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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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slide1
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)

slide3

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

slide4

Deal Flow Sources

Repatriate

Israelis

Defense

Corporations

Deal Flow

Sources

Spin-offs

R&D centers

Universities

New

Immigrants

© Yozma Proprietary

slide5

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

slide9

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

slide10

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

slide11

Yozma Drop-Down Funds (1)

  • FUND PARTNERS
  • EurofundDaimler-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 Proprietary

slide12

Yozma Drop-Down Funds (2)

  • FUND CAPITAL MANAGED ($MM)
  • Original size Today
  • Eurofund20 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

© Yozma Proprietary

slide13

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

slide15

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

slide17

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

slide20

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

slide21

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

slide22

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
slide23

Thank You

© Yozma Proprietary

slide24

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

slide25
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

slide27

Venture Capitalists – the Truth Revealed (part 1)

SEED Hard & Fascinating

First & Second Rounds Proof of Concept/Prototype/Beta

(Good Chance)

Third RoundProduct/Initial Sales

(Attractive)

Pre-IPO Profitability, Expansion

(Love it)

© Yozma Proprietary

slide28

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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