This study deals with policy instruments supporting high-tech start-up activity. It is based on the Israeli experience with two specific government programmes: Yozma, which triggered the emergence of the venture capital industry, and the technological incubators programme. These programmes had significant impact on the development of the high-tech cluster in Israel. While venture capital has positive impact on the growth and strength of high-tech clusters, it has also significant drawbacks, such as narrow geographical distribution of high-tech activities and narrow technological diversification. In this study we will analyse whether the interaction between Yozma programme and the technological incubators programme, reduced these drawbacks. We will examine whether the technological incubators in peripheral areas in Israel succeeded in attracting high-tech start-up activity as well as venture capital investments, and whether the incubators were supporting more diversified technological fields than the venture capital industry. In addition, we will try to determine whether cooperation between venture capitals and incubators led to more balanced investments patterns in terms of geographical distribution and technological diversification. Our empirical work is based on a population of 3747 Israeli high-tech firms, established between 1991 and 2004. In analysing this data we will attempt to determine whether venture capitals and incubators have dissimilar effectiveness in supporting start-ups and different technological and geographical preferences. The findings suggest that while venture capital-backed firms have higher success rates, their activities are more concentrated in central areas. In contrast, the technological incubators proved successful in attracting activity to peripheral areas and to less popular technologies, but their success rates are very low. Finally, the findings suggest that incubator graduates that received venture capital financing had significantly improved results.

This article presents a simplified model for comparison of the spatial distribution (core—periphery) of economic activity resulting from free market conditions, with the distribution that would lead to a social optimum. It further examines the public policy measures required to lead the economy towards the optimal distribution. Simulations are conducted to illustrate the mechanism of intervention of public policy and to test the feasibility of various measures. An important conclusion is that public investment in the creation of competitive ability in the periphery may provide the solution to market failure and therefore lead to the achievement of a social optimum greater than the free market optimum. Another preliminary conclusion is that public policy should consider a combination of measures (such as improving both regional infrastructure and the quality of the labour force), since focusing on a single measure may not be sufficient to achieve a social optimum.

In recent years, the Reverse Mentoring (RM) model has gained popularity in large companies. Although the prevailing RM model—junior employees mentoring senior employees—benefits both groups and promotes innovation, small and medium-sized enterprises (SMEs) do not implement it due to lack of economies of scale, organizational capacities, and skilled junior employees. We devise a new RM model for SMEs that overcomes these disadvantages. First, the intervention of an intermediate, trusted professional entity initiates and supports the program for several companies; second, the mentors are not junior employees, but external graduate students with education in innovation. A pilot experiment was tested in the state of Ceara, Brazil. The preliminary findings support the new model’s feasibility and efficacy for SMEs. The intervention stimulated significant innovative ideas and resulted in out-of-the-box thinking, identification of potentials for innovation opportunities, and adaptation of an open innovation approach, which is important for SMEs with limited financial and non-financial resources. This study contributes to the literature on SMEs and RM by offering a new model that can overcome existing market failures experienced by SMEs. Empirical testing demonstrates its feasibility.