1 From the Incubator to NASDAQ The Experience in Israel Shmulik Aran – Vice President shmulika@oferhitech.com.
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From the Incubator to NASDAQFrom the Incubator to NASDAQ
The Experience in IsraelThe Experience in Israel
Shmulik Aran – Vice Presidentshmulika@oferhitech.com
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Ofer Hi-TechOfer Hi-Tech
Leading Israeli corporate investment fund established by the Ofer Brothers Group in 1996 Healthcare focus with strong presence in IT & communication
Assets under management of a mid size VC High quality portfolio with strong growth potential
Strong core management team Strong operational, finance, healthcare, IT & communication team Extensive experience in all investment stages with hands-on
participation in seed companies
Operation, business, science & investment network
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Ofer Hi-Tech Diversified Portfolio StructureOfer Hi-Tech Diversified Portfolio Structure
Pre-Seed Naiot - “The Best Incubator Award” for 6 years 1999-2004 with 43
projects
Early-Stage Fund of funds activities (Yozma, Carmel, BRM, Start, Formula) Direct investment portfolio with focus in Health-Care Active network to dozens Israeli, US & European VCs
Public Companies ECI, Tecnomatix, etc.
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Israel at a GlanceIsrael at a Glance
Population – ~7 Million Area – 21,000 sq km
Gross Domestic Product) GDP – $112 Billion GDP/Capita - $17,000 Total exports – $27.7 Billion Net foreign debt (2003) - $0.55 Billion Inflation rate (2000 – 2003 average) – 1.75%
World record rate in R&D expenditure - 3.5% of GDP Highest number of engineers per 10,000 people - 136 Natural Resources – Virtually none
Penetration: Mobile – 105%, PC – 43%, Internet – 42%
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o Entrepreneurship spiritEntrepreneurship spirit
o Military related technologiesMilitary related technologies
o Success in R&DSuccess in R&D
o Failure in marketing & managementFailure in marketing & management
o No Venture Capital fundsNo Venture Capital funds
o Few IPOs, No M&AsFew IPOs, No M&As
o Lack of international involvementLack of international involvement
o ~60 Venture Funds~60 Venture Funds
o American & ROW VCsAmerican & ROW VCs
o $10B raised by VCs$10B raised by VCs
o $21B M&A deals$21B M&A deals
o #3 in NASDAQ#3 in NASDAQ
o Cisco, IBM, Intel, Microsoft… Cisco, IBM, Intel, Microsoft…
1992
2005
The Israeli Hi-Tech Industry TransformationThe Israeli Hi-Tech Industry Transformation
GovernmentInfrastructure
Professional VCs
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o Entrepreneurship spiritEntrepreneurship spirit
o Military related technologiesMilitary related technologies
o Success in R&DSuccess in R&D
o Failure in marketing & managementFailure in marketing & management
o No Venture Capital fundsNo Venture Capital funds
o Few IPOs, No M&AsFew IPOs, No M&As
o Lack of international involvementLack of international involvement
o ~60 Venture Funds~60 Venture Funds
o American & ROW VCsAmerican & ROW VCs
o $10B raised by VCs$10B raised by VCs
o $21B M&A deals$21B M&A deals
o #3 in NASDAQ#3 in NASDAQ
o Cisco, IBM, Intel, Microsoft… Cisco, IBM, Intel, Microsoft…
1992
2005
The Israeli Hi-Tech Industry TransformationThe Israeli Hi-Tech Industry Transformation
GovernmentInfrastructure
Professional VCs
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Government Engine for the High-Tech IndustryGovernment Engine for the High-Tech Industry
TechnologyTechnologyIncubatorsIncubators
YozmaYozmaVenture CapitalVenture CapitalTnufaTnufa
Bi-NationalBi-NationalFundsFunds
MagnetMagnet
Seed FundSeed Fund
OfficeOffice
of the Chiefof the Chief
ScientistScientist
$400M/year$400M/year
Direct R&DDirect R&DGrants (OCS)Grants (OCS)
Infrastructure for support from inception and onInfrastructure for support from inception and on
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Government Engine for the High-Tech IndustryGovernment Engine for the High-Tech Industry
TechnologyTechnologyIncubatorsIncubators
YozmaYozmaVenture CapitalVenture CapitalTnufaTnufa
Bi-NationalBi-NationalFundsFunds
MagnetMagnet
Seed FundSeed Fund
Direct R&DDirect R&DGrants (OCS)Grants (OCS)
Infrastructure for support from inception and onInfrastructure for support from inception and on
OfficeOffice
of the Chiefof the Chief
ScientistScientist
$400M/year$400M/year
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Government Engine for the High-Tech IndustryGovernment Engine for the High-Tech Industry
TechnologyTechnologyIncubatorsIncubators
