1 From the Incubator to NASDAQ The Experience in Israel Shmulik Aran – Vice President [email protected].

1

From the Incubator to NASDAQFrom the Incubator to NASDAQ

The Experience in IsraelThe Experience in Israel

Shmulik Aran – Vice [email protected]

2

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

3

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.

4

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%

5

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

6




o Failure in marketing & managementFailure in marketing & management

o No Venture Capital fundsNo Venture Capital funds









1992

2005



Professional VCs

7

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

9





MagnetMagnet

Seed FundSeed Fund



OfficeOffice


ScientistScientist


10





MagnetMagnet

Seed FundSeed Fund



OfficeOffice


ScientistScientist


11

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

12

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

13

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

14





MagnetMagnet

Seed FundSeed Fund



OfficeOffice


ScientistScientist


15

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

16

Yozma Venture Capital at a GlanceYozma Venture Capital at a Glance


Yozma Fund

Eurofund

Gemini

Inventech

JPV (JVP)

Medica

Nitzanim (Concord)

Polaris (Pitango)

Star

Vertex

Walden

Direct Investments

17

Yozma Drop-Down FundsYozma Drop-Down Funds


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

18

-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)

19

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

20

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)

21

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

22

International companies in Israel – 1970/80:International companies in Israel – 1970/80:Cheap labor, academic institutesCheap labor, academic institutes

23

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

26





MagnetMagnet

Seed FundSeed Fund



OfficeOffice


ScientistScientist


27

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

28




o Failure in MarketingFailure in Marketing

o No Venture Capital FundsNo Venture Capital Funds









1992

2005



Professional VCs

29




o Failure in MarketingFailure in Marketing

o No Venture Capital FundsNo Venture Capital Funds









1992

2005



Professional VCs

30

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

31

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

32

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)

33

From the Incubator to NASDAQFrom the Incubator to NASDAQ

The Experience in IsraelThe Experience in Israel

Shmulik Aran – Vice [email protected]

Thank YouThank You!!

1 From the Incubator to NASDAQ The Experience in Israel Shmulik Aran – Vice President [email protected].

Documents

rd o failure

venture capital funds

marketing management

nasdaq o cisco

b ma deals o

myear slide

government engine

rd expenditure