Today (Wednesday, 13 November 2019), the board of the Israel Innovation Authority approved a new program formulated by the Israel Securities Authority​  to promote investments by Israeli institutional investors in Israel’s hi-tech industry. Under the program’s framework, Israeli institutional investment entities, including mutual funds (such as hi-tech funds), provident funds, pension funds, and insurance companies, that will win a competitive process, will be eligible to receive a grant of up to $1 million (approximately NIS 3.5 million) over the span of five years, to establish and expand a team of investors specializing in Israeli hi-tech companies.

 

As part of the program, these institutional entities will recruit experts to analyze and invest in Israeli hi-tech. In addition, the institutional investors will implement a multi-year plan for their investment activities in Israeli hi-tech companies. This program will develop the capacity to pinpoint, analyze, and invest in hi-tech companies and local venture capital funds. Accordingly, the institutional entities will expand their scope of investment activities in hi-tech companies in Israel.

 

The program was founded to tackle a market failure stemming from the lack of expertise amongst Israeli institutional investors to invest in the local hi-tech sector, which leads to a disparity between Israeli prosperity as a hi-tech nation and public access to such prosperity – through these institutions – which can be achieved by investing in these companies.

 

Data from the Israel Innovation Authority indicates a significant increase in the average size of funding rounds amongst Israeli hi-tech companies, as well as in the number of large investment rounds, pointing to the maturation of the hi-tech industry and an increase in the number of high growth companies. In most rounds, the investors are Israeli or foreign venture capital funds, international investment banks, or private investors. The Israel Innovation Authority and the Israel Securities Authority have recognized that the increase in funding rounds and the number of growth companies carry the increased potential for capital and debt investment on the part of institutional investors, and to a potential rise in the number of Initial Public Offerings (IPO)s.

 

The program will enable institutional entities to receive a government grant via the Israel Innovation Authority to employ analysts in hi-tech investment teams, who will analyze and make investments in Israeli hi-tech companies. Institutional investors would be able to make a diverse range of equity or debt investments – directly as private investors (usually in advanced funding rounds) together with other investors such as funds or other specialized investors. This can be done via an investment in an IPO of an Israeli hi-tech company, acquiring a stake in an Israeli venture capital or hi-tech fund, or via public partnerships in R&D.

 

Israeli Minister of Economy and Industry Eli Cohen: “The program to advance institutional investors’ expertise in technology is intended to prepare these institutions to invest in the Israeli hi-tech market, a market in which few currently invest. Expanding the hi-tech industry’s base and strengthening it through supportive government policy and investment from institutional entities will enable the public and the local capital market to enjoy the fruits of innovation on the one hand, and will spur the economy, strengthen the knowledge infrastructure created in Israel, and contribute to the creation of high-quality positions with high wages on the other.”

 

CEO of the Israel Innovation Authority, Aharon Aharon, said: “Government support of institutional investors that is designed to encourage them to invest in Israeli hi-tech can significantly accelerate the number of investments in local hi-tech companies and increase the scope of investment in Israeli venture capital funds, thus helping connect these companies to the local market. We believe that this program will also bolster the professionalism and expertise of institutional investors in the hi-tech sector and contribute to a significant improvement in the funding capabilities of the Israeli ecosystem for growth-stage companies. I see no reason why only banks, venture capital funds, or foreign institutional entities should invest in Israel’s hi-tech while Israeli institutional investors are left out.”

 

Anat Guetta, Chairperson of the Israel Securities Authority, said: “We have systematically examined the barriers which make it difficult to connect the Israeli capital market with Israel’s hi-tech industry: When I look at what is best for the Israeli investor and our economy, it is clear to me that we must act in order to connect these two. The fact that foreign institutional entities are jumping at Israeli hi-tech while Israeli institutions are reluctant to get involved represents a market failure, which requires regulatory intervention that will stimulate and provide the tools and capabilities that enable an optimal, prudent, and high-quality investment of public savings in our greatest natural resource: our hi-tech industry. This plan and others we are promoting concurrently are intended first and foremost to establish and expand the public capital market and thus strengthen it.”