ISRAEL CREATIVE ECO-SYSTEM
Yigal Erlich
YOZMA
September 2014
Introduction
Yigal Erlich
•
Former Chief Scientist of Israel’s Ministry of Industry, Trade and Labor
•
Established the Technological Incubators Industry in Israel
•
Founder & Manager of Israel’s anchor VC, Yozma
•
Seed investor & active board member in technological startups such as
Biosense (acquired by J&J for $430M); Conduit (value: $1.35B) and Radiancy
(traded in Nasdaq with market cap of $340M).
•Chairman
of Hadasit, TTO of Hadassah hospital; HBL – traded on TASE.
•Consultant
to governments and VC on Private Public Partnerships and
investments (Russia, EEC, Canada, Portugal, New Zealand, Greece..).
Ingredients for Success
• Mixture of knowledge, innovation and entrepreneurship
• High quality of human resources
• Entrepreneurial culture
• Commercialization of Research (TTO’s)
• Strong presence of major global technology companies
• Critical mass: capital, investors, VC funds, start-ups
• Modern legal and financial infrastructure
• Government support: incentive plans, tax benefits
some R&D indicators (2011 %)
R&D expenditure from GDP: 4 (~$10b)
3.9
Israel OECD US Korea
R&D performed, of total national
expenditure(by business sector)
84
67
68
76.6
NATIONAL EXPENDITURE ON R&D, BY FINANCING sectors:
Business
36.6 50.7
60
71.8
Funds from abroad
47.3
0
0.2
Government
OECD 2011
10
12.2(4) 34.9
33.4 26.7
Israel VC “DNA” – Drivers of Entrepreneurship and Innovation
Going global from inception
Must-win attitude, Tolerance of failure
Question everything, Knock on any door
Using limited resources cost effectively
Solution-driven approach to real problems
Short history – past is not a constraint
“Chutzpah”
Creative
Personal Example
Team
Capable
Ambitious
Family
Persistent
Improvisation
Integrity
Competitive
Education
Communicative
Friendship
Innovative
Challenging
Action Driven
Vision
Experimental
Courage
Hard Working
Out of the box
Informal
Independent-thinking
Non-Conventional
Forward
Innovation Value Chain
IP value
Private Equity
High Risk/
Uncertain
Return
Low Risk/
High Return
Gov. Support
PPP’s
Basic Research
RTD&I
Growth
Sales and profit
The R&D Fund
• 2012 budget is ~ $300M.
• The R&D Fund is the main instrument of The R&D
Law. It gives grants to “Approved R&D Projects”
• Grants are from 20 to 50 percent of the total
approved R&D expenditures.
• Companies pay royalties (3-5%) when a
granted R&D project is commercially successful
– up to the amount of the grant plus interest
Hi Tech vs. Life Science
Hi Tech Life Science
Capital invested
International Companies
VC Funds
67%
21%
90%
10%
>90%
<10%
10
Venture Capital Management Company
•VC raises money from financial investors (& institutional investors)
Invest it and expect to realize capital gains.
• VC provides equity based capital to fund technology companies.
• VCs invest in one or all stages (seed to mez/lbo) and with or without
tech./market focus
• VCs take an active role in building the company, do not want to control
• Ready to take Risk
• Seek to invest in Management more than in Technology
• Expect high return on investment (IRR>20%)
© Yozma Proprietary
Startup Sources
Repatriate
Israelis
Defense
Corporations
Startup
Spin-offs
Sources
R&D centers
Universities
New
Immigrants
© Yozma Proprietary
Yozma I Venture Capital (1993-98)
Mission:
• To create a venture capital market in Israel
Policy:
• Establish a $100M Government investment company.
• Create professionally managed Funds.
• Entice VC investments in Israeli early stage companies:
(i) create and invest in new VC funds together with
experienced partners (from abroad).
(ii) make direct investments in startup companies
together with professional investors.
