| Notes |
IMPACT INNOVATION IN ISRAEL
Ecosystem Overview
July 2019
1
Executive Summary
Israel has claimed the brand name of Startup Nation, with over 6,600 startup
companies; 430 registered investors, VCs, and funds; 225 hubs; and 320
multinational technological companies, totaling $6B in investments in 2018.
1
Meanwhile, the impact ecosystem has about 20 impact venture funds, over 23
proficient incubators/ accelerators/ hubs, 11 academic programs, and only one
academic center – ACTO at the College of Management – proactively investing largescale resources in the development of this discipline, alongside an unknown number
of impact ventures. There is also early interest in impact investing, among leading
institutional investors (starting to invest in ESG).
The aggregate impact AUM in Israel is estimated to be between $2602 and $622M3,
and the total AUM of MENA is only 5% of global impact investing assets (in 2017).4
The Israeli definition of impact is very wide and rather vague, with different actors in
the field refusing to accept each other’s definition of the term. It can refer to the target
market of the venture, the product itself, or the founders’ identity. Thus, to obtain a
better understanding of the local ecosystem, we should compare it to others.
In 2009, as the impact industry started to gain momentum, Deloitte’s Monitor
Institute issued a report5 examining the emergence of this industry and outlining
1 Start-Up Nation Central Annual report 2019
2
Impact Investing in Israel: Status of the Market, OurCrowd (March, 2019)
3
Impact Investing in Israel. Yes, It’s a Thing, Vanessa Bartman (Feb, 2017)
4 Global Impact Investing Network: Annual Impact Investor Survey (2018)
5
Investing for Social and Environmental Impact: A Design for Catalyzing an Emerging Industry (2009)
2
necessary next steps. The industry’s evolution was meant to take place in four phases:
uncoordinated innovation, marketplace building, capturing the value of the
marketplace, and maturity.
The Deloitte report recently served as the basis for the Global Impact Investors
Network (GIIN) 2018 report Roadmap for the Future of Impact Investing6, assessing
the current state of the industry and suggesting next steps to be taken over the short
and long term. According to this report, between 2007-2017, the ecosystem moved
from the end of phase 1 – uncoordinated innovation, towards the beginning of phase
2 – capturing the value of the marketplace with leaders in this field, to some extent
already at this phase. The report outlines the developments that accrued on three
levels: intermediation, infrastructure, and absorptive capacity.
When examining the Israeli ecosystem in light of this model, it is challenging to place
Israel exactly at the end of marketplace building, alongside the global ecosystem.
However, it does have some outstanding achievements – international organizations
such as the Global Steering Group for Impact Investing, established under the UK´s
presidency of the G8, and Toniic, the global action community for impact investors,
opened branches in Israel. Furthermore, there are three Social Impact bonds and the
Capital Market Authority issued a "Statement of Expected Investment Policy in
Investment Institutions".
In line with GIIN’s “Six Categories of Action” report and the lessons learned from the
global impact arena, several recommendations for the Israeli ecosystem at its current
state can be made. First, a GIIN-like framework, recognizing the range of definitions
6 Roadmap for the Future of Impact Investing: Reshaping Financial Markets (2018)
3
of impact innovation shaping an identity for this industry can enhance public
awareness and highlight success stories. Such an umbrella organization would also
contribute to the development of local fundamental investment theory, changing
behavior and expectations.
New products and frameworks must be developed to tackle the need for hybrid
financial models. Simultaneously, a commitment to early stage, high–risk, startup
capital for funded pilots, as well as an injection of capital into mature accelerators (for
pilots) is necessary. Furthermore, the development of tools and services, such as
locally adapted impact measurement schemes and a local database, are necessary.
Moreover, an investment should be made in education and training for professionals
in the financial and social fields, as well as the general public. Finally, to address
essentially needed policy and regulation, the proposed GIIN-like framework can
resolve, as one of its goals, to promote collaboration and create a unified voice in
government lobbying for regulatory changes, adopting an inclusive and sustainable
agenda.
Different sectors have specific roles to play in the creation of this ecosystem, and
philanthropy, for one, should promote ecosystem-centric models and practices, both
as impact philanthropy and impact investment.
