Israel Innovation Authority Doubling Down on Strapped Tech Startups

"Our support program is basically an investment that the company receives under certain conditions. If the company doesn't survive, the money becomes a grant, and if it succeeds, it has to pay back royalties from its sales," Sagi Dagan, vice president of the Israel Innovation Authority’s growth division told Calcalist's Sophie Shulman at Google and Calcalist’s Startup Week conference. "Just like with investors, the funding is part of a work plan. We mainly invest in the workforce, with the company committing to executing the plan and keeping the team on for at least 12 months."

The Israel Innovation Authority (IIA), the government's tech investment arm, announced last month its plan to fast track NIS 500 million (approximately $142 million) to hard-pressed startups.

"The Ministry of Finance approved a NIS 1.85 billion (approximately $525 million) IIA budget for the coming year, NIS 500 million of which will be dedicated to small tech companies and startups that are pressed for cash due to the crisis," Dagan explained.

The authority's fast track was launched two weeks ago. "Some of the companies are turning to us as part of their survival plan," said Dagan. "The same way that you prepare for a crisis with your investors, management, and clients, you need to also prepare and provide us with orderly requests, providing a clear plan so that we can evaluate it."

Dagan explained that the fact that companies ask for the authority's help doesn't necessarily indicate they failed. "These companies need to raise money in 2020 in order to continue to operate. They may have to shut down without further funding, not necessarily because they are not good companies, but because the crisis has made it very difficult to find and secure investments," Dagan said. "We are continuing to invest in good companies, with the goal that the money will help them prepare to do business after the crisis is over. Our aim is that the tech sector will be ready to lead the Israeli economy's growth within one year. If we don't plan and invest now in products whose development will be complete and ready for market in a year or two, it will be too late."

Dagan rejected the criticism that taxpayers' money shouldn't be used to bail out the private sector. "Our role isn't to save those companies that aren't good. We are trying to save those that are good and have a funding issue," said Dagan. "We are also not investing by ourselves. These companies also bring VCs and angel investors with them. Israeli tech is very diverse, with a wide range of industries. Some industries like software and online services receive more investment. But the more complex ones take longer to mature and require greater funding and also come with additional risks."

"We are very experienced in crisis management in Israel. During the 2001 crisis, companies like Mellanox also received funding from the IIA," Dagan added. "We know this investment was significant for the company. The authority doesn't invest by itself though. We are joined by other private investors and these investors are those who run the company. We don't sit on any boards, that is not one of our goals."