Incentivizing institutional investors in the Israeli capital market to invest in Israeli tech companies in early stages of sales and growth

In the last few years, the Israel Innovation Authority, together with the Israeli Capital Market Authority and the Israeli Securities Authority, has promoted numerous programs designed to stimulate institutional investment in the Israeli high-tech sector. This program is another significant step supporting institutional investors looking to establish high-tech investment, while also enabling additional regulatory processes connecting the Israeli high-tech sector and capital markets.

Goal of the incentive program:

The Israeli Ministry of Finance, the Israel Innovation Authority, the Israeli Capital Market Authority and the Israeli Securities Authority have launched a program to incentivize institutional investors in the Israeli capital market to invest in Israeli tech companies in early stages of sales and growth. This program is part of a financial stimulus package designed to help the Israeli economy respond to the crisis caused by the COVID-19 pandemic, with special emphasis on high-tech companies in sales and growth stages dealing with economic difficulties brought on by the crisis. The program offers a government-backed safety net for Institutional investors’ investing in technology companies. 

Who is the incentive program for?

  • institutional investors in the Israeli capital market

What do you get?

Application for this program is eligible to Israeli institutional investors (insurance companies, banks and their investment branches. investment houses and pension funds) interested to invest in Israeli technological companies at the Initial revenues and growth stages (B-C Rounds) per the following terms:

  • Investment can be made directly via an institutional investor or via a designated investment agency, SPV or a limited partnership,) the investor is required to invest at least 40% of the approved portion directly).
  • Investor in the program will receive an allocation for an approved portion that can range from NIS 100-350 million, depending on the application he submitted, the program budget (NIS 2 Billion) and the investor's rating by the Investment Committee of the Innovation Authority.
  • Type of investment approved under this benefit are as follows:
    • Co-Investment- the Institutional Investor will invest alongside other investors (his investment rate will not exceed 65% of the total investment round)
    • Convertible Loan /Notes (CLA) –the institutional Investor can invest in a loan that can be fully or partially converted into the company shares (The conversion will be only to the shares of the Israeli entity), in this type of investment the institutional investors doesn't have to invest alongside other investors.  
    • Future capital agreement  - Simple agreement for future equity (SAFE- see "Y Combinator" agreements) in this type of investment the institutional investors doesn't have to invest alongside other investors.
  • These investments should meet the following capacities:
    • Maximum investment round of a company with an institutional investor will not exceed NIS 120 million.
    • Institutional investor part in the co-investment round will not exceed 65% of the overall investment in this round (In SAFE and CLA investment rounds, the investor is not required to have a maximum participation rate of 65%).
    • In any case, the maximum protected investment amount will not exceed NIS 50 million (So if the institutional investor has invested NIS 60 million, 50% of the round, out of an investment round of NIS 120 million, the state will protect only NIS 50 million

Why should you apply for this incentive program?

  • The approved institutional investors will be entitled to downside protection of up to 40% on their nominal investments in a portfolio of Israeli high-tech companies in their early growth and sales stages.
    In the event of a positive yield on the portfolio of investments at the end of the program (18 months of investment and 7 years of holdings), the approved institutional investor will transfer 10% of any portfolio yield above 18.5% of nominal portfolio value to the Israel Innovation Authority.
  • The portfolio will be managed by the relevant institutional investor for a period of 18 months in which the investment will be carried out + 7 years of portfolio management. There is no impediment that during the 7 years of portfolio management the investor will realize part or all of the investment portfolio, but the settlement between the Innovation Authority and the investor will only be made at the end of the 7 years of portfolio management.
  • An investment realized during the portfolio management period will accrue interest until the settlement date at the end of the 7 years of investment portfolio management.

Evaluation Criteria:

Israel Innovation Authority's criteria in examining applications for this programs include:

  • Efficiency of investment process - enabling a swift and effective investment process in Israeli high-tech companies
  • Experience in investments in knowledge-based (high-tech) companies
  • Organizational abilities to analyze and evaluate investments in Israeli high-tech companies
  • Organizational abilities for collaborations with investors

 

Israeli Comapnies

Israeli companies seeking further information on the requirements and application process to this program, should refer to the Israel Innovation Authority's Hebrew site: https://innovationisrael.org.il/growth/finance/downside-protection