Following numerous debates and quite a bit of disagreement, finally, the plan to encourage institutional investments in Israeli startups has been approved. As part of the plan, the government will offer protection on institutional investment portfolios when invested in late-stage high-tech companies.
Up to 40% refund on losses
The program was formulated in a joint effort by the Ministry of Finance, the Ministry of Economy, the Capital Market, Insurance and Savings Authority, Israel’s Securities Authority, and the Innovation Authority, while consulting with both industry and academic experts. The program was formed in order to help Israeli high-tech companies survive the COVID-19 crisis, as well as to accelerate the integration of institutional entities into investments with “balanced” risk factors.
According to the program, institutional investors will be eligible to receive up to 40% investment protection on the nominal investment portfolio in Israeli high-tech companies. If an institutional entity reports profits, then they shall transfer, to Israel’s Innovation Authority, 10% of the difference between the portfolio yield and the state-bond yield for the portfolio’s period, while taking into account transaction and management expenses. In order to benefit from the program, the transfer must occur within 18 months of the day of approval. According to the Innovation Authority’s announcement, the portfolio will be managed by the institutional entity for a period of 8.5 years, as is customary in the industry, covering 18 investment months and 7 years of maintenance.
It is estimated that Israel’s high-tech industry will receive an influx of almost 2 billion NIS from the program, operated by Israel’s Innovation Authority and meant to help Israel’s industry survive the crisis. Additionally, the protection of investor capital will prevent loss and damage to pension funds.
In response to the program’s approval, the CEO of Israel’s Innovation Authority, Aharon Aharon said: “The collaboration between the Innovation Authority with the Capital Market, Insurance and Savings Authority, Israel Securities Authority, and the Ministry of Finance will accelerate the specialization of Israel’s capital market’s investments in the technology industry. This, in turn, will be the pillar for the growth of Israeli high-tech, as well as advancing Israel’s capital market into the next era of technology. Israeli investments in Israeli companies are the key to the growth of the high-tech industry, and to the founding of major Israeli corporations, which will employ a variety of different high salary professions. Especially during these times, we must focus our efforts in moves that will continue to strengthen the high-tech locomotive and harness it to the reins of the general market outside of the economic crisis, while expanding the offer of quality job opportunities.”
The Capital Market, Insurance and Savings Authority commissioner, Dr. Moshe Barkat added: “The public deserves a piece of the Israeli high-tech cake, provided the investment is done in a measured and calculated manner. The high capital protection rate provided by the government for saving investments under the program, along with additional program filtering factors allows adequate protection from various risks, as well as a good chance to profit from the high-tech investment plate. The program defines that the targeted companies must be experienced and have previously raised tens of millions of NIS in funding. In any case, each investment will be at the full discretion of the managing institutional entity, which must properly examine and analyze each investment as such.“
Referring to the program’s approval, the Chairwoman of the Israel Securities Authority, Anat Guetta said: “For close to two years, we have been promoting the connection of the local capital market with the Israeli high-tech industry - a perfect strategic and natural fit. We established the connection of the two as the Authority’s main agenda, with the aim of creating significant value for Israeli citizens and both industries. The decision constitutes a major step towards fulfilling a collective vision and joins other important moves being made, among them, making the capital market accessible to high-tech through the approval of a new platform for raising funds, and credit while also creating technology investment expertise. I applaud the cooperation and I’m sure that together we can build a complete solution to drive the desired momentum forward.”