As impact philanthropists, donors, foundations, and federations can help build and
strengthen the intermediaries needed to support this ecosystem. As investors,
philanthropists can commit to venture philanthropy alongside MRI (mission-related
investments) and PRI (program-related investments) at rates of return.
4
We take this dual role very seriously and have built an impact innovation arm within
the Foundation (in 2018), while simultaneously committing 3-5% of its endowment
to impact investments. Our first investment enabled the formation of Israeli’s first
Social Impact Bond, aimed at reducing dropout rates from higher education.
Our strategy is aimed at developing the local Israeli ecosystem wholly, while taking
into account hyper-local ecosystems (within specific areas and communities in
Israel), as well as examining the role that Israel should play in the global ecosystem.
We assume a holistic approach and view impact as a sector – from supply to demand
through intermediation.
Coming from a long philanthropic legacy of sector pioneering and building, the
strategic measurement and management practices of the Edmond de Rothschild
Foundation (IL) allow us to evaluate key interventions on the micro and macro levels,
engage various stakeholders, and create strong coalitions, while fulfilling our
mandate in the area of higher education.
To do so, we have adopted a model-based approach – creating innovative models that
can be piloted, tested and replicated. Each model is based on several strong
organizations, all aiming to achieve the same goal, jointly taking the next steps
towards making Israeli an “impact nation”.
We encourage other impact philanthropists, donors, foundations, and federations to
embrace this dual role as well. Together, we can help build and strengthen the
infrastructure needed for this ecosystem to flourish.
5
Impact Innovation in Israel – Ecosystem Overview
Israel has claimed the brand name of Startup Nation, with over 6,600 startup
companies, 430 registered investors, VCs and funds, 225 hubs, and 320 multinational
technological companies, totaling $6B in investments in 2018.
7
Meanwhile, the impact ecosystem has about 15 impact venture funds; about 23
proficient incubators/ accelerators/ hubs; 11 academic programs; and a single
academic center proactively investing large-scale resources in the development of
this discipline, alongside an unknown number of impact ventures.
The definition of impact in Israel is very wide and rather vague, with different actors
in the field refusing to accept each other’s definition of the term. Impact encompasses
a wide variety of models: from social entrepreneurship to impact innovation, from
social businesses to financially sustainable NGOs. It can refer to the target market of
the venture, the product itself, or the identity of the founders.
The first Israeli fund focusing on impact was Impact First (a member of Pitango),
established in 2011, and the latest to join was OurCrowd, launching its impact fund in
March 2019. Israel’s impact investors range from small-scale (e.g. Zora) to large-scale
venture funds (e.g. Bridges Israel), as well as charitable foundation (e.g. ARC Impact
Foundation) and global Jewish organizations (e.g. UJIA), alongside family offices (e.g.
Beyond) and angel groups (e.g. EdTech).
Their definition of impact, as well as their expected returns, vary drastically. While
some funds are focused on social businesses (e.g. Dualis), others promote scalable
7 Start-Up Nation Central Annual report 2019: Finder Insights Series - The State of the Israeli Ecosystem in
2018
6
technological impact (e.g. 2B community); some define the entrepreneurs themselves
within the measurement of social ROI (e.g. Takwin), while others target SDG in the
global south (e.g. Vital). There are also several venture funds investing in cheap
renewable energy and affordable AgriTech (e.g. Terra) or inexpensive MedTech (e.g.
aMoon) but they do not necessarily define themselves as impact funds. The aggregate
AUM of impact funds in Israel is estimated to be between $2508 and $622M9, and the
total AUM of MENA is only 5% of global impact investing assets (in 2017).10
Alongside the funds, there are some 23 accelerators and incubators focusing on
ideation, incubation, and early-stage field implementation of social and impact
ventures. These can be divided into different categories: from field building (e.g. Tech
for Good) and capacity building (e.g. PresenTense) organizations to vertical/productcentric hubs (e.g. 8400). From programs focusing on entrepreneurs with specific
needs (e.g. Hybrid) to those focusing on solving the needs of specific communities in
Israel (e.g. A3i) and around the world (e.g. Pears Challenge). From hyper-local (e.g.
