The Israel Innovation Authority (IIA) announced the launch of a new funding program aimed at helping seed-stage and early-stage startups get off the ground, earmarking NIS 80 million (USD 25 million) for the project.
The IIA’s Hybrid Seed Incentive Program is set to encourage initial investments in seed-stage startups that have raised less than NIS 3.5 million (USD 1.1 million) by reducing the risk for potential investors. The program will offer participating companies grants worth 40% of an investment round of up to NIS 3.5 million (USD 1.1 million), and 50% of a total investment round for startups located in Israel’s geographical periphery or whose founders come from under-represented communities—Arab-Israeli, ultra-Orthodox, and women—in the high-tech industry.
Investors will be provided with a three-year option to acquire shares in the company in which they are investing. Once that is realized, the Israel Innovation Authority will be reimbursed for the grant amount it initially provided.
The move comes as a response to the decline of investments in seed-stage startups in recent years, the agency indicated, and of market failures resulting from the high risk and complexity of investing in such companies. The IIA estimates that 64% of the startups that will take part in the new program will carry out another funding round within three years.
“In recent years, the volume of seed investments in Israel has been stagnant,” said Ami Appelbaum, chairman of the Israel Innovation Authority. “Conversely, investment in later-stage rounds is on the rise. We have also seen a significant decline in the number of new startups established each year—a decline that has been highlighted and exacerbated by the coronavirus pandemic. New startups are the future of the Israeli innovation ecosystem, and supporting them during their early stages is critical for their progress.”
The new program “will amplify the success rate of Israeli startups, will stimulate the creation of new seed-stage startups that are so critical for the innovation ecosystem, and will encourage experienced investors to invest in early-stage startups,” Appelbaum said.
The program “is a great opportunity for numerous investors,” Anya Eldan, VP and head of the startup division at IIA. “The ongoing stagnation in seed-stage fundraising in Israel, combined with the fact that the long-term effects of the coronavirus pandemic remain uncertain, requires immediate action.”
This article first appeared in NoCamels, which covers innovations from Israel for a global audience.