Running for its 15th consecutive year, the Equity Investment Forum’s 2-day event, aims at fostering equity investment and development in Greece. While several interesting and important agendas where covered, I will comment on one in particular – “The need for cooperation of Public Policies and Private Sector in order to create an innovation driven ecosystem”. The honorary country for this year's Investment forum was Israel, whom has an impressive record of innovation. In fact, Israel has the highest concentration of tech startups in the world. Given this, a large focus of the event was on Israel’s experience – what they did, how they did it and what they learnt.   

by Mihali Stamatis*

Yigal Erlich, founder of Yozma presented a convincing presentation on the steps required to push innovation and encourage startups (as well as equity investors). A large part of this relates to public policy – how can the government encourage people to innovate and compel venture capitalist to fund them. Israel has had some notably successful government sponsored programs. A common reference was to Erlich’s ‘Yozma’, which was founded in 1993, and given an initial US$100m in capital to invest (direct investment or into venture capital funds). The fund also drew additional investment from overseas. According to the OECD, 9 of the 15 companies that received direct investment from Yozma went public or were acquired. Another successful initiate taken by the Israeli government was to create the office of the Chief Scientist (two of the speakers, Erlich and Gleitman had previously held this title). The Chief Scientists office runs a matching grants program, where firms can submit proposals (demonstrating their commercial viability) to compete for government grants (which are paid back if successful). Sponsored firms have drawn more than US$2.5billion (as at 2010) since being funded.  

Government intervention into the Israeli venture capital and startup area appears to have worked. Is it then the right approach for Greece? In some respects the argument for direct government intervention has a solid standing. In the early stages of innovation, risk is high, perhaps too high for an underdeveloped domestic private finance sector. Without the funding, these innovations would simply dwindle away, or incorporate elsewhere. By funding startups, governments can make a large impact (in the early stages of an enterprise funds are very productive) and simultaneously develop the industry to the point that attracts foreign investment and private sector venture capital funds. It is once this ecosystem (an environment incorporating the startups and related organizations that foster more innovation) becomes self-sustaining the government may step back.

While the progress seen in Israel is impressive, Greece is not ready for such programs. Innovation will only occur in an environment that supports and fosters it. Unfortunately Greece’s issues are not limited to risk adverse private investors, but cover the entire business sector. A complicated tax code, volatile economic conditions, unstable regulation and a generally hostile view towards innovation and change (mostly from the public sector), needs to be addressed if Greece wants to encourage innovation. These are the very reasons for the ‘brain drain’ Greece is experiencing. Giving grants, low interest loans and tax breaks isn’t going to solve the issues that Greek businesses face. It would be simpler for these startups to incorporate elsewhere (where funding opportunity exist) and leave behind the nightmare that is the Greek business environment.

What is needed is an indirect approach, targeting the bigger picture in Greece. The government should utilize their resources to improve the general economic conditions, provide much needed regulatory reform and foster a culture that encourages change (which is often destructive to existing industries). Also, it should be noted that the Greek State has a dubious track record in setting up new agencies. It tends to increase complexity and regulation rather than limiting it. Funds for subsidies get drained into parasitic government run institutions, rather than being dispersed to the market. It is questionable whether it is in the government’s role to provide high-risk subsidies to private institution, which traditionally is for the private sector. Providing loans where they would not normally fall is a market distortion, and to receive the positive externalities envisioned requires a talented, forward thinking and business savvy public sector (a rare occurrence and certainty not existing in Greece). While Israel’s program has produced remarkable results, Greece has a long way to go before it has the ability to pull off an equivalent program.


Mihali Stamatis comes from Perth, Australia and is of Greek descent. He is a recent Finance and Economics graduate from the University of Western Australia, currently interning at GLM via a Mannkal student scholarship.

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