Israel channels $450 million into venture capital to support tech industry
State-backed program focuses on institutions and deeptech investment.
About $450 million was invested in Israeli venture capital funds over the past year under the Innovation Authority’s Yozma 2.0 program. The investments were made through two tracks: one designed to encourage local institutional investors to increase their exposure to Israeli venture capital funds, and a second involving direct investments by the Innovation Authority in funds focused on deeptech, companies developing complex, research-intensive technologies.
Under the first track, $365 million was invested, of which $286 million came from institutional investors and $79 million from the Innovation Authority. The Authority committed to investing 30 cents for every dollar invested by institutions. If the funds generate positive returns, institutional investors will receive the full upside, while the state’s 30-cent contribution will not participate in profits.
The program was launched in 2024, although the original idea predated the war and emerged during the collapse of the technology bubble in 2022, when Israeli venture capital funds struggled to raise capital. Following the outbreak of the war, the program was reinforced in order to preserve investment in the local technology industry, even though, in retrospect, fundraising conditions proved stronger than initially expected.
Institutional investors that won the Innovation Authority’s tender, including Altshuler Shaham, Analyst, Phoenix, Harel, Clal Insurance, Menora Mivtachim, Meitav Dash, Mor Gemel, and Migdal, have invested in 11 Israeli venture capital funds over the past year and a half. According to the Innovation Authority, these investments are expected to support the raising of approximately $1 billion in new funds. The total budget for the program stands at $140 million, meaning that institutions have already committed more than half of the available allocation.
The Authority said that every fund raising more than $200 million included institutional participation, and that it is aware of which funds received institutional capital. Historically, Israeli institutional investors have had limited exposure to local venture capital, and when they did invest in the asset class, funds were often directed toward large U.S.-based firms.
Institutional investors that fail to deploy their full allocation by 2026 will forfeit the remaining funds, which will be withdrawn by the Innovation Authority. According to Dror Bin, CEO of the Authority, some institutions have already invested their full allocation, while others have yet to invest at all.
The second track seeks to address a long-standing imbalance in Israel’s venture capital market: a strong preference for software and cybersecurity investments at the expense of deeptech sectors such as semiconductors, hardware, life sciences, and energy. While Israel has historically excelled in these areas, deeptech typically requires larger and longer-term investments, whereas software and cyber offer faster returns.
“We saw that some deeptech funds were unable even to reach a first closing, which poses a real risk to their survival,” Bin said in a conversation with Calcalist. To address this, the Innovation Authority directly invested $85 million in nine deeptech funds, enabling them to complete their initial closings. Bin noted that while the program was initially intended for dedicated deeptech funds or partners spinning out new deeptech-focused vehicles, several generalist funds, previously focused on software, also applied in order to establish new deeptech funds.
If successful, these funds are expected to raise about $1 billion. Combined, the two tracks could bring $2 billion into Israel’s venture capital market, an amount that significantly exceeds the $1.6 billion raised by Israeli venture capital funds in total last year.
Funds participating in the program are required to invest at least 70% of the capital in Israeli companies. At this stage, it remains unclear whether the program will be renewed, as any extension will depend on the state budget.
