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The Yozma Program - Success Factors & Policy Presented by: Yigal Erlich the Yozma Group Tel Aviv, Israel. THE ISRAELI OPPORTUNITY. # of Engineers/. Scientists per. The Right Ingredients. Wealth of Human Capital. Mass Immigration. • 1 Million people.

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The Yozma Program - Success Factors & Policy Presented by: Yigal Erlich the Yozma Group Tel Aviv, Israel

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The yozma program success factors policy presented by yigal erlich the yozma group tel aviv israel

The Yozma Program -

Success Factors & Policy

Presented by:

Yigal Erlich

the Yozma Group

Tel Aviv, Israel


The israeli opportunity

THE ISRAELI OPPORTUNITY

# of Engineers/

Scientists per

The Right Ingredients

Wealth of Human Capital

Mass Immigration

•1 Million people

Israel 140

(mostly within 3 years)

USA 82

•Quantity: 20% of Israeli Population

Japan 80

Germany 60

•Quality: 40% with Academic Degree

10,000 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)


The yozma program success factors policy presented by yigal erlich the yozma group tel aviv israel

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.)

© Yozma Proprietary


The yozma program success factors policy presented by yigal erlich the yozma group tel aviv israel

Deal Flow Sources

Repatriate

Israelis

Defense

Corporations

Deal Flow

Sources

Spin-offs

R&D centers

Universities

New

Immigrants

© Yozma Proprietary


The yozma program success factors policy presented by yigal erlich the yozma group tel aviv israel

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

© Yozma Proprietary


Government support for the high tech industry pros and cons

Government Support for theHigh-Tech Industry- Pros and Cons

  • Chief Scientist Only R&D

  • Tech. Incubators  Only Seed

  • Gov’t Guarantees  No Risk Lowering

  • Venture Capital  Equity-Based

© Yozma Proprietary


Venture capital an engine for growth for high tech companies

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

© Yozma Proprietary


Government s entry into business preconditions

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)

© Yozma Proprietary


The yozma program success factors policy presented by yigal erlich the yozma group tel aviv israel

Yozma Venture Capital (1)

Mission: To create the venture capital market in Israel

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: Establishment of a $100M

investment company

Use of proceeds: Establishment of 10 drop down funds

together with strategic partners.

15 Direct investments

© Yozma Proprietary


The yozma program success factors policy presented by yigal erlich the yozma group tel aviv israel

Yozma Venture Capital (2)

  • 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:

  • 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

© Yozma Proprietary


The yozma program success factors policy presented by yigal erlich the yozma group tel aviv israel

Yozma Drop-Down Funds (1)

  • FUNDPARTNERS

  • EurofundDaimler-Benz, DEG (Germany)

  • GeminiAdvent (USA)

  • InventechVan Leer Group (NL)

  • JPV Oxton (US/Far East)

  • MedicaMVP (USA)

  • Nitzanim-ConcordAVX, Kyocera (Japan)

  • PolarisCMS (USA)

  • Star TVM (Germany) & Singapore Tech

  • VERTEXVertex International Funds (Singapore)

  • WaldenWalden (US)

© Yozma Proprietary


The yozma program success factors policy presented by yigal erlich the yozma group tel aviv israel

Yozma Drop-Down Funds (2)

  • FUNDCAPITAL MANAGED ($MM)

  • Original sizeToday

  • Eurofund20 90

  • Gemini25 350

  • Inventech20 40

  • JPV20 580

  • Medica20 70

  • Nitzanim-Concord20 280

  • Polaris20 645

  • Star 20 400

  • VERTEX20 250

  • Walden25 175

  • 210 2,880

© Yozma Proprietary


The yozma program success factors policy presented by yigal erlich the yozma group tel aviv israel

The Government as a Catalyst

Government

Intervention

Establishment

of Yozma

Market

Failure

$100M Investment

1993

Government

Exits

Yozma Privatized

1997

Problem

Solved

Return>$100M

© Yozma Proprietary


Countries following the yozma example

CountriesFollowing the Yozma Example

Czechoslovakia

Taiwan

Denmark

Australia

New Zealand

Korea

South Africa

© Yozma Proprietary


The yozma program success factors policy presented by yigal erlich the yozma group tel aviv israel

Venture Capital Raised

3rd Wave

2nd Wave: Yozma Funds Raise Continuation Funds

1st Wave:

Establishment

of Yozma

Source: IVC Research Center


Total amount raised by israeli high tech companies m

Total Amount Raised by Israeli High-Tech Companies ($M)

3,092

1,985

1,012

600

430

Source: IVC Research Center


The yozma program success factors policy presented by yigal erlich the yozma group tel aviv israel

Capital Raised by Technological Sector –

2001 and 2000

Source: IVC Research Center


Israel s high tech cluster of the 90s

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%


Capital raised in us public offerings of israeli companies 94 01

Capital Raised in US Public Offerings of Israeli Companies (94’-01’)

$M

Source: IVC Research Center


The yozma program success factors policy presented by yigal erlich the yozma group tel aviv israel

M&As of Israeli Technology Companies and Foreign Strategic Partners:

1996

$0.6B

1997

$0.8B

1998

$1.8B

1999

$2.9B

2000

$10.5B

2001

$0.6B

Source: IVC Research Center


The yozma program success factors policy presented by yigal erlich the yozma group tel aviv israel

Israeli VC Activity in 2001

  • Total Amount Invested ($m) : 812

  • No. of Deals : 656

  • No. of Companies : 438

  • Average Amount Invested ($m) : 1.2

Source: IVC Research Center


The yozma program success factors policy presented by yigal erlich the yozma group tel aviv israel

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


The yozma program success factors policy presented by yigal erlich the yozma group tel aviv israel

Thank You

© Yozma Proprietary


The yozma program success factors policy presented by yigal erlich the yozma group tel aviv israel

VC firms development over the years

1993-5

1996-8

1999-01

Average Leading VC Size ($M)

20

80

100-200

No. of Venture Firms

15

40

60


The yozma program success factors policy presented by yigal erlich the yozma group tel aviv israel

Share of Capital Invested by Israeli VCs(Financing rounds in which at Least One Israeli VC Participated)

Other Entities

Israeli VCs

Source: IVC Research Center


First and follow on investments by quarter

First and Follow-on Investments by Quarter

Source: IVC Research Center


The yozma program success factors policy presented by yigal erlich the yozma group tel aviv israel

Venture Capitalists – the Truth Revealed (part 1)

SEEDHard & Fascinating

First & Second RoundsProof of Concept/Prototype/Beta

(Good Chance)

Third RoundProduct/Initial Sales

(Attractive)

Pre-IPOProfitability, Expansion

(Love it)

© Yozma Proprietary


The yozma program success factors policy presented by yigal erlich the yozma group tel aviv israel

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

© Yozma Proprietary


Korea venture fund

Korea Venture Fund

KoreanGovernment

© Yozma Proprietary


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