The Small and Medium Business Agency at the Ministry of Economy, together with the Budget Department in the Ministry of Finance, are leading a process for the establishment of two funds specializing in growth capital for medium-sized businesses.
The funds that will win the tender will provide solutions for long-term funding and investment in medium-sized businesses, and bridge the existing gap between the needs of the businesses and the existing capital supply in the market.
During the preliminary stage of the tender, 14 bidders were approved, who had competed for the privilege of establishing designated funds for investing growth capital in medium-sized businesses.
Two funds are planned at this stage, to compete for potential businesses. As part of the fund conditions, the government will invest over $26.2 million in each fund, with the fund expected to ultimately reach a size of $78.6-$118 million. The fund, as was noted, is intended only for medium-sized businesses with an annual volume of transactions greater than $2.62 million, but under $262 million.
List of bidders authorized at the preliminary selection stage, includes:
1. Lea Fund Management
2. Impact Israel S.M.A
3. Cogito Capital
4. Tamir Fishman growth capital fund for small and medium-sized businesses
5. Heitza Fund
6. Shefa Fund
7. Peninsula growth capital fund for medium-sized businesses
8. Shefa Investment Fund
9. Terra Fortis
10. Kedma Finance fund management
11. Everest for small and medium-sized businesses
12. Vega Finance Investments
13. MVP Funds
14. Beardi Investments
According to figures provided by the Small and Medium Business Agency, medium-sized businesses in Israel employ around 22% of employees in the business sector; their contribution to the total product of the business sector is around 16%. It also emerges from these figures that the total overall volume of medium-sized businesses in Israel is approximately 15% of the total overall volume in the business sector.
However, it was found that most of the credit (over 80%) granted to medium-sized businesses in Israel is from banks, and most is used for working capital and purchasing fixed assets. Other financial bodies do not invest a great deal in medium-sized businesses, even though these businesses’ major requirement is for growth capital. The study showed that there is a need to take steps to encourage the establishment of growth capital funds for medium-sized businesses.
Minister of Economy Aryeh Deri: “We now know the main obstacle in the way of a medium-sized business’s chance to breakthrough and develop, is its ability to raise equity. By establishing these funds, we will succeed in significantly reducing the risk level that must be addressed by a potential investor interested in injecting growth capital funds to businesses. In this way we will enable the creation of the required connection between medium-sized businesses and venture capital”.
Ran Kiviti, Director, Small and Medium Business Agency at the Ministry of Economy: “The money that will be invested by the funds will serve a variety of purposes, such as increasing production capacity, exposure to new markets (export), product branding, etc. The injection of new money into the businesses in which the fund chooses to invest will allow them to make a quantum leap, that will place them on map for Israeli and international competition.
A study carried out by the Small and Medium Business Agency shows that among the various existing solutions in OECD countries, the most effective is government support for funds specializing in equity investments, with the state taking some of the risk upon itself, while simultaneously allowing investors to benefit from excess return. In line with the adopted mechanism, the government – through the Small and Medium Business Agency at the Ministry of Economy and in cooperation with the Budget Department in the Ministry of Finance – will commit to invest up to 25% of the sum of liabilities of the total investment of the fund’s investors, participate in the fund’s losses beyond its relative part in the assets, and grant preference and precedence to the fund’s institutional and private partners when dividing the profits.