Arie SADOVSKI Center for Study of Organizations

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Arie SADOVSKICenter for Study of Organizations & Human Resources University of Haifa

Sadovski, U. od Haifa, [email protected]

IFISE ObjectivesValidation of two complementary financial mechanisms for the creation of high-tech start-up companies in Israel:The Yozma and the Technological incubators programmes. Analyzing the success factors and identifying those that may be relevant to Europe Validation of a methodology for the creation of seed and start-up financial sources for new high-tech firms and dissemination to prominent European policy-makers Planning of one or more public programs for the creation of seed and start-up financing sources in Italy and presentation to Italian policy makers



EC Financial Support

University of Pavia- Coordinator

Prof. P. Vita-Finzi, SupervisorVittorio Modena,Project manager

London Business School, partner

Prof. Gordon Murray

Castconsulting S.r.l., partner

Francesco Pellizzari

Associazione Italiana degli investitor i stituzionali nel capitale di rischio

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IFISE Partners

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The Jerusalem Institute for Israel Studies

Prof. Anna Gervasoni

Dan Kaufman

The Free University of Amsterdam

Prof. Peter Nijkamp

LINKS

TechnionIsrael Institute of Technology

Prof. Daniel Shefer

Mr. Yigal EhrlichYigal Ehrlich

University of Haifa

Dr. Arie Sadovski

Objectives

Summary

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IFISE - Homepage

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Contact: Vittorio Modena

Venture Capital

Technology Incubators

Israeli High Tech

Italian High Tech and Industrial Policy

IFISE - Pubblications

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High Tech Policy and Development Economics

Reports

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Telephone and address list of the partners

Administrative issuesAdminstrative Officer Ugo Besso

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Material (meeting presentation, data, drafts etc..

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IFISE LINKS

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European Venture Capital Association

Technological Incubators in Israel

Israel Venture Capital Association

Ministero delle Universit, della Scienza e della Tecnologia

Promotion of Innovation and Encouragement of SMEs participation Fith Framework Programme of the European Commission

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The Yozma and Technological Incubators programs were put in place by the Office of the Chief Scientist Ministry of Industry and Trade


THE YOZMA PROGRAM


Venture capital funds in Israel today (Funds and other capital sources as of December 31, 1998)

Funds Number $ MillionsTechnology venture capital fundsYozma funds 10 256*Private funds 43 1,512Public and other funds 4 98Total571,866Other private equity Funds 31 764All funds882,630Investment companies13 236All capital sources 1012,865 (Source: Reiter & Klein 1999)


Venture capital in Israel up to 1992

?

N=1


Yozma biography

Established as a wholly-owned Venture Capital Company by the governmentTotal capital : $ 100 millionInaugurated in mid 1992, began operation in 1993Privatized in 1997


Yozma objectives

To create VC industry as a source for capital for the emerging hi-tech start-up companies


Yozma methodology

To entice the private sector and foreign investors to set up new VC fundsParticipation of Yozma (Government sponsorship) as a partner in the new VC fundsTo secure an obligation of the new VC funds to invest in start-up companies in Israel


Yozma operational guidelines

Yozma investments in the new VC, up to 40% of the VCs capital and not more than $8 millions per fundThe incentive to the private investors: An option to buy the government (Yozma) shares during the first five years of the funds existence at the government investment price plus Libor+1% and 7% of the future profits


Yozma programme agenda (1/2)Importing knowledge and experience to set up and operate VC funds and creating local management teamsRaising capital for investment in the high-tech start-ups.Creating an international network with foreign VCs and other investors.


Yozma programme agenda (2/2)

Government shares the risks and takes a leading role for a limited period of time

Creating up to 10 small size new funds

To invest directly in start-up companies (Invested in 15 companies)


Yozma 10 baby fundsand the leading foreign investors

EurofundDaimler-Benz, DEG (Germany)GeminiAdvent (USA)InventechVan Leer Group (NL)Jerusalem Ventures Pacific Oxton (US/Far East)MedicaMVP (USA)Nitzanim-ConcordAVX, Kyocera (Japan)PolarisCMS (USA) Star TVM (Germany) & Singapore TechVERTEXVertex international fundsWaldenWalden (US)


Yozma baby funds growth

From $200 millions take off capital to managing $2.9 billions capital, collectivelyYozma baby funds take a prominent position in the list of the 20 major funds that comprise the leading VC funds in Israel


Yozma baby funds maturity ($) millions Capital Planned for 2001Eurofund 72150Gemini 350 -Inventech 100 -Jerusalem Ventures Partners 255350Medica 70 -Nitzanim-Concord 270 -Polaris 700 -Star 600350VERTEX 150 100Walden 120 70Yozma 180150 Total 2.871.17 billions


Acknowledgement

The assistance of Mr. Yigal Erlich [email protected]&Managing PartnerTHE YOZMA GROUPAnd the initiator of the Yozma Program to the 1st part of the presentation is gratefully acknowledged


Government sponsored TECHNOLOGICAL INCUBATORS IN ISRAEL


The official program objectivesTo support the initiation of high-tech industry by supporting novice entrepreneurs at the earliest stages of technological entrepreneurshipTo encourage new export oriented industryTo create new employment opportunities for technologically skilled persons


The program methodology To provide a supportive and protective environment to individual inventors and entrepreneurs, for the development of technological innovations into business ventures.


