Post on 12-Jan-2015
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The Yozma Program -
Success Factors & Policy
Presented by:
Yigal Erlich
the Yozma Group
Tel Aviv, Israel
THE ISRAELI OPPORTUNITY
Wealth of Human Capital
The Right Ingredients
USA 82
Israel 140
Japan 80
Germany 60
Mass Immigration
• 1 Million people
Entrepreneurial Spirit
• 2-3 New Startups every day
• Highest Concentration of High-Tech Startups after Silicon Valley
• 3rd in the world in IP (following US & Japan)
• Quantity: 20% of Israeli Population# of Engineers/Scientists per
10,000 people
(mostly within 3 years)
• Quality: 40% with Academic Degree
Why Foreign Investors Choose to Invest in Israel
•Entrepreneurial Spirit•Human Resources •Reputable Academic Institutes•Government Commitment to R&D•Strong Infrastructure for Entrepreneurs (CS, VCs, Incubators...) •International Activity (R&D centers, VCs, Corporations, Investment Banks)•Deal Flow Sources (Immigrants, Defense, Repatriate Israelis, Spin-offs, etc.)
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Deal FlowDeal FlowSources
NewImmigrants
RepatriateIsraelis
Defense
Universities
Spin-offs
Corporations
R&D centers
Deal Flow Sources
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Israeli Venture Capital Before 1993
•Lack of investment capital for start-ups ($20 Million)
•Lack of professional venture capital management
•Successes in R&D vs. failures in marketing
•Number of start-ups tripled from 1988 to 1992
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Government Support for the High-Tech Industry- Pros and Cons
• Chief Scientist Only R&D
• Tech. Incubators Only Seed
• Gov’t Guarantees No Risk Lowering
• Venture Capital Equity-Based
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Venture Capital –an Engine for Growth for High-Tech Companies
• Equity-based finance VC• Need to go international quickly VC• Short product life Higher R&D spending VC• Larger investment per Company Deep pockets VC• Need for management and marketing assistance VC
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Government’s Entry Into Business – Preconditions
• Government as a Catalyst• Lowered Risk• Market Failure Conditions• Predetermined Exit Conditions• Timed Entry and Exit• No Government Control• Indirect Investments (Funds)
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Yozma Venture Capital (1)
Mission: Mission: To create the venture capital market in Israel
Method: Method: To entice the private sector and foreign investors to set up new VC funds
To participate as a partner in the new VC funds To secure an obligation of the new VC funds to invest in start-up companies in Israel
Accomplished through: Accomplished through: Establishment of a $100M investment company
Use of proceeds: Use of proceeds: Establishment of 10 drop down funds together with strategic partners.
15 Direct investments
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Yozma Venture Capital (2)
Basic principles:Basic principles:
• Investment of $8M in each drop-down fund
(minority position)
• A 5 year option to Yozma’s partners to buy out the Government’s share at predetermined conditions
Results:Results:
• 8 out of the 15 companies Yozma Venture Capital has
invested in directly, went public or have been acquired • 9 out of the 10 drop-down funds have exercised their option and bought out the Government
• The Israel Venture Capital industry has been established
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Yozma Drop-Down Funds (1)
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FUND PARTNERS
•Eurofund Daimler-Benz, DEG (Germany)
•Gemini Advent (USA)
•Inventech Van Leer Group (NL)
•JPV Oxton (US/Far East)
•Medica MVP (USA)
•Nitzanim-Concord AVX, Kyocera (Japan)
•Polaris CMS (USA)
•Star TVM (Germany) & Singapore Tech
•VERTEX Vertex International Funds (Singapore)
•Walden Walden (US)
Yozma Drop-Down Funds (2)
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FUND CAPITAL MANAGED ($MM)
Original size Today
•Eurofund 20 90
•Gemini 25 350
•Inventech 20 40
•JPV 20 580
•Medica 20 70
•Nitzanim-Concord 20 280
•Polaris 20 645
•Star 20 400
•VERTEX 20 250
•Walden 25 175
210 2,880