© Yozma Proprietary
The Government as a Catalyst
Government
Intervention
Establishment
of Yozma
Market
Failure
1993
1997
Return>$100M
© Yozma Proprietary
Government
Exits
Yozma Privatized
Problem
Solved
Yozma III - IRR
IRR on Investments - 26%
IRR on Conduit – 107%
The Israeli VC Ecosystem
Startups - New, Closed, Net
10-Year Total – New: 7,027, Closed: 2,882, Net: 4,145
2013 – Internet 41% of Established
#
1000
961
780
800
584
600
400
358
549
592
312
361
200
226
237
818
712
633
443
355
269
278
709
689
618
434
371
342
338
347
546
384
343
234
231
0
2004
2004
2005
2005
2006
2006
2007
2007
Established
Source: IVC Research Center
2008
2009
2009
Closed
2010
Net
2011
2012
2013
Israel VC Ecosystem
VC Investments by Sector
2013 – Internet is Growing
100%
4
8
3
6
5
3
4
9
8
10
13
10
8
2
6
6
1
9
8
22
1
13
12
2
8
13
29
9
9
8
1
11
4
13
4
5
16
3
3
3
21
28
22
Cleantech
22
26
13
34
14
7
17
22
22
Internet
25
20
14
21
Life Sciences
16
21
16
15
15
17
21
13
11
Semiconductors
19
25
25
22
19
27
27
25
28
29
22
9
12
15
21
Communications
23
16
16
0%
Q1/10 Q2/10 Q3/10 Q4/10 Q1/11 Q2/11 Q3/11 Q4/11 Q1/12 Q2/12 Q3/12 Q4/12 Q1/13 Q2/13 Q3/13 Q4/13
Source: IVC Research Center
Other
13
27
18
30
11
4
14
16
19
20
30
14
2
3
18
16
11
24
15
21
37
18
3
5
2
2
15
21
8
Software
Software
Israel VC – Value Creation
Select Companies Expected to Reach $1b plus Valuation
Internet
IT/SW
Semiconductors
Communications
Life Science
Cleantech
Investments in Israeli Startups
2013 - 10 Year Record
10-Year Total: $17b
Israeli VC Funds: 35% of total, 2013: 22%
Increased activity by foreign investors
$b
2.3
2.2
78%
82%
2.1
2.1
1.9
2
1.8
1.6
1.5
1.3
1.1
1
55%
51%
60%
61%
1.3
62%
63%
71%
74%
63%
45%
49%
40%
39%
38%
37%
37%
29%
26%
22%
18%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
0
Israeli VC funds
Source: IVC Research Center
Foreign & Other
Select Foreign Investors in Israeli Startups
Increased Activities and Presence
Type
VC
Funds
VC
Funds
VC Funds
P/E Funds
Source of
Capital
Israeldedicated
funds
Allocation from
main fund
Allocation from
main fund
Source: IVC Research Center
Exposure/Mode of Operation
 Domestic team
 Usually co-invest with Israeli
funds
 Israel is part of investment
strategy
 Most have domestic presence
 Usually co- invest with Israeli
funds
 Opportunistic approach
 No domestic presence
 Usually co-invest in Rounds B, C
or later stage with Israeli funds
Select Investors
Sequoia Israel, Greylock Israel, Orbimed Israel, DFJ
– Tel Aviv, Credit Agricole
Index, Bessemer, Accel, Highland, Battery,
Lightspeed, HarbourVest, Canaan, Benchmark,
Norwest, USVP, Crescent, SVB, Kima Ventures,
Paul Capital, Kreos Capital, Blumberg Capital,
Horizon Ventures, Fortrers, Mangrove
Kleiner Perkins, New Leaf, NEA, Matrix, Mayfield,
Opus, MPM, Storm, Charles River, RHO, JK&B,
DAG, Globespan, Soffinova, Andresseen Horowitz,
Union Square, Atlantic, Softbank, Coller Capital,
Silver Lake, Goldman Sachs, JP Morgan, Vector,
Apax, Francisco Partners, Susquehanna, Amadeus
Intel Capital, Motorola Ventures, ABB Ventures,
Select Multinationals Presence in Israel
Actively Seeking Technology Innovation
Source: IVC Research Center
The Israeli VC Ecosystem – Exits
10-Year Total: $51b
M&As: $47b, 93% of Total
VC-Backed: $22b, 43% of Total
$b
#
12
150
10.1
8
9.7
96
62
4
34
94
77
2.7 30
50
2.8
100
86
76
1.9
0.8
88
6.3
71
5.1
81
73
4.2
3.6
30
1.7
0.9
2.7 37
1.5
2.6 31
1.5
2.227
1.3
2.5
37
50
38
2.8
32
0
0
2004
2005
2006
2007
2008
M&As
VC-backed M&As
•2006- includes acquisitions of Mercury by HP $4.5b, and MSystems by
SanDisk $1.6b
•2012 – includes Cisco acquisition of NDS $5b
2009
No. of M&As
2010
2011
2012
No. VC-backed M&As
Source: IVC Research Center
2013
Select Multinationals Success Stories in Israel
7,700 employees, first R&D center outside the US, currently 4 R&D
centers, 2 manufacturing facilities. Developed: Pentuim, Centrino,
Core 2 Duo, acquisitions: $2b, investment $7.3b, growing
800 employees, R&D strategic centers, first R&D center outside US,
acquisitions over $700m in 2007-2011, Azure accelerator: 1 of 3
global innovation centers for startups, growing
400 employees, 2 R&D centers, 1 of 3 global support center for
startups and growing (just bought Wase for $1bil)
500 employees, 2011- first R&D center outside US, first
acquisition: $390m, Anobit, today: 3 R&D Centers and growing
400 employees, 4 R&D centers, support center for startups,
acquisitions – more than $1b, growing (just bought Trusteer for
$800M)
