Establishment of New Fast Track Grant Application Process
- The Israel Innovation Authority (the “IIA” and the “Innovation Authority”) recently announced the establishment of a fast-track application process for the R&D Fund with an initial scope of approximately NIS 400 million for investments in approximately 100 technology-based Israeli start-up companies that are short in cash flow (runway of up to 6 months) and facing difficulties raising capital during Operation Iron Swords. The IIA pledged that their review process will be swift and that responses will be given within 4 weeks from the date a complete application is submitted.
- The program will operate from the beginning of November 2023 until the end of February 2024. Submission dates will open every 2 weeks. The first submission date is set for November 8, 2023 and the last submission date is set for February 1, 2024.
- The program will allow financial aid of up to 50% of a requested budget up to NIS 7.5 million, upon submission of an R&D plan for a period of up to 9 months (the applicable period may start as early as the month that the request is submitted).
- Companies that receive a grant will be entitled to an advance of up to 50% of the grant approved by the committee.
- The main criteria that will be taken into account when evaluating each application are as follows:
o Technological Examination: (a) the technological and functional innovation of the product, (b) the competitive advantage and the strength of the intellectual property, (c) the growth potential of the company, (d) the significant assets of the company (technology, innovative products, before/during the phase of starting sales, cohesive teams, customers) and (e) the potential return to the Israeli economy.
o Financial Examination: (a) Runway of up to 6 months with a possibility of extending the grant. The calculation of the company’s viability will be based on a calculation of the total available resources that the company has and certain resources that the company will receive (for example, a signed investment agreement, a credit line, a signed order, etc.), and dividing that amount by the company’s monthly expense rate (Burn Rate), and (b) Low availability of capital for existing investors (difficulty in recruiting new investors and inability to establish a round/bridge by the existing investors).
- As part of the application, prospective recipients will be required to submit various accounting documents, including (a) a trial balance for the period between January 2023 and the end of the month preceding the date of submission of the application and (b) a trial balance for a period of 3 months that ended on the date of submission of the application.
- For additional information about the new fast track click here:
https://innovationisrael.org.il/route/fasttrack/#about_route
Additional Concessions, Relief and Support Effective Immediately for 90 Days
- On October 19, 2023 the IIA recently approved a series of concessions, relief and supportive measures for high-tech companies to help them deal with the difficulties that have arisen since the outbreak of the war. Among the concessions that were approved (effective immediately and for a period of 90 days) in the procedures of benefit tracks 200-01 and 200-02:
- Extension of the deadline for submitting corrections and clarifications to new requests submitted beyond the standard 48-hour window.
- Postponement of the deadline for presenting supplementary financing for up to 3 additional months, beyond the initial 60-day period.
- Extension of the deadline for submitting periodic and final reports by 3 additional months.
- Expanding the Green Track, so that companies can submit periodic reports that include an exception of up to 20% in a budget sub-section, without the need to submit a request for changes.
- Companies can now submit requests for material changes even after the file is closed.
- The IIA introduced a procedure that allows for the deployment or postponement of royalty payments and other current obligations, subject to the payment of interest and linkage differences.
- The IIA announced that it will not delay payments to companies due to current debts to the IIA if the amount of the debt does not exceed NIS 10,000 for the last reporting period.
Benefit Track No. 46 – Encouraging Initial Capital Investments in Startup Companies Operating in High-Risk Fields, Backed by Venture Capital
- This is a good opportunity to mention the accelerated incentive track of the Innovation Authority (Benefit Track No. 46) – the purpose of which is to encourage initial capital investments in companies which operate in high-risk fields that are raising their seed investments and are in advanced discussions with investor(s).
- Who is the program designed for? Israeli seed-stage start-up companies, that develop technologies in fields that require a long-term assimilation, and/or operate in a highly regulated environment or a technological field in which there is a shortage of initial capital investors, and/or companies that are targeting emerging markets, and which at the time of the application’s submission raised a total of less than NIS 5 million.
- When should you submit an application? The application must be submitted in the period between the signing of the term sheet with the investor and the signing of the investment agreement therewith.
- What is the nature of the benefit? The benefit is given as a grant subject to the investor’s capital investment, in cash, in the company.
- What is the grant amount? A grant under Benefit Track No. 46 will be in a ratio of 4:6 (6 – the amount of the investor’s capital investment, 4 – the amount of the IIA’s grant) up to a maximum grant amount of NIS 3.5 million. The committee may approve a grant at a ratio of 1:1 up to the maximum grant amount under certain circumstances (for example, for a company located and operating in peripheral areas of Israel).
- What is the advantage for the investor? Upon awarding the grant, the company will grant the investor an option (warrant) which will give the investor the right to make an additional capital investment in the company, in cash, worth the full amount of the grant, plus 5% interest per year. The option will be valid until 3 years from the date of approval of the grant (subject to the conditions of the track), as long as the amount has not been returned to the Innovation Authority by then.
- When and how is the grant returned? If the investor exercises the option, the company will transfer its proceeds to the Innovation Authority. If the investor does not exercise the option by the end of the exercise period, the grant will be returned to the IIA through the payment of royalties from the company’s revenues in accordance with the provisions of the Innovation Law and the regulations established by virtue thereof.
- Does the option expire? Yes, in an exit transaction of the company or if the company has raised capital in an amount higher than NIS 42 million following receipt of the grant.
- What is the time period required for application approval? The examination and approval process for each application takes about a month; once approved, receipt of the grant is immediate.
Our office is at your disposal and we are happy to assist however we can, including by examining the eligibility of your company or the eligibility of any of your portfolio companies to submit an application for either (a) the Fast-Track Grant or (b) a Grant under Benefit Track 46; and in consultation and preparation of applications to the Innovation Authority.
For more information and details:
Dr. Tal Tirosh, Attorney, Partner in the High-Tech & Venture Capital Department: talt@apm.law
Attorney Stephen Barak Rozen, Partner, Head of International Relationships, Hi-Tech and Venture Capital Department: sbr@apm.law
This document is intended to provide only a general background regarding this matter. This document should not be regarded as setting out binding legal advice but rather as a practical overview that is based on our understanding. APM & Co. is not licensed to practice law outside of Israel.
