Israel Innovation Authority Launches a New Incentive Program to Invest ₪250 Million Directly in Deep Tech Under the YOZMA Fund

Israel to award grants of up to $10 million for several venture capital funds specializing in Deep Tech, in order to catalyze substantial fundraising and ensure Israel’s continued leadership in Disruptive technologies at high risk

The Israel Innovation Authority announced today the launch of a dedicated Deep-Tech Funds Incentive Program under the YOZMA Fund, aimed at addressing financing challenges faced by venture capital funds that invest in Israeli Deep Tech companies. The new fund totals approximately ₪250 million (about $70 million) and will provide grants that help Deep Tech-focused funds reach a first closing, accelerate the start of their activity, expand their capital base, and begin investing in companies developing advanced Deep Tech technologies, focusing on tangible products in sectors such as semiconductors, energy, climate, quantum computing, and health.

The grant serves as a lever to improve returns for limited partners (LPs) and creates direct value for them, as all profits will be distributed among the LPs since the Authority will not share in the fund’s profits. In addition, the grant provides operational flexibility for fund managers. Moreover, the public investment itself signals confidence and functions as a “quality seal,” helping managers attract additional investors from Israel and abroad. The fund was designed to encourage investors to commit to Deep Tech funds and to strengthen their direct involvement in Israel’s high-tech ecosystem, creating a broad and stable base for investing in deep-tech companies developing disruptive technologies.

The global venture capital industry is in a slowdown, with a significant drop in the number of funds raising capital and a concentration of capital in the largest funds. In Israel, this trend is similar, and even more acute for Deep Tech funds, a segment characterized by higher risk, longer time to market, and complex regulatory processes. This environment makes it difficult to build the investor momentum required for venture funds to reach a first closing.

Under this program, the Authority will provide a direct, rapid grant to Deep Tech funds of up to 12.5% of fund size, capped at $10 million per fund, without taking any share of the fund profits. The grant is intended to act as a lever for improving fund attractiveness and creating a matching effect to draw additional significant investors, enabling new funds to expand available capital to Israeli Deep Tech companies and provide them with a financial continuum necessary for R&D and growth.

The program’s goal is to accelerate fundraising by Israeli venture capital funds and to attract foreign funds to establish Israel-focused vehicles. Experienced general partners in Deep Tech who seek to launch a new fund in these fields may also apply. The new program resembles the historic YOZMA Fund model (FoF) that operated in the early 1990s and laid the groundwork for Israel’s venture capital industry. Unlike the past, however, the current program focuses on Deep Tech and will serve as a targeted financing and incentive mechanism that strengthens funds operating in these domains in Israel and enables continued investment in Israeli disruptive technologies.

Dror Bin, CEO of the Israel Innovation Authority: “Israel’s high-tech sector has always grown through challenges, but the current reality poses unprecedented difficulties for deep-tech companies and the venture funds that back them. Investment in fields such as semiconductors, renewable energy, quantum computing, climate tech, and health is critical to anchoring Israel’s competitive advantage for decades to come. The new fund is designed to ensure we do not lose momentum and to provide the capital that will enable venture funds to reach a ‘first closing,’ allowing them to continue their investments and for their invested companies to continue their research and development in groundbreaking innovation. This is an investment in the future of Israel’s economy, in national resilience, and in our ability to remain at the center of the global technology stage.”

Key Benefit Terms

• Grant of up to 12.5% of fund size, and no more than $10 million.
• Repayment to the Authority is required only from fund returns, and in any case is capped at 12.5% of annual returns, linked to SOFR, meaning the Authority does not take part in profits (apart from indexation), which many be distributed to LPs.
• At least 50% of total investments must be directed to companies whose R&D focuses on tangible products or on manufacturing processes for tangible products; at least 70% of total investments must be made in Israeli companies or companies whose principal R&D is conducted in Israel. Minimum fund size of $32 million, of which $28 million are private commitments and $4 million are the Authority’s grant.
• The fund must reach a first close of 30% of its target size within six months. Funds that achieve this within three months will enjoy reduced indexation terms of SOFR minus 2% (not less than zero).
• Grant funds may also be used to finance management fees in the fund’s early stages, to ease initial operations.

Submission to the incentive program is subject to clear criteria designed to ensure high-quality management and a demonstrated track record by fund managers, including:

• Financial track record of the fund or the general partners over the past decade (IRR, TVPI, DPI).
• Proven experience in Deep Tech – number of portfolio companies, total invested capital, participation on Deep Tech companies’ boards both in Israel and abroad.
• Planned activity of the new fund – scope of Deep Tech investments, share of investments in capital-constrained companies, number of partners with relevant experience.
• Investor commitments – priority to funds that already hold signed agreements with institutional investors (LPs) rather than letters of intent alone.

The space tech hub will also serve as a springboard for a full innovation ecosystem, which will support early-stage ventures, facilitate regulatory and licensing guidance, advance partnerships with global aerospace players, and accelerate research collaboration between academia and industry.

The evaluation process will be conducted by Expert Financial Evaluators, in collaboration with the Authority’s technology experts.

YOZMA 2.0 Fund

The YOZMA Fund was relaunched in 2024 with the goal of expanding institutional investments in local venture capital funds, as is common in leading global markets, thereby increasing the resilience of Israel’s venture capital market against global and local macroeconomic fluctuations.

The program operates a model of return enhancement for Israeli institutional investors in early-stage venture capital funds. For every dollar invested by an institution under the program, the Innovation Authority adds about 30 cents, and the institutional investor enjoys the entirety of the joint portfolio’s profits (aside from principal + variable interest over the term).

The total YOZMA Fund amounted to approximately $154 million in government funds, representing around $670 million in combined government and institutional investment. The program earmarked funds for institutional investors to contract with venture funds in 2025–2026, after which the program concludes.

The fund approved investment frameworks for 18 Israeli institutional investors, ranging from hundreds of thousands to $15 million. To date, 11 institutions have committed approximately $162 million (including government and institutional funds) for Israeli venture capital funds.

The Authority maintains close coordination with institutional investors’ managers and oversees the program’s implementation. All participating institutions have presented plans for deploying their allocated funds by the program’s end.

According to IVC fundraising data, the supply of viable funds for institutional investment in Israel remains limited, due to the fundraising challenges faced by Israeli venture funds. This slowdown has led to fewer fund closings and delayed institutional investments. However, institutional investors are continuing to invest in early-stage funds under the program and have already invested about a quarter of the program’s total committed capital.

Companies seeking further information on this Call for Proposal’s requirements and application process should refer to the Israel Innovation Authority’s website: Deep-Tech Venture Capital Funds’ Incentive