Israel Kickstarts Growth Funds for Mid-sized Companies

Israel's high-tech sector is already well developed, accounting for about 12.5% of gross domestic product.

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Young employees working at a high-tech company.
Young employees working at a high-tech company. Credit: Bloomberg

REUTERS - The government will invest 225 million shekels ($57 million) to kickstart a funding program for medium-sized companies, helping to encourage investments by a fast-growing business segment that accounts for a sixth of economic output.

The program, which two private-sector funds will boost to up to 900 million shekels, is aimed at firms outside the high-tech sector with annual revenues of 10 million to 100 million shekels.

The overall sum is tiny compared with Israel’s economy, which produced 1.5 trillion shekels of goods and services in 2015. But with the traditional credit market sluggish, the Economy Ministry’s Small and Medium Businesses Agency believes the funds can be targeted to have a clear impact.

“Small and medium-sized businesses are the economy’s growth engine, but on the way there they have to struggle with many hardships, beginning with the ability to raise capital,” the agency’s director Ran Kiviti told Reuters yesterday.

Most bank loans are used for working capital, and banks do not have the resources to review business plans to allow medium-sized companies to expand, he said.

“To do big investments like opening new markets or [creating] new products [the firms] ... have problems getting funding,” he said.

Israel’s high-tech sector is already well developed. One of the world’s largest and heavily funded by venture capital funds as well as share listings on Nasdaq, it accounts for about 12.5% of gross domestic product.

The ministry estimates mid-sized firms account for 22% of Israeli jobs in the business sector, while their contribution to economic output is about 16%. The ministry also expects the funds to help the companies compete overseas.

It has chosen Cogito Capital and Peninsula, two Israeli funds, as partners. They will have four months to raise more money to bring each fund to 300 million to 450 million shekels.

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