What can we expect from the India-Israel $40M tech fund?

Prime Minister Narendra Modi’s visit to Israel last week (the first State visit in 25 years) and the subsequent announcement of a $40 million Israel India Innovation Initiative Fund, or I4F, has definitely generated some buzz.

Each country has agreed to invest $4 million every year for a period of 5 years, but many are curious to find out what the fund will actually mean for India and Israel’s tech ecosystems once the money is on the table and the handshakes are over.

Fortunately, for those curious about what the future may hold as a result, Israel has already established several other such tech funds in the past, notably The Binational Industrial Research and Development Foundation (BIRD) established by the U.S. and Israel all the way back in 1977. Taking a closer look at at the tech fund, and its predecessor, BIRD, can offer an idea of what India and Israel can expect from the new agreement.

What’s the goal?

The motivations behind the establishment of the I4F fund and increased cooperation between the two nations is straightforward. Israel’s presence on the global tech scene is and has been well established, but would greatly benefit from partnerships and key investments from India’s 1.3 billion headcount.

The fund is being established on the heels of other important developments. For example, the Indian Angel Network recently began operations in Israel, and LetsVenture funding announced they will work with the Israeli equity crowdfunding platform OurCrowd, making it easier than ever for Indians to invest in Israeli technology and encourage large Indian companies to establish development centres there.

India’s tech industry, despite established software talent and presence, is only recently breaking out of the “outsourcing” mold. As the country transitions to the driver’s seat of innovation and competitive homegrown startups, India stands to make a strategic alliance.

Tighter connections to Israel’s established innovation industry will open India up to Israel’s wealth of experience in the research and development fields,  insight that will help steer the Made In India initiatives. By encouraging research and development partnerships, both countries stand to gain from the resulting technologies’ royalties.

How it works

If the I4F fund follows closely the BIRD agreement established by the US, the funding will be available via application. Each application will be comprised of an Israeli and US company, who have demonstrated the ability to design, produce, and sell a new product as a result of the funded research and development.

Each company must take financial responsibility for the potential risks and gains of the joint venture through development and commercialization. Usually, the smaller company in the venture is responsible for product development, whereas the larger company provides support in product definition and specification and commercialization.

The foundation funds up to 50% of each company’s research and development expenses, and each company only repays the funding if they generate revenue as a direct result of the joint venture. If the project fails, BIRD demands no repayments of the funding.

How has it worked out for the US and Israel?

If the India and Israel tech funding results are similar to those of the US and Israel BIRD agreement, India’s tech industry can be expecting good things.

Looking at the results of BIRD, the fund has backed nearly 1,000 projects since it was established, which has generated $10 billion in revenue. The world has benefited from innovations in communications, life sciences, electronics, electro-optics, software, homeland security, and renewable and alternative energy among, other hi-tech sectors.

Notable companies have been involved in partnerships, such as the American Red Cross, AOL, Bayer Pharmaceutical, Eastman Kodak, General Dynamics, General Electric, IBM and Johnson & Johnson. And nearly 40 Israeli companies are now traded on Wall Street after successful partnerships.

For Indian and Israeli companies looking to find an international partner there are Partner Matching services with personalized search assistance, and a database with a list of Israeli companies searching for partners.

Though the results of the I4F are in no way guaranteed to mirror the BIRD results, India appears to have taken big steps in the right direction towards reaching its goal of a nationally-based thriving innovative tech industry, and it will be exciting to see what comes out of the partnerships.