YozmaYozmaVenture CapitalVenture CapitalTnufaTnufa
Bi-NationalBi-NationalFundsFunds
MagnetMagnet
Seed FundSeed Fund
Direct R&DDirect R&DGrants (OCS)Grants (OCS)
Infrastructure for support from inception and onInfrastructure for support from inception and on
OfficeOffice
of the Chiefof the Chief
ScientistScientist
$400M/year$400M/year
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Technology Incubators – Technology Incubators –
Background / Main GoalsBackground / Main Goals
Initiated in 1991Initiated in 1991 Located all over Israel, including PeripheryLocated all over Israel, including Periphery Situated near Academic InstitutesSituated near Academic Institutes Built an infrastructure to exploit entrepreneurial Built an infrastructure to exploit entrepreneurial
resourcesresources Several hundred $K grant plus 15% minimum match Several hundred $K grant plus 15% minimum match
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Current StatusCurrent Status
23 Technology incubators23 Technology incubators
(Best ones are privately owned)(Best ones are privately owned)
5-6 Projects in each incubator per year5-6 Projects in each incubator per year
~1,000 Graduate Projects~1,000 Graduate Projects
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Ofer’s Leading Technological Incubator: Ofer’s Leading Technological Incubator:
“Naiot”“Naiot” Operated since 1997
Winner of “The Best Incubator Award” for 6 years 1999-2004
Co-founded 43 companies, 70% life sciences
50% of graduates are active independents
Over $160M raised, VC & Strategic investments
Building a company from scratch to early-stage
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Government Engine for the High-Tech IndustryGovernment Engine for the High-Tech Industry
TechnologyTechnologyIncubatorsIncubators
YozmaYozmaVenture CapitalVenture CapitalTnufaTnufa
Bi-NationalBi-NationalFundsFunds
MagnetMagnet
Seed FundSeed Fund
Direct R&DDirect R&DGrants (OCS)Grants (OCS)
Infrastructure for support from inception and onInfrastructure for support from inception and on
OfficeOffice
of the Chiefof the Chief
ScientistScientist
$400M/year$400M/year
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Yozma Funds - The Government as a CatalystYozma Funds - The Government as a Catalyst
Return>$100M
MarketMarketFailureFailure
GovernmentGovernment InterventionIntervention
EstablishmentEstablishmentof of YozmaYozma
ProblemProblem SolvedSolvedGovernmentGovernment
ExitsExitsYozma Yozma
PrivatizedPrivatized
$100M Investment
1993
1997
© Yozma Proprietary
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Yozma Venture Capital at a GlanceYozma Venture Capital at a Glance
© Yozma Proprietary
Yozma Fund
Eurofund
Gemini
Inventech
JPV (JVP)
Medica
Nitzanim (Concord)
Polaris (Pitango)
Star
Vertex
Walden
Direct Investments
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Yozma Drop-Down FundsYozma Drop-Down Funds
© Yozma Proprietary
FUND CAPITAL MANAGED ($M)
Original size - 1993 2004
•EurofundEurofund 2020 90 90
•GeminiGemini 2525 550 550
•InventechInventech 2020 40 40
•JPV-JVPJPV-JVP 2020 675 675
•MedicaMedica 2020 130 130
•Nitzanim-ConcordNitzanim-Concord 2020 280 280
•Polaris-PitangoPolaris-Pitango 2020 945 945
•StarStar 2020 900 900
•VertexVertex 2020 250 250
•WaldenWalden 2525 175 175210210 4,035 4,035
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-0.50
0.51
1.52
2.53
3.54
$B
Venture Capital Raised for Israeli Hi-TechVenture Capital Raised for Israeli Hi-Tech
1st Wave:
Establishment
of Yozma
2nd Wave: Yozma Funds Raise Continuation
Funds
3rd Wave
($87B in the US)
Recovery
Total raised: ~$9B Total raised: ~$9B Available: $1B (50% for new investments)Available: $1B (50% for new investments)
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Total Amount Raised by Israeli Total Amount Raised by Israeli
High-Tech Companies ($M)High-Tech Companies ($M)
240190
340
260
436
576 1,270
1,822
812
1,173
480
650
421
589
665
800
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1997 1998 1999 2000 2001 2002 2003 2004
Israeli VC Funds Other Entities
Source: IVC Research CenterSource: IVC Research Center
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Year M&A Volume Capital Raised in Public Offerings
1996 593 638
1997 838 308
1998 1,847 220
1999 2,967 1,382
2000 10,586 2,065
2001 1,357 201
2002 1,254 0
2003 1,095 0
2004 706 413
Total 21,243 5,227
Exits of Israeli Venture Backed Companies ($M)Exits of Israeli Venture Backed Companies ($M)
* US & EuropeSource: IVC Research Center
Israel #3 on the NASDAQ (after US & Canada)
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5,22721,243Total
