Benchmarking government support for venture capital: Israel
Table of contents
Israel has one of the strongest VC markets across OECD countries, which is also the result of the strong presence of foreign investors in the national VC industry (see below). Similar to other countries, VC investment volumes slowed down significantly in the aftermath of the Great Financial Crisis (GFC), from 0.6% of GDP in 2007 to 0.3% of GDP until 2013, before starting to grow again over the period 2014-2018 (average 1% of GDP). VC investments further accelerated in 2019 (1.8% of GDP) and 2020 (2.3% of GDP), before dropping back to 1.7% of GDP in 2021. Seed-stage investments only attracted 0.02% of GDP over the 2007-2021 period, compared with 0.45% and 0.46% of GDP for start-up/early-stage and late-stage. However, this is partly the result of enterprises funded by pre-seed investments being excluded from the Database on Start-up Companies of the Israeli Central Bureau of Statistics (CBS), which is Israel’s primary source of information of the OECD VC database. Based on information from the Israel Innovation Authority (IIA), the net average internal rate of return (IRR) of Israeli VC funds over the last 10-15 years was 13%, while the gross rate was 15-20%. However, IIA’s internal estimates suggest that 20% of the domestic VC funds generate 80% of the profits.
Sector-wise, data from the last Israeli Tech Review, Q3 2023 (IVC Data&Insights, 2023[1]), shows that cyber-security and fintech are the main recipients of VC investments in Israel, altogether accounting for 69% of total VC investments, followed by IoT, food-tech and automotive. Foreign investors play a major role in the Israeli VC market, especially from the United States. Foreign investment in high-tech start-ups accounted, on average, for 71% of the total over the period 2015-2023. In absolute value, foreign investments reached the peak in 2021, at USD 12.2 billion.
Note: Panels A and B comes from the OECD VC Investment (market statistics) database. The statistics presented correspond to the aggregation of investment data according to the location of the portfolio companies, regardless of the location of the private equity firms. Until 2013, data referred only to venture capital-backed high-tech companies. From 2014 onwards, the source for these statistics is the Central Bureau of Statistics (hereafter CBS) Database on Startup Companies in Israel, which in turn is based on data received from the IVC Research Center. The database solely includes startups or enterprises that have graduated from startups. In addition, the database only consists of enterprises registered in the CBS Business Register. As a result, enterprises funded by pre-seed investments are excluded, which may explain the very low share of seed investments in Israel. The statistics presented aim to represent VC investment in startups. To exclude other types of investments, only enterprises that have VC institutions listed as investors are presented. This means enterprises for which the type of investors is unknown are also excluded. Panels C and D come from the “Israeli Tech Review – Q3 2023”, which is also prepared by the IVC Research Centre.
Source: (OECD, 2023[2]), (IVC Data&Insights, 2023[1]).
In Israel, the government played an important pump-priming role for the development of the domestic VC market and industry, notably in the early 1990s through the establishment of the government-backed “Yozma Fund”, which adopted a fund-of-fund model. The Yozma Fund was successful in attracting foreign investors and developing new domestic investors and, by the early 2000s, Israel’s VC market was fully private-sector-driven, without any direct participation of the government either through direct or indirect investment. This situation continued for more than 20 years, until 2024, when the national budget announced a new edition of the Yozma Fund (see below).
The Israeli government launched the original Yozma Fund in 1993 with a view to supporting research commercialisation, as innovations developed in Israeli universities did not manage to reach the market (Baygan, 2003[3]) (OECD, 2016[4]). The Yozma Fund was created with the objective of providing smart capital for high-tech start-ups, including by developing linkages with the Silicon Valley. The creation of the Fund was matched by equity guarantees for foreign investors, as well as programmes connecting Israeli firms with foreign business angels and fostering the initial public offering (IPOs) of Israeli start-ups in foreign stock exchanges.
