In a period when Israel’s economy was disproportionately reliant on government funds, a venture capital initiative called Yozma leveraged public money to attract private investment, transforming the country into a global research and development hub. Between 1993 and 1998, the government offered to provide 40% of the money offered by private investors in combined funds, supporting more than 40 companies. The value of Yozma increased from $100 million in 1993 to $250 million by 1996, and the project is regarded as a rare example of government venture capital success.
Results & Impact
The public money laid out for the initiative was quickly overtaken by the amount provided by private funds: the value of Yozma increased from $100 million in 1993 to $250 million by 1996. The Yozma initiative led to more than 30 foreign-based venture capital firms setting themselves up in Israel.
The Yozma Group
Yozma attracted investors to Israel by offering to provide 40% of the capital they raised. The sum was to be bought out after a maximum of seven years, with interest. Partner investors, predominantly from the USA as well as Japan and Germany, made the major decisions on where to invest.
Entrepreneurs, general public
Cost & Value
In its first three years, the Israeli government invested $100 million in Yozma, establishing ten public-private funds of about $20 million each.
Israel has become a world leader in Research and Development funding, thanks to a 1990s government venture capital program that’s been tipped as the most successful of its kind.
The Yozma initiative, which ran between 1993 and 1998, used public money to attract foreign funding to Israeli businesses.
In less than a decade, the amount of private venture capital in Israel had eclipsed public sector investment. When the scheme was set up 1993, around 50% of venture capital funding in Israel came from public money, but by 2000 the proportion had declined to almost nothing.
Yozma’s approach – bringing foreign investors to Israel by fronting money in a joint fund – led to more than 30 foreign-based venture capital firms setting themselves up in Israel.
The Yozma program was based primarily on developing funds that combined public and private money, and using these to invest in Israeli startups. Under its central model, the government initiative would provide up to 40% of capital raised by outside investors. This would be bought out at the same value with interest after a maximum of seven years. The partner investors, who are predominantly from the USA as well as Japan and Germany, were expected to make the major decisions on where to invest.
In its first three years the Israeli government invested $100 million in Yozma, establishing ten public/private funds of around $20 million each.
In the years it was running, the financial leverage of YOZMA increased from $100 million in 1993 to $250 million by 1996. The government sold the majority of its investment in Yozma in 1998, having judged the investment sector to be robust enough to run independently. While private venture capital now constitutes the vast majority of the sector, Israel spends more on Research and Development than any other country: 4.25% as a proportion of its GDP. In the EU, just 1.95% of GDP is spent on R&D.
The Yozma group has invested in more than 40 companies, many of which have been made public on the American and European stock exchanges. With a primary interest is in life sciences and tech, the group developed close working relationships with universities and research institutes.
The government has invested in international collaboration, too. Korea comes close to Israel in R&D spend ranking, and the two countries have worked together on projects aimed at boosting innovation. These include the Korea-Israel R&D Foundation, a joint fund of more than $1.5 billion annually, which will be invested in products that can foster commercial projects between the two countries.
(Picture credit: Flickr/Jonathan Pincas)