The Israel Innovation Authority, in charge of setting out the nation’s tech policies,
is teaming up with the national securities regulator to draw local institutional investors into the nation’s booming tech scene.
The board of the Innovation Authority on Wednesday approved a program to provide grants of some NIS 15 million ($4.3 million) to local institutional investors to push them to employ tech specialists. The move is part of an initiative by the Israel Securities Authority (ISA) to help these investors better understand tech companies and their technologies, and pave the way to greater investments into the tech sector, the Innovation Authority said in a statement.
Israeli institutional investors — including mutual funds, provident funds and pension funds, as well as insurance companies — have largely steered away from investing in the tech sector both because of the high risks involved and because of a lack of analysts in the field to help make sense of the technologies and their financial potential.
This lack of understanding of the tech world is a “market failure,” the statement said. It creates a “disparity” between those who understand the industry and can tap into its potential — namely Israeli or foreign venture capital funds, foreign savings funds, international investment banks, or private investors — and the wider Israeli public, which invests its savings in funds that have so far shunned the industry for lack of understanding.
Under the new program’s framework, selected Israeli institutional investors will be eligible to receive a grant of up to $1 million over a five-year period to set up and expand their investment teams to include tech specialists, the Innovation Authority said in a statement.
In addition, the selected institutional investors will agree to implement a multi-year plan mapping out their investment activities in the Israeli tech scene.
“This program will develop the capacity to pinpoint, analyze, and invest in hi-tech companies and local venture capital funds,” the statement said.
Data compiled by the Israel Innovation Authority shows that the tech industry is maturing: the average size of funding rounds has risen along with the number of large investment rounds. This makes it more attractive for institutional investors, which have large amounts of money to invest.
As part of the ISA program, institutional investors will be allowed to make a diverse range of equity or debt investments in tech firms — either directly as private investors in an advanced funding round, or together with other investors and funds. They can also invest in the shares offered via an initial public offering of tech firms, or by acquiring a stake in an Israeli venture capital or tech fund.
“The program to advance institutional investors’ expertise in technology is intended to prepare these institutions to invest in the Israeli hi-tech market, a market in which few currently invest,” said Economy Minister Eli Cohen in the statement. “Expanding the hi-tech industry’s base and strengthening it through supportive government policy and investment from institutional entities will enable the public and the local capital market to enjoy the fruits of innovation on the one hand, and will spur the economy, strengthen the knowledge infrastructure created in Israel, and contribute to the creation of high-quality positions with high wages on the other.”
The grants offered have the potential to “significantly accelerate the number of investments in local hi-tech companies and increase the scope of investment in Israeli venture capital funds,” said Aharon Aharon, the CEO of the Israel Innovation Authority.
“We believe that this program will also bolster the professionalism and expertise of institutional investors in the hi-tech sector and contribute to a significant improvement in the funding capabilities of the Israeli ecosystem for growth-stage companies,” he said.