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


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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 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)


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


Deal Flow Sources

Repatriate

Israelis

Defense

Corporations

Deal Flow

Sources

Spin-offs

R&D centers

Universities

New

Immigrants

© Yozma Proprietary


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 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

  • 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 as a Catalyst

  • Lowered Risk

  • Market Failure Conditions

  • Predetermined Exit Conditions

  • Timed Entry and Exit

  • No Government Control

  • Indirect Investments (Funds)

© Yozma Proprietary


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


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


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


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 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


CountriesFollowing the Yozma Example

Czechoslovakia

Taiwan

Denmark

Australia

New Zealand

Korea

South Africa

© Yozma Proprietary


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)

3,092

1,985

1,012

600

430

Source: IVC Research Center


Capital Raised by Technological Sector –

2001 and 2000

Source: IVC Research Center


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’)

$M

Source: IVC Research Center


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


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


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

© Yozma Proprietary


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


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

Source: IVC Research Center


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


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

KoreanGovernment

© Yozma Proprietary


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