k_1. yigal erlich
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Accelerating Innovation
Presentation by Yigal Erlich
Seoul
April 2012
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Introduction
Yigal Erlich
Former Chief Scientist of the state of Israel
Established the Technological Incubators Industry in Israel
Founder & Manager of Israels anchor VC, Yozma
Seed investor & active board member in technological
startups such as Biosense (acquired by J&J for $430M),
Conduit (current value: $1.3B) and Radiancy (traded in
Nasdaq with market cap of $200M)
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15 Years of Israeli Venture Capital Activityat a Glance
More than 5,000 startups established
NASDAQ: 100 Israeli high-tech companies are listed
Main contributor to the economy, GDP, export and employment growth
Human capital emerged as Israels main resource
M&A: $28 billion, IPO: $6 billion
$14 billion raised by Israeli VC funds
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5Source: IVC Research Center
VC Investments by Stageas % of Yearly Total 2002-2011
2011 compared to 2008
Seed/Early: 31% vs 41%, decrease of 32%Mid/Late Stage: 69% vs 59%, increase of 17%
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Yozma Venture Capital (1)
Mission: To create a venture capital market in Israel
Policy:
Establish a $100M Government investment company. Create professionally managed Funds.
Entice VC investments in Israeli early stage companies:
(i) create and invest in new VC funds together with
experienced partners
(ii) make direct investments in startup companies
together with professional investors.
Yozma Proprietary
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Yozma Venture Capital (2)
Investment method in Funds:
Investment of $8M in each drop-down fund (minorityposition)
A 5 year option to buy out Yozmas share at predeterminedconditions.
YozmasCEO / VP will be a voting member on each Fundsinvestment committee.
Same terms for all VC Funds
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Yozma Venture Capital (3)
Results:
Establishment of 10 drop down funds together with strategicpartners ( 8 in the first two years).
15 Direct investments
8 out of the 10 drop-down funds have exercised their optionand bought out the Government
9 out of the 15 companies Yozma Venture Capital hasinvested in directly, went public or have been acquired
The Israel Venture Capital industry has been established
Yozma Proprietary
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Yozma Drop-Down Funds
Yozma Proprietary
FUND CAPITALMANAGED($MM)
Original size 10 years later
Eurofund 20 90
Gemini 25 550
Inventech 20 40
JPV 20 675
Medica 20 130
Nitzanim-Concord 20 280
Polaris 20 945
Star 20 900VERTEX 20 250
Walden 25 175
210 4,035
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Government Support
Ministry of Industry - Chief Scientist support of industrial R&D
$400m annually - grants, MAGNET, Incubators, other programs R&D cooperation with countries and large companies
employees grants for up skilling and training programs
Favorable tax regime and grants for investors and companies
tax exemption for foreign investors in VC funds tax benefits and grants for export-oriented industries, R&D centers
Science and education, reverse brain drain
programs supporting excellence Talpiot, research projects and centers
establishing 35 academic Excellence Centers, $400m annual budget
Civilian commercial benefits of defense R&D
exposure to cutting edge multidiscipline large technology projects
special intelligence technology units: 8200, 8100, Air Force
developed military industry RAFAEL, IAI, Elbit Systems
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Building Blocks of Israels
Innovative Technology Sector
Academia,Universities,Engineers,
Postgraduates
Skilled EducatedMan Power,
Immigration,Reverse Brain
Drain
Executives,Veterans from
Global Firms
Innovative &EntrepreneurialCulture, serial
Entrepreneurs
Venture Capital, Exit
Avenues: M&As, IPOs
ModernInfrastructure,
GovernmentSupport
AcademicScience and
ResearchCenters,
Researchers
Defense R&D
Multinationals:R&D Centers,
Strategic
Investors
TechnologicalIncubators
TechnologyClusters,Startups,
Large
Companies
TechnologyInfrastructur
e
HumanCapital
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Professional VC funds
Capable to raise funds Choosing the right
investments Managing the investments Building value for exit
Government vs. VC role
Government Involvement
Market failure conditions Government as a catalyst Predetermined exit conditions No government control Indirect investments (funds) Risk sharing
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Board level
Assist/support management with strategic partners
& customers
Assist/support in recruitment of senior management
Build/Approve Business Plan
Help raise additional capital (Equity/Debt)
Entice EXIT
Step-in at crises.
The Role of VC in early stage companies
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Thank You
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