Israel to ‘fast track’ funds to keep startups afloat amid coronavirus crisis
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Israel to ‘fast track’ funds to keep startups afloat amid coronavirus crisis

Innovation Authority says it will provide small- and medium-sized firms with vital funds; tech industry forecast to see 25% drop in investment, revenues

An illustrative image of program developers, startups and innovation (scyther5; iStock by Getty Images)
An illustrative image of program developers, startups and innovation (scyther5; iStock by Getty Images)

The Israel Innovation Authority, in charge of setting out the tech policies for the nation, said it will fast track some NIS 500 million ($140 million) to small and medium-sized startups that have been affected by the coronavirus pandemic.

The authority will co-invest the grants together with VC firms and other investors in startups that have long-term potential but are limited in funds and need immediate assistance, the authority said.

“The purpose of this fast-track channel is to invest in exceptional companies with substantial assets and high success rates for the long run, but with short runway on funding,” said Aharon Aharon, the CEO of the Israel Innovation Authority in a statement on Wednesday. The funds will provide them with “certainty and cash flow” to keep them afloat in the crisis, allowing them to continue their growth once things blow over.

Israel’s tech industry has been “significantly afflicted” by the coronavirus lockdown and is expected to see a drop of some 25% in private capital investments and about a quarter of the total revenues, Aharon said.

Aharon Aharon, CEO of the Israel Innovation Authority (Courtesy)

As a result, many companies have halted the recruitment of workers, are putting employees on unpaid leave and or planning wide-scale layoffs, he added.

Since the government began introducing lockdown restrictions requiring most Israelis to remain at home except for essential needs, the unemployment rate has rocketed from around 4% at the beginning of March to 26.25% by mid-April, leaving over 1 million jobless.

The average rate of unemployment for the year is likely to reach 11.5 percent, and some 360,000-400,000 workers will remain jobless at the end of 2020, the Israel Democracy Institute think tank has said. That figure is nearly three times higher than pre-crisis levels, when about 140,000 Israelis were unemployed.

Four out of every 10 startups globally will die in the next three months if they don’t raise additional funds, according to a report by research firm Startup Genome that looked into the impact of COVID-19 on startup ecosystems worldwide.

Of startups that had a term sheet with investors before the onset of the crisis, nearly 20% have had the term sheet pulled by the investor, and 53% have seen the process slow down significantly or have faced an unresponsive lead investor, the report said. Only 28% have either had the process continue normally or secured the funds. A term sheet is a non-binding agreement defining the terms of the investment.

The tech industry depends on global investors more than any other branch in the Israeli economy, as these are responsible for most of the capital injected into the sector, Aharon said.

“At a time like this, there is real concern that the industry’s lifeline will be critically affected,” he said. “Immediate, wise and levelheaded supportive government policy will prevent critical damage to the export, production and income of hundreds of thousands of tech employees and the various businesses that support this industry.”

The Israeli government has come under fire for not doing enough to support local businesses and small business owners, which have seen their revenues drop to zero as consumers have been told to stay home to fend off the spread of the virus.

Israeli self-employed small business owners participate in a rally calling for financial support from the Israeli government outside the Israeli parliament in Jerusalem, on April 19, 2020. (Yonatan Sindel/Flash90)

The Innovation Authority’s fast-track channel will support the research and development programs of companies in early stages of growth and in advanced development stages, but have a runway — defined as the amount of cash startups have divided by their monthly burn rate — that is shorter than 12 months and are in urgent need of funding, the statement said.

As part of the vetting process the authority will evaluate the technology developed by the startup and calculate its cash flow, financial situation, and the steps it has taken to overcome the crisis, the statement added.

Responses for requests for funds will be provided within four weeks, the statement said, and a funding deposit of up to 50% or the approved grant will be provided, matching complementary funding secured by the startup via VC funds or other investors.

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