Yozma Fund 2.0

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.

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 Yozma Fund, introduced today, focuses on supporting venture capital funds. Together with the Startup Fund, which was initiated in March to directly invests grants in startup companies, 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.

Therefore the goal of this fund is four-fold:

1. To increase the availability of capital for Israeli high tech companies.
2. Bolster stability of the local VC market in the face of macro-economic shocks and fluctuations.
3. Increase the scope of institutional investment in Israeli VCs (especially in early-stage companies)
4. Incentivize the formation of specialized funds – promoting specialization of Israeli investors in deep-tech ventures

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.

Therefore this fund is targeted towards institutional investor entities, that are at least one of the following:

A managing company of a “provident fund” or a “pension fund” – as these are defined in the Supervision of Financial Services (Provident Funds) 5765-2005 – that manages client funds;

• • “An old settlement fund” – as defined in the Supervision of Financial Services (Insurance), 5741-1981;
  • “Insurer” – as defined in the Supervision of Financial Services (Insurance), 5741-1981 – that manages client funds.

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, including the option to  “buy out” the Israel Innovation Authority at its discretion without any interest at all. (0% interest rate throughout the entire investment period).

• The investment must be in Israeli venture capital funds as defined in the incentive program.
• Budget – approx. $160M state funds in 2024 ($700M total), with a return-increasing incentive.
• Maximal investment limit for institutional investor – $195M ($150M institutional + $45M Innovation Authority)
• Investment scope:
  • Minimal investment in a single Israeli VC is $7.5M ($32.5M institutional and Authority)
  • Maximal investment in an Israeli VC, if there are several institutional investors, is $18M ($78M institutionals and Authority).
• Execution period – institutional investors will be given an 18-months’ period to sign an investment commitment with the VCs
• Investments can be made from the date of program publication
• Milestone – investing 25% of the limit by the middle of the period
• No government involvement – the Authority will not interfere in the investment processes on either side (not during the VCs’ deployment time and not in the investment considerations of the institutional investor’s or the VCs’ investment managers).
• The institutional investor’s investment limit, comprised of 23% Authority capital (30 divided by 130), will be invested in Israeli VCs; the institutional investor will determine the final date of account settling (during or upon completion of the VC’s life);
  • VC is “profitable” (average annual yield above 5%) – the institutional investor will receive the excess yield (above an accumulated annual interest of 5%, which will be returned to the Authority) for the State’s share;
  • VC is “unprofitable” – the institutional investor and the Authority will split the loss (the Authority gets 23%);
  • Non “Israeli” VC – if at the time of account settling, the VC did not meet the definition of “Israeli”, the Authority will get 23% of VC value (whether the investment is profitable or not)
• Early Buyout – option to buy out the State’s share in favorable terms
  • When settling accounts within 4 years of the investment commitment agreement – the institutional investor will receive excess yield above an accumulated annual interest of 1%
  • “Deep-tech” VC – additional incentive will be granted to institutional investors who invest in deep-tech VCs (as defined in Annex A), via a benefit in which accounts are settled at a 0% interest throughout the entire period (interest free)

This program has an open call for proposals between April 18 and June 27, 2024

Israeli companies seeking further information on the requirements and application process to this program, should refer to the Israel Innovation Authority’s Hebrew site.