Evolutionary Innovation and High Tech Policy : What Can We Learn from Israel's Targeting of Venture Capital?

The paper analyzes Israel's Innovation and High Tech Policy from a Systems-Evolutionary (S/E) and Life Cycle Perspectives with a focusing on the targeting of the Venture Capital Industry during the 1990s. Other related research strongly suggested that the emergence of Venture Capital (VC) during that decade was a central vector in the re-configuration of Israel's high tech industry into a Silicon Valley, start up intensive, model of high tech. The paper undertakes a qualitative assessment of the central VC-directed program-Yozma; and compares it both with a prior failed program (Inbal) and with VC policies of other countries. It concludes that in all likelihood, Government intervention was justified and its impact was high. Absence of a clear policy evaluation methodology in the literarure that follows S/E principles implies that the main thrust of the analysis lies in the framing of policies rather than in undertaking a quantitative analysis of economic impact. Israel's success in its Venture Capital policies (with Venture Capital defined ‘strictly' in the sense of early phase equity-based finance and support of high tech start ups) contrasts with the seemingly weak impact of policies adopted by other countries, including OECD countries. Moreoever, and in contrast to much of the relevant literature, it also raises the possibility that targeting high tech clusters is possible provided adequate background and, even more important, adequate pre-emergence conditions have been fulfilled. In Israel those conditions were such that Yozma managed to spark a cumulative, auto-catalytic process of VC industry emergence.Success in the implementation of ‘targeted' Innovation and High Tech Policy (and more specifically, of Venture Capital industries) must be adequately timed, must explicitely consider the domestic and external environments of the country, and must be coordinated with other policy actions. The paper ends with a systematic analysis of VC policy failure