The Israeli government initially invested USD 100 million to set out the Fund, which was tasked with investing in ten new private VC funds. Each fund was required to have three partners: nascent Israeli venture capitalists, a foreign venture capital firm, and an Israeli investment company or bank. In doing so, the government intended not only to strengthen the supply of VC for Israeli companies, but also to nurture the development of a domestic VC industry. The ten VC funds were established over a three-year period, each with an investment capital of around USD 20 million and the obligation to invest in Israeli start-ups and early-stage companies.
The government retained a 40% equity stake in the funds, which the private partners had the option to buy out after five years if the fund was successful. This was a particularly attractive deal for foreign VC firms and provided an exit strategy for the government. The buy-out option was exercised in most cases, leading to the full privatisation of the ten VC funds. The funds were mainly invested in the ICT and life science/biotechnology sectors. Initial individual investments typically ranged between USD 1 million and USD 6 million, and additional capital was reserved for follow-on investments. With the backing of prominent American, European, and Israeli investors, Yozma launched its second run of the programme in 1995.
The Yozma programme also developed close working relationships with many leading academic institutions and technology incubators in Israel. Some of the most promising companies in the Yozma portfolio have come directly from these institutions. As part of its efforts to involve senior executives and founders of successful enterprises in its activities, the Yozma Fund also created the Yozma III CEO Club, which became a valuable source of deal flow.
The government exited the Yozma Fund and ceased the provision of equity guarantees in the late 1990s. As a result, Israel’s VC investments were almost completely private as early as 2000.
In the first 20 years of the 21st century, the Israeli government did not participate directly in the VC market, although it supported the VC industry indirectly through a number of innovation programmes operated by the Israel Innovation Authority (IIA). Some of the recent programmes most closely related to the start-up phase and the VC industry included the Ideation (Tnufa) programme, which was a grant programme intended for new entrepreneurs wanting to develop a proof-of-concept or protype; the Seed programme, another grant scheme intended for start-ups that had already signed a memorandum of understanding with a VC investor; and the “Programme to promote entrepreneurship and seed-stage start-ups”, which aimed more broadly to nurture an innovation ecosystem that supports entrepreneurship, including by fostering the creation of business angels’ clubs, technology innovation centres, and technology accelerators (Israel Innovation Authority, 2022[5]).
In January 2024, the Israeli government announced a stimulus package that included measures to contrast the decline of VC investments in Israel, the significant dependence of the domestic VC market on foreign capital (i.e., 71% of total capital investments over the period 2015-2023), the persistent decline in the number of new startups established each year, and the increasing concentration of investments in software companies, with a reduction of investments in deep technology fields.
Three new flagship VC-related initiatives have been launched as part of this package – a new Yozma Fund (also called Yozma 2.0), the Start-up Fund, and the New Venture Creation Incubators' Fund – although only Yozma 2.0 is a government VC investment programme, while the others are grant programmes for promising start-ups and entities launching new incubators in deep technologies (Israel Innovation Authority, 2024[6]).
The objective of the New Yozma Fund is to increase the share of local capital in the Israeli high-tech sector, with a view to reducing dependence on foreign capital and thus enhancing the stability of the domestic VC market. The plan is expected to inject approximately one USD billion per year into Israeli VC funds in the years 2024-2026. In the spirt of a fund-of-fund model, investments conducted by institutional investors will be autonomously managed by private Israeli VC funds. The investments of the New Yozma Fund are expected to take place in two rounds, with a ratio of 0.3 government dollars for every 1 institutional dollar. The first round, with a combined institutional and government investment of USD 700 million, is expected to start in the third quarter of 2024. The second round, with a combined institutional and government investment of USD 300 million, is expected to start in the first quarter of 2026. The estimated leverage of the dual commitments amounts to about USD 4 billion.
The Start-up Fund (NIS 500 million annually) will involve the IIA in all investment rounds, from pre-seed through seed to Series A, with joint investment alongside VC firms or private investors, although government participation will come in the form of grants. Companies can apply for funding to the Startup Fund with or without a signed investment agreement. However, those without such agreement, will have limited time to raise the additional required funding in the private market. The Fund will include three main investment programs:
Pre-Seed Programme: the IIA grant will cover 60% of the total funding round, capped at NIS 1.5 million, with a budget ceiling of NIS 2.5 million.
