The Israel Innovation Authority and the Ministry of Finance announced on Sunday the launch of 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 mechanism to enhance returns on their investments in Israeli venture capital funds over the next 20 months.
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. This mechanism is similar to the historical Yozma program from the 1990s, which is credited with initiating the Israeli venture capital industry.
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.
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. Furthermore, additional incentives will be provided to institutions investing in funds that support deep technology companies.
