Alon Stopel Credit – Courtesy
The Israel Innovation Authority and Israel’s Ministry of Finance launched the Yozma Fund 2.0, a new program aimed at encouraging investments by institutional entities in Israeli venture capital funds that support Israeli companies. The fund targets institutional investors such as insurance companies, pension funds, and provident funds, providing them with a “unique mechanism to enhance returns on their investments” in Israeli venture capital funds over the next 20 months.
Notably, the program will operate without any direct intervention from the Innovation Authority, which will refrain from influencing the investment decisions of the institutions or the managers of venture capital funds, allowing them to invest according to their established investment policies.
The fund’s goal is to support Israeli high-tech companies, expand the interface between institutions and local venture capital funds as practiced in leading markets worldwide, and increase the stability of the local venture capital market against global and local macroeconomic shocks and fluctuations. As a result of the program, the volume of institutional investments in Israeli venture capital funds is expected to increase, thereby enhancing the availability of funding for Israeli high-tech companies. This mechanism is similar to the historical Yozma program from the 1990s, which is credited with initiating the Israeli venture capital industry.
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The program’s budget amounts to approximately $160 million in state funds. These funds will be utilized to leverage investments of at least $700 million by institutional investors. The Israel Innovation Authority will contribute 30 cents for every dollar of institutional investment in Israeli venture capital funds as part of the program. Additionally, it will waive its relative share of returns from these investments, either fully or partially, with the aim of enhancing returns for the institutions involved.
Alon Stopel, Chairman of the Israel Innovation Authority said, “This strategic move, led by the Israel Innovation Authority in conjunction with the recently launched Startup Fund, is aimed at bolstering support for early-stage Israeli tech companies, particularly those in deep technology sectors. The Startup Fund, initiated in March, directly invests grants in startup companies, while the Yozma Fund, introduced today, focuses on supporting venture capital funds. Together, these initiatives are designed to ensure a robust funding environment for Israeli startups in the coming years. The Yozma Fund will facilitate institutional investments in Israeli funds from 2024 to 2026, strengthening partnerships between institutions and Israeli venture capital firms. Moreover, it will play a role in mitigating market slowdowns within the venture capital industry. The decision to allocate state funds to this program reflects confidence in Israel’s tech sector and recognizes its significant contribution to the national economy.”
As part of the program, institutional entities have the option to “buy out” the Israel Innovation Authority under the following conditions:
During the first four years from the date of investment in the institutional fund, the institutional entity can buy out the government’s stake at an annual cumulative interest rate of 1%.
After the initial four years, the institutional entity can buy out the government’s stake at an annual cumulative interest rate of 5% (retroactively from the date of the fund’s initial investment).
In the event of a loss-making fund, the Israel Innovation Authority will proportionally share the loss with the institutional investor based on its investment share.
