Israeli government creates VC fund

This is the first time in nearly a decade that the government has directly involved itself in venture capital funding.

The Government of Israel has established a fund to invest in start-up companies in the country. This is the first time since the early 1990s that the administration has become directly involved in providing VC funding and marks an increased desire to provide substantive support for the country's entrepreneurs. The technology sector in Israel has already evidenced how some of these small companies can grow rapidly into dominant players in niche sectors.

At the start of the last decade, the government invested in a number of publicly and privately managed venture capital funds, making the country a hot-bed of VC activity in the region. Since then however early stage investing in Israel has declined. For the third quarter 2001, seed companies secured just $19m, 76 per cent less than the same period a year earlier.

The government fund will exist under the wing of the Industry and Trade Ministry. It will provide interest-free loans to companies of up to $1m, to be repaid over a three-year period. A stipulation of these loans is that capital from the government fund must be matched by the local venture capital community. The size of the fund has yet to be disclosed.