.S. businesses will be looking more and more for markets outside the U.S., and although Israel is not a large market, Israeli companies can be beneficial to U.S. companies both in innovation and outreach to select export markets,” he says. “Israeli hi-tech companies will still look to the U.S. as their preferred market for launching their products. So a U.S.-Israel collaboration remains of great value for both sides.”

Yudilevich’s advice to other countries wishing to set up a BIRD-type foundation is to select the best projects with the best companies. “Keep the focus as broad as possible in areas as diverse as software, health care, communications, cybersecurity, electronics, communications, homeland security and clean tech,” he suggests. “Don’t limit yourself to any one sector; otherwise, you will be limiting entrepreneurship. We have been doing this for many years, and it works well.” 

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