TRDC) and national (e.g. 8200 social), to international with local chapters (e.g. Mass
Challenge) or local entrepreneurs (e.g. GATHER).
Beyond the industry-led accelerators and incubators, most local academic
institutions have an innovation program incorporating, to some extent, social
innovation. Currently, the only academic institution proactively investing large-scale
resources in the development of this discipline is ACTO, the Academic Center for
8 According to a survey published by the Israeli National Advisory Board (Aug, 2018)
9
Impact Investing in Israel. Yes, It’s a Thing, Vanessa Bartman (Feb, 2017)
10 Global Impact Investing Network: Annual Impact Investor Survey (2018)
7
Impact Investing and Entrepreneurship at the College of Management – Academic
Studies (COMAS), founded by the Edmond de Rothschild Foundation and Dualis.
Together with the traditional actors in the fields, several field builders support this
ecosystem, from individual consultants (e.g. Dalia Black), to financial leaders (e.g. SFI)
and global impact forums (e.g. TONIIC), as well as government agencies (e.g. Israel
Innovation Authority). Moreover, complementary ecosystems are currently also
being developed, focusing on Israeli innovation targeting the implementation of the
SDG in the global south and ESG related investments.
Notably, Israel’s institutional investors are showing some interest in the field of
impact and more so in ESG. IBI offers a responsible investment portfolio and, in June
2019, Psagot became the first Israeli institutional investor to commit to the UN’s PRI
(Principals for Responsible Investment), in partnership with Green Eye. Furthermore,
Psagot and Discount Bank invested in Bridges and Leumi Bank has invested in the
social impact bond aimed at reducing dropout rates from higher education – initiated
by the Edmond de Rothschild Foundation (IL), managed by SFI and implemented by
Aluma.
Israel in comparison to other ecosystems
In 2009, as the impact industry started to gain momentum, Deloitte’s Monitor
Institute issued a report11 examining the emergence of this industry and outlining
necessary next steps, together with a suggested timeline. The industry’s evolution
was meant to take place in four phases: uncoordinated innovation, marketplace
building, capturing the value of the marketplace, and maturity. The report lists the
11 Investing for Social and Environmental Impact: A Design for Catalyzing an Emerging Industry (2009)
8
actions to be taken at each step, and claims that in order to achieve success, there is a
need for bold leadership, comprehensive coordination, and capitalization, through
intermediaries, and via infrastructure development.
As mentioned earlier, this report served as the basis for GIIN’s 2018 report Roadmap
for the Future of Impact Investing12, assessing the current state of the industry and
suggesting next steps to be take in the short and long term.
According to the GIIN report, between 2007-2017, the ecosystem moved from the end
of phase 1 (uncoordinated innovation) towards the beginning of phase 2 (capturing
the value of the marketplace) with field-leaders already, to some extent, at this phase.
The report outlines the developments that accrued on three levels: intermediation,
12 Roadmap for the Future of Impact Investing: Reshaping Financial Markets (2018)
9
infrastructure, and absorptive capacity. Intermediation refers to organizations
supporting demand (potential investors), infrastructure focuses on the impact
ecosystem itself (data and network), and absorptive capacity hones in on supply
(entrepreneurs).
While there some challenges remain to be resolved, as outlined in the report, during
this marketplace building phase, it seems there have been numerous large-scale
achievements in the field globally. Highlights include the establishment of LeapFrog
Investments, the formation of the GIIN Investor’s Council and the global National
Advisory Boards, the development of IRIS, and creation of the Unreasonable Institute.
However, the threats outlined in the initial Monitor Institute report still hold true. As
they feared, it is too hard for some investors to move towards impact-driven portfolios
(e.g. institutional investors) and too easy for some investors to claim they are impactdriven, while actually engaging in “feel good” rather than “do good” investments.
10
When examining the Israeli ecosystem in light of this model, it is challenging to place
Israel exactly at the end of marketplace building. However, there have been some
outstanding achievements in the sphere of impact innovation.
