Public Investment: Grants, Matching Funds & the Israeli Model

Public funding plays an essential role in the development of Deep Tech ecosystems, particularly during the early stages of R&D. Over the past decade, Chile, Brazil, Uruguay, Argentina, and Colombia have introduced public programs, from patent drives to millions of dollars in annual matching funds, to foster technology-based entrepreneurship.

Such support mechanisms have proven vital in bridging the financing gap, allowing startups to advance from early R&D to market entry without heavy equity dilution. Public funding programs accounted for 70% of all deep-tech financing in Brazil, as noted by EMERGE in 2024.⁶⁵ Governments increasingly recognize that Deep Tech startups are a vital component of national competitiveness, witness Costa Rica’s semiconductor roadmap to attract FDI (2024)⁶⁶ and Chile’s roadmap to advance its quantum technology sector.⁶⁷

Governments have increasingly recognized that Deep Tech startups are not just about fostering innovation, they are also a vital component of national competitiveness.

However, this heavy reliance on public programs signals an imbalance that could hinder long-term ecosystem maturity. In the US, EU and OECD, businesses supply over 60% of R&D funding (nearly 80% in China) while government shares hover around 20–30%. In LATAM, by contrast, the state underwrites roughly 60% of R&D, far above its peers, whereas private investors contribute only about 35%.⁶⁸

Public financing typically manifests in two forms. First, non-dilutive grants, which preserve equity for founders and early investors while enhancing capital efficiency, especially important because Deep Tech projects often require prolonged research before a viable product emerges. Second, matching-fund programs. Inspired by the Israeli model, governments in Argentina and Uruguay have implemented matching-fund initiatives that co-invest with private venture capital and angel investors, reducing risk for private investors and creating a multiplier effect.

Is the challenge one of increasing the amount of funding, or is it about improving the quality and efficiency of the available resources?

A question raised in the research

The public sector’s core role should be to complement and de-risk private deep-tech investment through targeted programs, matching-fund schemes, special economic zones, shared labs and applied R&D grants, while advancing the regulatory framework via technology-transfer laws, empowered economic-development corporations, STEM education, and streamlined permitting. Although Latin America already hosts promising examples in Chile, Argentina, Brazil and beyond, these instruments remain too fragmented and limited in scale. Weaving them into a coherent, region-wide playbook will be essential.

# The case of biotech in Brazil: broad but shallow public funding

The biotech sector in Brazil stands out as one of the most mature Deep Tech ecosystems in the region, representing almost 60% of biotech startups across Latin America. Public funding programs such as PIPE FAPESP and FINEP have been instrumental.⁶⁹ However, participants pointed out that grants still tend to be "low-ticket funding," insufficient to fully meet the substantial R&D and laboratory setup needs essential for scaling. Rather than increasing the number of funding rounds, Brazilian investors suggested increasing the funding amounts per round.

FAPESP

A leading state-level funding agency, central to supporting both fundamental research and innovation through academia-company collaborations.

PIPE Program

Inspired by the U.S. SBIR model, funds innovative R&D in small companies based in São Paulo.

Cooperative Research for Innovation

Fosters structured partnerships between universities and companies, with programs on AI, advanced mobility and biotech alongside Shell, IBM and GSK.

International Research Centers

In March 2025, FAPESP launched a R$5 million initiative to boost São Paulo’s Deep Tech competitiveness, focusing initially on a biology center for immune and inflammatory responses.

FINEP

Linked to the Ministry of Science, Technology, and Innovation (MCTI), FINEP is Brazil’s main federal-level financier of business R&D and innovation.

Mais Inovação Program

Launched in 2024, a flagship federal program offering non-reimbursable grants and credit for R&D-intensive companies in health, energy, ICTs, and sustainability.

Private R&D Center Attraction Incentives

In partnership with BNDES, FINEP is offering US$500 million to incentivize multinational and national firms to set up R&D hubs in Brazil.

# Matching funds in Argentina, Chile & Uruguay

Matching-fund schemes address the well-known market failure of private underinvestment in innovation by co-investing public capital alongside private resources, typically covering 40–60% of eligible costs on the condition that private partners supply the remainder. This structure aligns incentives, enforces rigorous project validation, and creates a self-sustaining cycle.

Israel’s resurgence from the mid-1980s crisis owes much to three flagship programs. The 1985 R&D Law reimbursed up to 50% of corporate R&D, lifting private R&D spending to 4% of GDP. The 1991 Incubator Program leveraged US$600 million to underwrite 24 private incubators, fueling 1,700 startups. The 1993 Yozma Program injected US$100 million into ten VC funds (40% public, 60% private), sparking a domestic venture industry that now manages over US$10 billion and has generated more than US$80 billion in value creation.⁷⁰

Israel’s playbook is an extension of its security doctrine: mandatory service in elite IDF tech units, especially 8200 and 81, funnels thousands of engineers into the civilian economy; Unit 8200 alumni alone have launched 1,000-plus startups.^71,72 In the Latin American context, a comparable large-scale public–private mobilization would require different rationales aligned with domestic strengths, natural-resource-based innovation, climate adaptation, biodiversity protection, public health, biosecurity, or logistics.

Argentina, FONDCE (2017)

Inspired by Israel, Argentina’s Entrepreneurs Law established FONDCE ("Fund of Funds") to underwrite science-based accelerators and early-stage VCs, and simplified company formation to under 24 hours. Within two years, five FONDCE-backed accelerators had invested in 79% of Argentina’s investor-funded Deep Tech ventures. Alumni include NotCo and Autofact.

Chile, CORFO (since the early 1990s)

Through FONTEC (now under the Innova umbrella), CORFO provides reimbursable grants covering 40–65% of private R&D costs. The FONDEF fund co-finances pre-competitive joint R&D between academia and firms.⁷³

Uruguay, Law 20.075 & the Innovation Hub

Uruguay enacted Law 20.075 (2022, approved 2023) to kick-start Deep Tech ventures, and in May 2024 inaugurated the Uruguay Innovation Hub (UIH) with US$10 million for a 1:1 matching-funds program.^74,75