the yozma program - success factors & policy presented by: yigal erlich the yozma group tel...

The Yozma Program -

Success Factors & Policy

Presented by:

Yigal Erlich

the Yozma Group

Tel Aviv, Israel

THE ISRAELI OPPORTUNITY

Wealth of Human Capital

The Right Ingredients

USA 82

Israel 140

Japan 80

Germany 60

Mass Immigration

• 1 Million 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)

• Quantity: 20% of Israeli Population# of Engineers/Scientists per

10,000 people

(mostly within 3 years)

• Quality: 40% with Academic Degree

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 FlowDeal FlowSources

NewImmigrants

RepatriateIsraelis

Defense

Universities

Spin-offs

Corporations

R&D centers

Deal Flow Sources


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


Government Support for the High-Tech Industry- Pros and Cons

• Chief Scientist Only R&D

• Tech. Incubators Only Seed

• Gov’t Guarantees No Risk Lowering

• Venture Capital Equity-Based


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


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 Venture Capital (1)

Mission: Mission: To create the venture capital market in Israel

Method: 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: Accomplished through: Establishment of a $100M investment company

Use of proceeds: Use of proceeds: Establishment of 10 drop down funds together with strategic partners.

15 Direct investments


Yozma Venture Capital (2)

Basic principles: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: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 Drop-Down Funds (1)


FUND PARTNERS

•Eurofund Daimler-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 Drop-Down Funds (2)


FUND CAPITAL MANAGED ($MM)

Original size Today

•Eurofund 20 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

The Government as a Catalyst

Return>$100M

MarketFailure

Government Intervention

Establishmentof YozmaYozma

Problem Solved

Government Exits

Yozma Privatized

$100M Investment

1993

1997


Countries Following the Yozma Example


Denmark

Korea

New ZealandAustralia

South Africa

Taiwan

Czechoslovakia

Venture Capital Raised

1st Wave:

Establishment

of Yozma

2nd Wave: Yozma Funds

Raise Continuation

Funds

3rd Wave

0

500

1000

1500

2000

2500

3000

3500

4000

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

$M

Source: IVC Research CenterSource: IVC Research Center

Total Amount Raised by Israeli

High-Tech Companies ($M)

240190

340

260436

576 1,270

1,822

812

1,173

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1997 1998 1999 2000 2001

Israeli VC Fund Other Entities

430 600

1,012

3,092

1,985


40%

16%

6%

8%

30%

42%

20%

13%

16%

9%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Communications

Software

Other Technology

Life Sciences

Internet

2000 2001


Capital Raised by Technological Sector –

2001 and 2000

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%

0

500

1000

1500

2000

2500

3000

3500

1994 1995 1996 1997 1998 1999 2000 2001

Venture Backed

All

In total: during the past 8 years more than 100 Israeli companies raised ~$9B ; ~50% of them were venture -backed

$M


Capital Raised in US Public Offerings of

Israeli Companies (94’-01’)

M&As of Israeli Technology Companies

and Foreign Strategic Partners:

1996 $0.6B

1998 $1.8B

2000 $10.5B

1997 $0.8B

1999 $2.9B

2001 $0.6B


• Total Amount Invested ($m) : 812

• No. of Deals : 656

• No. of Companies : 438

• Average Amount Invested ($m) : 1.2


Israeli VC Activity in 2001

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


1993-5

Average Leading VC Size ($M) 20

No. of Venture Firms 15

1996-8

80

40

1999-01

100-200

60

VC firms development over the years

Share of Capital Invested by Israeli VCs

(Financing rounds in which at Least One Israeli VC Participated)

55% 56% 59% 66%54%

64%50% 42%

40%54%

58%50%

36%46%

34%41%

44%45% 42%45%

60%

46%58%55%

Q1/99 Q2/99 Q3/99 Q4/99 Q1/00 Q2/00 Q3/00 Q4/00 Q1/01 Q2/01 Q3/01 Q4/01

Israeli VCs

Other Entities


First and Follow-on Investments by Quarter

54% 58%64%

56% 56% 58% 54%

68% 66%

52%

28% 27%

46% 42%36%

44% 44% 42% 46%

32% 34%

48%

72% 73%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1/99 Q2/99 Q3/99 Q4/99 Q1/00 Q2/00 Q3/00 Q4/00 Q1/01 Q2/01 Q3/01 Q4/01

First Follow-On


Venture Capitalists – the Truth Revealed (part 1)

SEEDSEED Hard & Fascinating

First & Second RoundsFirst & Second Rounds Proof of Concept/Prototype/Beta(Good Chance)

Third RoundThird Round Product/Initial Sales(Attractive)

Pre-IPOPre-IPO Profitability, Expansion(Love it)


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


Korea Venture Fund


Korean Government

the yozma program - success factors & policy presented by: yigal erlich the yozma group tel...

Documents

israeli venture capital

venture capital market

new vc funds

lack of investment capital

academic degree slide

yozma group tel aviv

israel method

investment company