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What VCs Need to Know About Changes in the Israel Innovation Authority's Funding Programs

The Israel Innovation Authority (IIA) has recently made some significant updates to its funding programs that venture capitalists should be aware of when considering investments in Israeli startups. These changes aim to provide more certainty, accessibility, and flexibility to funded companies. Here are the key points:

  1. Funding Certainty One of the most important changes is that funding percentages are now fixed in advance and companies can secure multi-year funding commitments. This provides much greater certainty and stability compared to the previous system.

  2. No Salary Restrictions The IIA has removed the salary cap restrictions that previously limited how much founders and employees could be paid in funded companies. This allows startups more flexibility in attracting and retaining top talent.

  3. Funding Fits the Company Stage Grant amounts and terms are now designed to align with the company's current financing stage and milestones. This adaptability means funding is more tailored to each company's specific situation and needs.

  4. Alignment with VC Funding Rounds Startups can now apply for and receive IIA grants in parallel to raising rounds from VCs. This is an important change that enables better coordination between public and private funding sources on compatible timelines.

  5. Non-Dilutive Capital Importantly, the IIA funding remains non-dilutive capital - it does not require equity from the company. Grants do not dilute the stakes of investors or founders.

  6. Revenues Don't Reduce Funding Under the new rules, a company's revenues will no longer be considered "complementary financing" that reduces the amount of grant funding they are eligible for.

  7. Timeline - Answers within 45 days and 6 months to finalize the funding.

Overall, these IIA funding changes give VCs and startups more alignment, certainty and flexibility when pursuing non-dilutive government funding alongside VC financing rounds. The terms are now more compatible with the expectations and constraints of professionally funded high-tech companies.

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