Decent Work and Economic Growth
Israel Took the Initiative in Innovation with Project Yozma
Staring at triple-digit inflation and imminent bankruptcy in the 1980s, the Israeli government resolved to make a decisive shift from a socialist economy to a capitalist one. An economic stabilization plan was set into motion, and Project Yozma (“initiative” in Hebrew) was born.
One goal of the stabilization plan was to “unleash the potential of the private sector” by encouraging companies to take risks and experiment with new ideas. The establishment of Yozma by the Israeli government in the early 90s was meant to kick-start innovative industries by investing in new venture capital funds, in addition to directly investing in small Israeli companies. It was able to provide the funding they needed to bring their products to market.
Yozma also endeavoured to attract foreign investors, offering insurance covering 80% of the downside risk. It further offered tax incentives to foreign venture-capital investments in Israel and promised to double any investment with funds from the government.
Yozma’s efforts paid off. Of its 15 portfolio companies, nine went public or were acquired. Venture capital investments soon jumped from $58 million to $3.3 billion. By 1999, Israel ranked second only to the United States in invested private-equity capital as a share of GDP. It also led the world in the share of its growth attributable to high-tech ventures: 70 percent. Thus was the auspicious beginning of Israel’s venture capital industry, catalyzed by Yozma.
Since its inception, Yozma has managed more than $220 million in its three funds: Yozma I – formed in 1993; Yozma II in 1998, and Yozma III in 2002, with direct investments in about 50 portfolio companies. Yozma has helped a significant number of its portfolio companies go public on major stock exchanges in the US and Europe. In addition, it has positioned some of its portfolio companies for acquisition or an investment by leading corporations such as America On Line, Cisco, ECI Telecom, General Instruments, Johnson & Johnson, Microsoft, Sequoia Capital and Benchmark.
For a number of years the funds have been engaging in development and financing of social businesses and programs for employment of disadvantaged populations. In 2015, with the cooperation of the Ministry of Finance and the National Economic Council at the Prime Minister’s Office, two funds for the encouragement and development of social businesses (Yozma funds) were launched. These funds provide professional backing for social businesses which employ disadvantaged groups – handicapped people, adults entitled to an income supplement, youth and young adults at risk, released prisoners and single-parent families receiving income support. The Yozma funds are financed by the NII, the Ministry of Finance, donations and other investors, and are operated by means of concessionaires – the Dualis Yozma Fund and the IVN Yozma Fund. The total financial scale of the Yozma funds is NIS 50 million.
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