Establishment of an incubatorHow and Who... Government: Initiates, provides incentives and sets eligibility criteria. Candidate must offer:-Facility suitable for R&D-Capabilities to assist in financial and business management Public organizations:Municipal/regionalauthorities, researchinstitutes/universities, industrial organizationsand investors groups


The program structural lay-out


An incubator is...Independent legal entityNon-profit organizationHas: -A professional experienced manager - Board of directors from industry, business sector, research institutes - Suitable facilities for R&D activityIn each incubator: 10 - 15 projects


Incubator offers the entrepreneur...(1/2)Facilities appropriate for R&D (low rent)Financing of 85% - 100% of R&D expensesAssistance in obtaining the complementary financing (15%) Central administrative services (secretarial, accounting, legal, acquisition)


Incubator offers the the entrepreneur...(2/2)Assistance in management, logistics and business development Assistance in commercializationA use of a structural and professional infrastructureInter-tenant synergism


Project selection criteriaProduct orientedRooted in technological R&DInnovation and uniquenessFor export mainlyFeasible with available resourcesIndividual initiative


Project proposal...


Government financial supportTo incubator : 100% of approved budget - up to $180,000 annually To project : - 85% of approved budget - up to $150,000 annually - 2 years maximum


Special attention to regional developmentIncubators in peripheral regions: 100% government participation in R&D costs to three projects per year but only for the the first year of each project


Registered as an independent companyStaff size: 3 - 5Support duration- up to 2 years85% - by the Government -up to $300,00015% - by private investors - about $50,000100% budget per 2 years - about $350,000Covered expenses include: salaries, materials, equipment, subcontracting, consulting, patent applications, marketing, overheads.Project organization and financing


Preliminary ownership distribution of a project company


Chart1

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10

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Sheet1

YearM$M NIS

19911.83.7

199210.223.4

199318.852.5

199423.269.3

199525.877.5

199625.579.8

199727.891.2

199830.0108.1

Total163.1505.5

Inventor/Entrepreneur (min)50

Development Team (min)10

Incubator (max)20

Investor of Complementary Financing (max)20

Investor of Complementary Financing (max)20

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Government incubators budget: $ 223m in 10 years


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YearM$M NIS

19911.83.7

199210.223.4

199318.852.5

199423.269.3

199525.877.5

199625.579.8

199727.891.2

199230.0108.1

199930.0123.0

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19911.83.7

199210.223.4

199318.852.5

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199525.877.5

199625.579.8

199727.891.2

199230.0108.1

199930.0123.0

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19911.83.7

199210.223.4

199318.852.5

199423.269.3

199525.877.5

199625.579.8

199727.891.2

199230.0108.1

199930.0123.0

200030

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MBD000AA7F8.xls

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19911.83.7

199210.223.4

199318.852.5

199423.269.3

199525.877.5

199625.579.8

199727.891.2

199230.0108.1

199930.0123.0

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19911.83.7

199210.223.4

199318.852.5

199423.269.3

199525.877.5

199625.579.8

199727.891.2

199230.0108.1

199930.0123.0

200030

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YearM$M NIS

19911.83.7

199210.223.4

199318.852.5

199423.269.3

199525.877.5

199625.579.8

199727.891.2

199230.0108.1

199930.0123.0

200030

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Current status as of mid 200024 Technological incubators200 Projects operating currently9 Projects in average in each of the incubators619 Projects have been already out of the incubators


Current status of projects as of mid 200024 Technological incubators200 Projects operating currently9 Projects in average in each of the incubators619 Projects have been already out of the incubators


Incubators projects fields of activity


EMBED MSGraph.Chart.8 \s

_1046756516.xls

_1046893490.xls

Summary of projects graduation and evolution pattern as of mid 2000


Collaboration with private investorsPrivate investors are already partners in 16 out of the 24 IncubatorsThe private investments are made to the Incubators budget in return for the Incubators shares in the projects The Incubators are considered an interesting investment targets


Segmentation of private 2000 investments as of mid

Total private investments $ 406 mContinuing graduate projects 376During the incubation period 15Complimentary financing 15


Significant financial support to the projectsSupport is limited to technological R&D with practical commercial potentialLimited Incubation termComplementing the activity of VC funds

The characteristic features of the program (1/2)


The characteristic features of the program (2/2)

Depends to a large extent on involvement of representatives of the public from the public and the private sectors: From the industry, financial and scientific communities Intends to nurture the innovation potential of individuals in the population at largeBottom - up approach to the technology field of the projects- no specializationPresence in all areas of the country


Success stories(1/2)$Company Investment SalesFund raised Visionix 20M7.5M12M (Frankfurt Stock E.)Compugen 26.7 10.5 -3T Ltd. 5.7 3.0 -Nanomotion16 4.0 -MedicalithMerged with ESC Ltd.Raised 100M (NASDAQ)

Phono-Or Ltd 5.3Sales agreement of 100M


Success stories(2/2)

CompanyproductVisionix LtdOptical surface characterization systemCompugen Ltd.Biological data computation3T Ltd. True temp. pyrometereNanomotion LtdDirect dive ceramic linear motors

Medicalith Ltd.Dermatological illumintors

Phono-.Or LtdOptical microphones


A mature program but open to renewing amendments... Additional incentives to private investors for participating in incubatorsIncreased budget per projectNew elements of competition: For entering an incubator and for project acceptanceMore emphasis on support to regional incubators


Web site

http://incubators.org.il


AcknowledgementConsortium IFISE and Arie SADOVSKI wish to acknowledge the support that was provided to the a/m project and to the preparation of the 2nd part of the presentation in advice and materialsby Rina PRIDOR Program DirectorOCS -Technological Incubators Ministry of Industry and Trade


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Arie SADOVSKI Center for Study of Organizations

Economy & Finance