M&A Volume Capital raised in public offerings
Exits of Israeli Venture Backed Companies ($M)Exits of Israeli Venture Backed Companies ($M)
0
2000
4000
6000
8000
10000
12000
1996 1997 1998 1999 2000 2001 2002 2003 2004 Year
$M
M&A Volume
Capital Raised in PublicOfferings
Israel #3 on the NASDAQ (after US & Canada)
* US & EuropeSource: IVC Research Center
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International companies in Israel – 1970/80:International companies in Israel – 1970/80:Cheap labor, academic institutesCheap labor, academic institutes
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International companies in Israel – 1990 and on:International companies in Israel – 1990 and on:
Business opportunities, skilled work-force, M&AsBusiness opportunities, skilled work-force, M&As
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Government Engine for the High-Tech IndustryGovernment Engine for the High-Tech Industry
TechnologyTechnologyIncubatorsIncubators
YozmaYozmaVenture CapitalVenture CapitalTnufaTnufa
Bi-NationalBi-NationalFundsFunds
MagnetMagnet
Seed FundSeed Fund
Direct R&DDirect R&DGrants (OCS)Grants (OCS)
Infrastructure for support from inception and onInfrastructure for support from inception and on
OfficeOffice
of the Chiefof the Chief
ScientistScientist
$400M/year$400M/year
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Bi-National FundsBi-National FundsBi-National FundsBi-National Funds
BIRDF - with U.S.A.BIRDF - with U.S.A.
SII-RD - with SingaporeSII-RD - with Singapore
CIIRDF - with CanadaCIIRDF - with Canada
BRITECH - with the UKBRITECH - with the UK
KORIL-RDF - with S. KoreaKORIL-RDF - with S. Korea
International CooperationInternational Cooperation
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o Entrepreneurship spiritEntrepreneurship spirit
o Military related technologiesMilitary related technologies
o Success in R&DSuccess in R&D
o Failure in MarketingFailure in Marketing
o No Venture Capital FundsNo Venture Capital Funds
o Few IPOs, No M&AsFew IPOs, No M&As
o Lack of international involvementLack of international involvement
o ~60 Venture Funds~60 Venture Funds
o American & ROW VCsAmerican & ROW VCs
o $10B raised by VCs$10B raised by VCs
o $21B M&A deals$21B M&A deals
o #3 in NASDAQ#3 in NASDAQ
o Cisco, IBM, Intel, Microsoft… Cisco, IBM, Intel, Microsoft…
1992
2005
The Israeli Hi-Tech Industry TransformationThe Israeli Hi-Tech Industry Transformation
GovernmentInfrastructure
Professional VCs
29
o Entrepreneurship spiritEntrepreneurship spirit
o Military related technologiesMilitary related technologies
o Success in R&DSuccess in R&D
o Failure in MarketingFailure in Marketing
o No Venture Capital FundsNo Venture Capital Funds
o Few IPOs, No M&AsFew IPOs, No M&As
o Lack of international involvementLack of international involvement
o ~60 Venture Funds~60 Venture Funds
o American & ROW VCsAmerican & ROW VCs
o $10B raised by VCs$10B raised by VCs
o $21B M&A deals$21B M&A deals
o #3 in NASDAQ#3 in NASDAQ
o Cisco, IBM, Intel, Microsoft… Cisco, IBM, Intel, Microsoft…
1992
2005
The Israeli Hi-Tech Industry TransformationThe Israeli Hi-Tech Industry Transformation
GovernmentInfrastructure
Professional VCs
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The Life Story of a Venture Capital FundThe Life Story of a Venture Capital Fund
Find Analyze, Negotiate Invest Assist Build Evaluate Exit
IPOIPO
M&AM&A
CloseClose
RaiseRaiseCapitalCapital
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Proper VC Involvement can make the differenceProper VC Involvement can make the difference
• $25M raised
• $4M in the bank
• $600K monthly b/r
• Sales: $250K/y
• 55 employees
• Boston & Israel
• Missed forecast
•VC’s Active Chairman
• Cut 70% employees
• Cut 70% burn rate
• Reform US office
• Build new team
• Refocus marketing
• Move focus to sales
• 6 customers (5 new)
• Sales: over $1M
• $3M, $8M forecast
• $5M fund raising
• VC back to passive
RestructuringRestructuring18 months ago…18 months ago… TodayToday
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Professional VC funds
Capable to raise funds
Choosing the right investments
Managing the investments
Building value for exit
Ingredients for Success –Ingredients for Success –
Take home message from the Israeli ExperienceTake home message from the Israeli Experience
Entrepreneurial spiritEntrepreneurial spirit
Technological expertiseTechnological expertise
Proper Government Involvement
Market failure conditions
Government as a catalyst
Risk sharing
Predetermined exit conditions
No government control
Indirect investments (funds)
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