Seed Program: the IIA grant will cover 50% of the total investment round, up to a grant cap of NIS 5 million, and a budget ceiling of NIS 10 million.
Round A Program: the IIA grant will cover 30% of the total investment round, with a grant cap of NIS 15 million, and a budget ceiling of NIS 50 million.
The New Venture Creation Incubators' Fund will provide funding to entities, including the possibility to finance foreign ones, interested in launching deep-tech incubators in Israel. The winners of a future tender will gain significant participation, of up to NIS 40 million (about USD 10 million) over a 5-year period, in the operational expenses of the incubator and the establishment of a central laboratory for the use of the incubated companies. Additionally, companies established by these entities can also receive direct funding through the previously mentioned Startup Fund.
Budget 2024 also continues other programmes which indirectly supports the VC ecosystem of Israel, such as the angel investor club (USD 9 million over three years), the updated Tnufa Fund (grants of NIS 200 000, double the previous edition of the programme, to 100 entrepreneurs), and the establishment of nine new innovation centres across the country (Israel Innovation Authority, 2024[6]).
Overall, the annual budget of the IIA, which is the main government player in the innovation and VC ecosystem of Israel, is ILS 1.5 billion, i.e., about 1.5% of annual total R&D spending in Israel (i.e., about ILS 100 billion). Of the IIA budget, two-thirds are allocated to companies, mostly R&D-based start-ups, while one-third is allocated to R&D infrastructure development (e.g., development of business incubators and accelerators).
References
[3] Baygan, G. (2003), “Venture Capital Policies in Israel“”, OECD Science, Technology and Industry Working Papers, No. 3, OECD, Paris.
[6] Israel Innovation Authority (2024), Government Approves Transformative Stimulus Package to Boost Israeli High-Tech Industry.
[5] Israel Innovation Authority (2022), Annual Innovation Report: State of High-Tech, 2022, IIA.
[1] IVC Data&Insights (2023), Israeli Tech Review, Q3 2023.
[2] OECD (2023), “Venture capital investments”, Structural and Demographic Business Statistics (database), https://doi.org/10.1787/60395228-en (accessed on 11 August 2023).
[4] OECD (2016), SME and Entrepreneurship Policy in Israel 2016, OECD Studies on SMEs and Entrepreneurship, OECD Publishing, Paris, https://doi.org/10.1787/9789264262324-en.
This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
Note by the Republic of Türkiye
The information in this document with reference to “Cyprus” relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Türkiye recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Türkiye shall preserve its position concerning the “Cyprus issue”.
Note by all the European Union Member States of the OECD and the European Union
The Republic of Cyprus is recognised by all members of the United Nations with the exception of Türkiye. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.
The full paper is available in English: OECD (2025), Benchmarking government support for Venture Capital: A comparative analysis, OECD SME and Entrepreneurship Papers, OECD Publishing, Paris, https://doi.org/10.1787/81e53985-en
© OECD 2025
Attribution 4.0 International (CC BY 4.0)
This work is made available under the Creative Commons Attribution 4.0 International licence. By using this work, you accept to be bound by the terms of this licence (https://creativecommons.org/licenses/by/4.0/).
Attribution – you must cite the work.
Translations – you must cite the original work, identify changes to the original and add the following text: In the event of any discrepancy between the original work and the translation, only the text of original work should be considered valid.
Adaptations – you must cite the original work and add the following text: This is an adaptation of an original work by the OECD. The opinions expressed and arguments employed in this adaptation should not be reported as representing the official views of the OECD or of its Member countries.
Third-party material – the licence does not apply to third-party material in the work. If using such material, you are responsible for obtaining permission from the third party and for any claims of infringement.
You must not use the OECD logo, visual identity or cover image without express permission or suggest the OECD endorses your use of the work.
Any dispute arising under this licence shall be settled by arbitration in accordance with the Permanent Court of Arbitration (PCA) Arbitration Rules 2012. The seat of arbitration shall be Paris (France). The number of arbitrators shall be one.