The Government as a Catalyst
Return>$100M
MarketFailure
Government Intervention
Establishmentof YozmaYozma
Problem Solved
Government Exits
Yozma Privatized
$100M Investment
1993
1997
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Countries Following the Yozma Example
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Denmark
Korea
New ZealandAustralia
South Africa
Taiwan
Czechoslovakia
Venture Capital Raised
1st Wave:
Establishment
of Yozma
2nd Wave: Yozma Funds
Raise Continuation
Funds
3rd Wave
0
500
1000
1500
2000
2500
3000
3500
4000
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
$M
Source: IVC Research CenterSource: IVC Research Center
Total Amount Raised by Israeli
High-Tech Companies ($M)
240190
340
260436
576 1,270
1,822
812
1,173
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1997 1998 1999 2000 2001
Israeli VC Fund Other Entities
430 600
1,012
3,092
1,985
Source: IVC Research CenterSource: IVC Research Center
40%
16%
6%
8%
30%
42%
20%
13%
16%
9%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Communications
Software
Other Technology
Life Sciences
Internet
2000 2001
Source: IVC Research CenterSource: IVC Research Center
Capital Raised by Technological Sector –
2001 and 2000
Israel's high Tech Cluster of the 90s
00 90 80
Number of SUs: ~3000 ~300 ~150
Number of VC Companies: ~100 2 0
Accumulated No of IPOs (hi tech): ~130 9 1
Accumulated VC-backed IPOs: ~70 3 1
% Foreign Sources in SU funding 67% NA NA
% IT Exports in Manufacturing Exports 45.7% ~33% ~20%
0
500
1000
1500
2000
2500
3000
3500
1994 1995 1996 1997 1998 1999 2000 2001
Venture Backed
All
In total: during the past 8 years more than 100 Israeli companies raised ~$9B ; ~50% of them were venture -backed
$M
Source: IVC Research CenterSource: IVC Research Center
Capital Raised in US Public Offerings of
Israeli Companies (94’-01’)
M&As of Israeli Technology Companies
and Foreign Strategic Partners:
1996 $0.6B
1998 $1.8B
2000 $10.5B
1997 $0.8B
1999 $2.9B
2001 $0.6B
Source: IVC Research CenterSource: IVC Research Center
• Total Amount Invested ($m) : 812
• No. of Deals : 656
• No. of Companies : 438
• Average Amount Invested ($m) : 1.2
Source: IVC Research CenterSource: IVC Research Center
Israeli VC Activity in 2001
Israel VC Industry - Trends & Challenges
• Co-opetition
• Volatile Capital Markets
• Decrease in International Investments
• Maintaining Existing Portfolios
• Difficulties in Raising Capital
• Focus on Future Technologies
• Government Involvement
Thank You
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1993-5
Average Leading VC Size ($M) 20
No. of Venture Firms 15
1996-8
80
40
1999-01
100-200
60
VC firms development over the years
Share of Capital Invested by Israeli VCs
(Financing rounds in which at Least One Israeli VC Participated)
55% 56% 59% 66%54%
64%50% 42%
40%54%
58%50%
36%46%
34%41%
44%45% 42%45%
60%
46%58%55%
Q1/99 Q2/99 Q3/99 Q4/99 Q1/00 Q2/00 Q3/00 Q4/00 Q1/01 Q2/01 Q3/01 Q4/01
Israeli VCs
Other Entities
Source: IVC Research CenterSource: IVC Research Center
First and Follow-on Investments by Quarter
54% 58%64%
56% 56% 58% 54%
68% 66%
52%
28% 27%
46% 42%36%
44% 44% 42% 46%
32% 34%
48%
72% 73%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Q1/99 Q2/99 Q3/99 Q4/99 Q1/00 Q2/00 Q3/00 Q4/00 Q1/01 Q2/01 Q3/01 Q4/01
First Follow-On
Source: IVC Research CenterSource: IVC Research Center
Venture Capitalists – the Truth Revealed (part 1)
SEEDSEED Hard & Fascinating
First & Second RoundsFirst & Second Rounds Proof of Concept/Prototype/Beta(Good Chance)
Third RoundThird Round Product/Initial Sales(Attractive)
Pre-IPOPre-IPO Profitability, Expansion(Love it)
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Venture Capitalists – the Truth Revealed (part 2)
• Hate Risk
• Management more than Technology
• High return on investment (IRR>50%, X10 in 5 years)
• Innovation, not revolution
• Don’t want to control or micro-manage the company
• No time, but always open for new ideas
• As much details as possible
• Usually long and tired investment process
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Korea Venture Fund
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Korean Government