Cogito Capital and Peninsula Chosen to Establish Growth Capital Funds for Investment in Small and Medium-Sized Businesses: Total Investment NIS 1 billion

​​Companies chosen through the Ministry of Economy and Industry and Ministry of Finance tender will provide aid to businesses with an annual volume of transactions of up to NIS 100 million

The Small and Medium Businesses Agency at the Ministry of Economy and Industry and the Budget Department in the Ministry of Finance have completed the second and last stage in the tender for creating growth capital funds for investment in businesses. The funds that won the tender – Cogito Capital and Peninsula – will provide solutions for long-term funding and investment in businesses and bridge the existing gap between the needs of the businesses and the existing capital supply in the market. Fourteen companies competed in the first stage of the tender, intended for businesses with an annual volume of up to NIS 100 million. The two companies that were chosen will compete with each other for potential businesses once the funds are established in the coming weeks.

As part of the conditions for the fund, the government will invest over NIS 100 million in each fund, with the fund expected to ultimately reach a size of NIS 300-450 million. The fund is intended only for medium-sized businesses with an annual volume of transactions greater than NIS 10 million but under NIS 100 million.

According to figures provided by the Small and Medium Businesses Agency, medium-sized businesses in Israel employ around 22% of employees in the business sector, and their contribution to the total product of the business sector is around 16%. It also emerges from the Agency’s figures that the total overall volume of medium-sized businesses in Israel is approximately 15% of the total overall volume in the business sector.

However, it was found that most of the credit (over 80%) granted to medium-sized businesses in Israel is from banks, and most is used for working capital and purchasing fixed assets. Other financial bodies do not invest a great deal in medium-sized businesses, even though these businesses’ major requirement is for growth capital. The investigation showed that there is a need to take steps to encourage the founding of growth capital funds for medium-sized businesses.

A study carried out by the Small and Medium Businesses Agency shows that among the various existing solutions in OECD countries, the most effective is government support for funds specializing in equity investments, with the state taking some of the risk upon itself while simultaneously allowing investors to benefit from excess return.

In line with the adopted mechanism, the government – through the Small and Medium Businesses Agency at the Ministry of Economy and Industry and in cooperation with the Budget Department in the Ministry of Finance – will commit to invest up to 25% of the sum of liabilities of the total investment, participate in the fund’s losses beyond its relative part in the assets, and grant preference and precedence to the fund’s institutional and private partners when dividing the profits.

Ran Kiviti, Director of the Small and Medium Businesses Agency at the Ministry of Economy and Industry: “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 and their personal risk. The fund is intended to provide solutions for the following issues – reducing the risk for investors and inject capital funds that will enable the business’s development and growth, increased production capacity, exposure to new markets, product branding, and a real possibility of competing within Israel and overseas markets”.

Shira Greenberg, Deputy Director of the National Budget Department at the Ministry of Finance: “Setting up the funds is one of the many preliminary steps being taken by the Minister of Finance and the government, with the aim of improving the economy and increasing the number of investments. Setting up the funds will increase the long-term financing possibilities for small and medium-sized businesses, enabling them to expand their activity, develop additional products, and other investments.”