1,000 employees, 2 R&D centers, acquisitions: $835m. 3/2013 MassChallenge, startups ecosystem, first and only program outside
of Boston, growing (bought ExtrimIO for $435M in 2012)
Source: IVC Research Center
Israel VC – Performance 1997-2013
Global recognition as a leading innovative technology center, 2nd only to the Silicon
Valley
•
•
$26 billion invested in the VC sector
•
$15 billion raised by Israeli VC funds
•
More than 6,500 startups established
•
M&A: $50 billion, IPO: $4 billion raised
•
NASDAQ: 100 Israeli high-tech companies are listed
•
Human capital emerged as Israel’s main resource
•
The economy growth engine
VC – the Accelerator of the High-Tech Industry Innovation and Growth
Source: IVC Research Center
THANK YOU
yigal@yozma.com
25
Yozma Drop-Down Funds (1)
FUND
PARTNERS (GPs)
•Eurofund
•Gemini
•Inventech
•JPV
•Medica
•Nitzanim-Concord
•Polaris
•Star
•VERTEX
•Walden
Daimler-Benz, DEG (Germany)
Advent (USA)
Van Leer Group (NL)
Oxton (US/Far East)
MVP (USA)
AVX, Kyocera (Japan)
CMS (USA)
TVM (Germany & Singapore Tech
Vertex International Funds (Singapore)
Walden (US)
© Yozma Proprietary
Largest Public Offerings 2005-2012
Amount $m
Company
Sector
Exchange
Year
460
Playtech *
Internet, SW
LSE
2006
260
Palo Alto*
IT & Enterprise SW
NASDAQ
2012
260
888 Holdings *
ITC, Internet, SW
LSE
2005
160
BigBand
Communications
NASDAQ
2007
135
Saifun
Semiconductors
NASDAQ
2005
117
Mellanox
Semiconductors
NASDAQ
2007
110**
Mellanox
Semiconductors
NASDAQ
2011
101
Frutarom *
Life Sciences
LSE
2005
90
Imperva
Security
NASDAQ
2011
78
Allot
Communications
NASDAQ
2006
78**
Allot
Communications
NASDAQ
2011
72
Veraz
Communications
NASDAQ
2007
72
Ituran *
Communications
NASDAQ
2005
Shamir Optical *
Life Sciences
Source: IVC Research Center
NASDAQ
2005
*Not venture-backed
**Secondary
64
27
Israel High-Tech largest Acquisitions
2004-6/2013, $m
Company Name
Sector
NDS
Communications
Acquired
5000
Cisco Systems
2012
Mercury
IT & Enterprise Software
Acquired
4500
Hewlett-Packard
2006
M-Systems
Semiconductors
Acquired
1558
SanDisk Corp.
2006
Waze
Communications
Acquired
1130
Google Inc.
2013
Agis
Life Sciences
Acquired
818
Perrigo Co.
2004
Retalix
IT & Enterprise Software
Acquired
800
NCR
2012
Lipman
IT & Enterprise Software
Acquired
793
VeriFone Holdings Inc.
2006
Objet
Miscellaneous Technologies
Merged
634
Stratasys Inc.
2012
Shopping.com
Internet
Acquired
634
eBay
2005
MediaMind
Internet
Acquired
517
DG Inc.
2011
Zoran Corp.
Semiconductors
Acquired
484
CSR Plc
2011
PROLOR
Life Sciences
Acquired
480
OPKO Health
2013
Intucell
Communications
Acquired
475
Cisco Systems
2013
Playtech
Internet
IPO
460
AIM
2006
XtremIO
IT & Enterprise Software
Acquired
450
EMC Corp.
2012
Source: IVC Research Center, VC and non VC backed
Exit Type Amount Acquired by/ Stock Exchange
Date
Summary – Israel’s High-Tech Sector
 Within
65 leading years, Israel has evolved from a primarily agricultural economy to become a
global technology center
 The
main growth engine of the economy, the magnet attracting foreign investors and leading
multinational companies
 Increased
number and activities of global companies and investors seeking innovative
technology, result in increased M&As activities
 Strong,
high-quality deal flow from new and experienced entrepreneurs
 Shortage
 The
of capital result in favorable investment terms
few active experienced and mature Israeli VC funds have the best exposure and right
teams to leverage the current Israeli VC opportunity
Human Capital Resources
High quality academic institutions • 8,000 engineers graduating annually • exposure to
large defense R&D projects • skilled labor force, immigration • entrepreneurial culture •
serial entrepreneurs • exposure to managerial culture and methodologies of
multinationals
150
Engineers Per 10,000 Employees
135
100
70
65
53
50
38
35
34
28
25
22
19
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5 nobel prize winners in science in recent years
Israel on WEF Rankings
World Economic Forum Global Competitiveness Index 2011-2012
Quality of scientific research institutions
Venture capital availability
Additional Sources: World Economic Forum Global Competitiveness Index 2011-2012
31
Success Story–
one of Yozma’ s drop down funds
ROI > 3
2 companies returned all the fund’s capital, each
Investment in 27 Startups  3 IPOs, 4 M&As, 5 are still active.
After 5 years, Investors exercised the option and bought Yozma
share (40%) for $10M - 4 years later, the $10M returned $33M