On the one hand, Israel is not a part of the G8 or the G20, but it is part of the Global
Steering Group for Impact Investing developed by the G8, and the Israeli NAB includes
serious key players. Furthermore, while there is no local consumer market for largescale impact innovation (unlike India for example), it is home to brilliant clean-tech,
agro-tech, and med-tech startups operating around the world.
Israel also has a spectrum of impact investing, with investors seeking to avoid harm;
impact-driven investors accepting disproportionate risk-adjusted returns; and even
11
philanthropists, who accept partial capital preservation (considered to be outside the
boundaries of “impact economy”).
13
The government does not yet have an agency focusing on impact investments (e.g. the
Canadian Government’s Impact and Innovation Unit) but there is a Social Impact
Bond to enhance math achievements for Bedouin youth in collaboration with the
Israeli Ministry of Education.
Notably, Israel lacks the vast past experience in micro financing or community
development finance that other countries have, but global Jewry active in Israel has
been involved in local philanthropic giving, supporting such frameworks around the
world. Moreover, Israel is a part of the OECD and, as the organization shapes its
strategic approach towards impact investing, Israel will also need to take a more
serious look at its own strategy in the matter.
Creating a strategy for an impact ecosystem requires an analysis of the breadth of
impact, a clear understanding of where social impact investing can be most useful,
and data-driven insights into the depth of impact and the effectiveness of social
impact investing.
14 “For a country to identify as a possible ‘market space’ for SII(social
impact investment), data is needed for assessing the business case across multiple
sectors or social target areas,”15 claims an OECD report. However, there is no up-todate local data, both on the demand and the supply – information about both
investment sizes and the financial and social performance of impact funds and
13 The Rise of Impact: Five steps towards an inclusive and sustainable economy. UK NAB (2017)
14 G8 Social Impact Investment Forum: Outputs and Agreed Action (2013)
15 Social Impact Investment: building the evidence base. OECD report (2015)
12
startups is missing. This is only part of the reason there is no match between supply
and demand within this ecosystem.
Summary of progress across platforms, Israel 2018
Intermediation Infrastructure Absorptive Capacity
1. Less than 20 impact
investing funds
with only one largescale international
fund (Bridges)
2. Almost no support
from investment
banking services
3. Three social impact
bonds
4. Lack of early stage,
high-risk capital
5. Strong need for
institutional
investors
6. No engagement of
MNCs directly with
impact locally
7. NAB and TOIIC opened
branches in Israel
8. Some use of international
impact measurement and
management tools
9. The Capital Market
Authority issued a
Statement of Expected
Investment Policy in
Investment Institutions
10. Some public awareness
11. No coherent data base
12. Few well-known success
stories (e.g. Code
Monkeys)
13. Lack of robust leadership
14. Numerous
accelerators/
incubators/
programs mainly
supporting earlystage impact
entrepreneurship
15. Lack of tools to
support the
research and
development of
innovative scalable
models
13
Recommendations
In line with GIIN’s Six Categories of Action (see chart below), and based on the lessons
of the global impact and micro financing ecosystems, recommendations can be
formulated specifically for the Israeli impact ecosystem at its current state.
16
Identify – In order to form the identity of the impact industry and movement in Israel,
a GIIN-like umbrella framework is needed. Alternatively, incorporating more actors
into the NAB and creating a platform for professionals in this sphere, with the aim of
sharing best practices, may be a solution at this challenge. This framework should
recognize the range of locally accepted definitions of impact innovation, work to
demonstrate and communicate impact, while nurturing and highlighting beacons of
success.
Behavior and expectations – the framework suggested above should be able to update
the local investment theory, thus addressing the need for a change in behavior and
expectations. This change is currently led by private and philanthropic efforts;
however, Israeli institutional investors and multinational corporations with large
operations in Israel can have a tremendous influence on the field.
Products – the development of new products and models is required, as there is a clear
need for hybrid models that utilize a combination of instruments to blend traditional
grants with social investment funds, pair experience and assets among commercial
investors and pay for success models, and shape public-private partnerships17.
