Yozma built a venture market by selling the upside back

In 1993, Israel had technology talent but too little professional venture capital. A normal grant program would have picked companies; Yozma instead tried to manufacture fund managers and foreign-investor networks.

The mechanism was asymmetric in a deliberate way. Wharton's interview with Chemi Peres describes a $100 million government program whose mission was to create $20 million venture funds, with the state putting in $8 million, or 40%, and investors able to buy the government out if the fund succeeded.

Globes reported in 1996 that Yozma offered new funds up to 40% equity via Yozma investment plus options for majority shareholders to acquire Yozma-held shares within five years at original price plus minimal interest. Ten venture funds formed within a short time.

Share risk, sell back upside

The buyout option rewarded private investors for creating a self-sustaining fund, not for staying dependent on subsidy.

Requiring private and foreign partners imported deal discipline and networks along with capital.

The government had a planned exit, so success meant privatization rather than permanent state control.

A state can catalyze a market by subsidizing discovery, then making private ownership the prize for success.

By 1996 the government was already offering to sell its shares in Yozma. Globes called the original fund-of-funds role an example of government intervention at the right time and place, while noting that direct investment by Yozma itself was more controversial.