ISRAEL AT WAR - DAY 143

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Amid war, Israel to back angel investor clubs to help young startups nab funding

Israel Innovation Authority will allocate NIS 9 million for the establishment of three clubs of private investors who will pool critical funds for early-stage startups

Sharon Wrobel is a tech reporter for The Times of Israel.

View of Kiryat Atidim, the tech business park of Tel Aviv. (Yossi Zamir/Flash90)
View of Kiryat Atidim, the tech business park of Tel Aviv. (Yossi Zamir/Flash90)

To aid Israeli early-stage startups that are struggling to get critical funding during wartime, the Israel Innovation Authority, in charge of directing the nation’s tech policies, is financing a program to establish clubs of private investors.

As part of the initiative, the Israel Innovation Authority will grant NIS 9 million ($2.4 million) for the launch of three clubs of private or angel investors, to help bolster investments into young Israeli startups seeking to secure initial capital. The program seeks to attract and encourage both local and international investors and facilitate collective investments in Israeli deep tech startups at the pre-seed and seed stages.

As such, the clubs will serve as platforms for private investors to pool resources, align and boost investment amounts, and provide crucial support to technological ventures in their early stages. Beyond the capital injection, the clubs of angel investors will also share business and management expertise.

Israel Innovation Authority CEO Dror Bin emphasized that the role of private investors in ventures in their early stages is “critical for the establishment of companies in Israel, both in terms of financing and in terms of the great added value that many of these investors can provide to entrepreneurs at the beginning of their journey.”

“We witness the need to strengthen the issue of investments at these stages in ventures that have technological depth and high innovation,” Bin said. “The Innovation Authority will continue to provide solutions for the high-tech industry in routine and emergency situations to help entrepreneurs establish and grow groundbreaking companies that will form the backbone of the future of Israeli high-tech.”

The initiative comes after the Israel Innovation Authority last month said it will allocate NIS 100 million in assistance grants to provide about 100 cash-strapped startups with a lifeline to cope with the challenges posed by the war situation.

Dror Bin, CEO of the Israel Innovation Authority. (Courtesy/Hanna Teib)

Thousands of tech workers and startup founders have been drafted to the army as Israel called up more than 350,000 reservists amid the war that started after some 3,000 terrorists invaded southern Israel on October 7 and killed 1,200 people, most of them civilians, and abducted at least 240.

The massive callup presents challenges in particular for early-stage startups, both in terms of attaining critical funding and in terms of their daily operations.

About two-thirds of Israeli tech firms and startups are facing disruptions in their operations, including the postponement or cancelation of orders and projects, according to a recent survey by the Israel Innovation Authority and Start-Up Nation Policy Institute (SNPI).

Even before the outbreak of the war, Israeli tech companies were suffering from a severe plunge in investments of as much as 70 percent exacerbated by a global economic slowdown and the contentious judicial overhaul advanced by the Israeli government earlier this year.

Israel attracts most of its tech investments from abroad. About 80% of venture capital investments in local high-tech startups were generated from foreign funds in the years 2021 and 2022.

The Israeli economy’s dependence on the tech sector has significantly grown in the past decade. The industry contributes 18% to local GDP, versus less than 10% in the US and about 6% in the EU. About 14% of all employees work in the tech sector and in tech jobs in other sectors. The Israeli economy relies on tech products and exports, which make up about 50% of total exports, as well as on tech taxes.

As part of the initiative, the Israel Innovation Authority has started the process of calling for proposals by venture capitals, entrepreneurs, and investors. The winners will get financing for the establishment and operation of their angel club for a period of three years. Each club will be entitled to an annual grant of up to NIS 900,000, and a total of NIS 2.7 million.

The grant money will be used, among other things, to recruit experienced investors, for the employment of the club manager, and for contracting with suppliers who will provide due diligence services and legal, financial and tax services.

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