16 The impact investors handbook: Lessons from the World of Microfinance (2011)
17 Social Impact Investment: building the evidence base. OECD report (2015)
14
Tools and services – alongside these new products, tools and services must also be
established, such as locally adapted impact measurement schemes and a local
database.
Education and training – for both financial and social professionals, programs within
(but not limited to) academic programs is essential. Education should focus on
relevant impact tools, methods and methodologies, while also connecting them to
global trends (e.g. SDGs). To enable the formation of educational and training
frameworks, demand must be demonstrated and funds, angel investors, and
individuals (i.e. savers via institutional investors) should be encouraged to invest
according to their values. Investments should be accompanied by measurement of
social outcomes, and not just outputs and financial viability.
Policy and regulation – to develop Israel’s impact ecosystem, policy and regulation are
a must. The formation of a GIIN-like framework can promote collaboration and create
a unified voice to lobby the government for regulatory changes (e.g. Social Investment
Tax Relief in the UK), adopting an inclusive and sustainable Israeli investment agenda.
Placing purpose at the heart of public spending and creating relevant mechanisms
and regulation align with this cause.
Simultaneously, a commitment to early-stage, high–risk, startup capital for funded
pilots, as well as an injection of capital into mature accelerators are necessary.
15
Global Impact Investing Network
Roadmap for the Future of Impact Investing
Six Categories of Action
16
The role of philanthropy
The Edmond de Rothschild Foundation (IL) works to create an inclusive and
collaborative Israeli society, by promoting excellence, diversity, and leadership
through higher education. We continue a legacy of philanthropic innovation,
investing in change agents and promoting a pioneering spirit.
The Foundation, which operates within the framework of the international network
of the Edmond de Rothschild Foundations worldwide, initiates dozens of innovative
and impactful projects throughout Israel aimed at reducing social gaps and fostering
young leadership. Through impact entrepreneurship, we aim of encourage the flow
of new capital to meet local and global social and environmental needs.
To build the impact ecosystem in Israel, we believe that all sectors have a role to play
and that philanthropy, for one, should promote ecosystem-centric models and
practices, both as impact philanthropy and impact investment.
We take this dual role very seriously and have built an impact innovation arm within
the Foundation (in 2018), while simultaneously committing 3-5% of its endowment
to impact investing. Our first investment allowed for the formation of Israel’s first
Social Impact Bond, aimed at reducing dropout rates from higher education.
Our strategy is aimed at developing the local Israeli ecosystem wholly, while taking
into account hyper-local ecosystems (within specific areas and communities in
Israel), as well as examining the role that Israel should play in the global ecosystem.
We assume a holistic approach and view impact as a sector – from supply to demand
through intermediation (support).
17
Coming from a long philanthropic legacy of sector pioneering and building, the
strategic measurement and management practices of the Edmond de Rothschild
Foundation (IL) allow us to evaluate key interventions on the micro and macro levels,
engage different stakeholders, and create strong coalitions, all while remaining
faithful to our higher-education mandate.
Educating the next generation of entrepreneurs, venture capitalists, accountants,
lawyers, consultants, and others to be impact-minded and proficient in this nascent
field is crucial. To do so, we have adopted a model-based approach – creating
innovative models that can be piloted, tested, and replicated (e.g., our $1 million
Matching Grant program to build and strengthen the impact ecosystem). Each model
is based on several strong organizations, all aiming to achieve the same goal and
jointly taking the next needed steps towards making Israeli an “impact nation”.
As impact philanthropists, more donors, foundations, and federations can help build
and strengthen the intermediaries needed to support this ecosystem. As investors,
philanthropists can fund early-stage, high-risk startups and new asset classes
through direct investments; and provide first loss capital for impact funds through
indirect investments. Both approaches can benefit from venture philanthropy
alongside MRI (mission-related investments) and PRI (program related investments).
Taking on investments, even below market rates of return, can help bridge existing
gaps between supply and demand for impact capital in Israel today.
We encourage other impact philanthropists, donors, foundations, and federations to
embrace this dual role as well. Together, we can help build and strengthen the
infrastructure needed for this ecosystem to flourish. |