venture capital’s contribution to the israeli economy, by yacov sheinin and chen herzog
TRANSCRIPT
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 1/36
SummarySummary
Venture CapitalVenture Capital’ ’ ss
Contribution to theContribution to the
Israeli Economy Israeli Economy
June 15, 2005 June 15, 2005 June 15, 2005
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 2/36
222 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
IntroductionIntroduction
We are pleased to present to the annual IVA conference this analysis
prepared for the IVA by Economic Models headed by Dr Yacov Sheinin.
Our aim is to lay the foundation for understanding the role of VC in Israel.
This report analyses for the first time the contribution of VC investors to
the Israeli economy in the past decade and highlights their functions and
unique contribution in the present and future.
We hope that this report will contribute greatly to the current dialog
regarding government action including establishing policy and strategic
action for the long term, encompassing areas such as education, R&D and
development of capital markets.
Yoram Oron – Chairman, Israel Venture Association
Co-founder Vertex VC
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 3/36
Table of ContentsTable of Contents
Introduction………………………………………..4
Summary and Conclusions………………………5
Growth Potential of the Economy………...…..27
Presented by Dr. Yacov Sheinin and Chen Herzog
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 4/36
444 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
IntroductionIntroduction
This study, prepared for the IVA, evaluates the contribution of VentureCapital investments to the growth of Israel’s economy.
While VCs have been active in Israel for over 10 years, there is no complete
study of the VCs contribution to the Israeli economy, which is therefore
unclear.
This analysis discusses only the contribution to Israel’s economy and does
not discuss the opportunity for investors, VC funds or fund managers.
We evaluate the contribution to the economy in terms of GDP growth and
an increase in employment. We place a large emphasis on the long term
drivers of these factors.
This study relies upon data collected and formulated by Economic ModelsEconomic Models
over many years.
The data on VC capital raising and investment was obtained from the IVC
Research Center and has not been confirmed by us.
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 5/36
1. Summary and Conclusions1. Summary and Conclusions
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 6/36
666 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
VC Capital Raising andVC Capital Raising and
Investment in IsraelInvestment in Israel
15,64015,640
1,000
2,300
12,34012,340
6,590
5,760
Available resources for investment of Israeli VC funds
Total VC investments in IsraelTotal VC investments in Israel
Investment of foreign VC in Israel
Total capital raised by Israeli VCsTotal capital raised by Israeli VCs
and investments in Israel by foreign VCsand investments in Israel by foreign VCs
Investment of Israeli VC funds abroad and other
Investment and management costs of Israeli VC funds, in Israel
Source: IVC Research Center, Economic Models
1995-2004, Mil. $
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 7/36
777 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
The Direct Contribution of VCThe Direct Contribution of VCVarious VC investors (Israeli and foreign), have invested over 12 $B in Israel
in the past decade, mostly derived from foreign sources. This amount, in
proportion to GDP, represents the highest rate in the world.
Most funding (about 70%) has been channeled to paying wages to Israeli
workers. As the economy has a high level of unemployment, it makes a
direct contribution to GDP (unlike investments in imported machinery andequipment).
Fund raising and VC investments continue in 2005. We expect 1.5 $B of
investments and about 1 $B to be raised by Israeli managed VC funds thisyear.
We can therefore conclude that currently, VC investments have a direct
contribution of over 1% to Israel’s GDP.
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 8/36
888 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
VC Contribution to IsraeliVC Contribution to Israeli
Relative Advantage EscalationRelative Advantage EscalationThe rare combination in Israel of a high level of technological ability in
electronics and software companies, together with enormous research
capabilities, globally-embracing export ties, and a rare ability of fund
raising, allows the unparalleled growth in the electronics and software
sectors.
This advantage of the Israeli economy can last as long as the Israeli
education system safeguards these skills. VC investments play an
important role in this advantage.
The amount of VC invested in Israel as a portion of GDP is the highest
in the world and the output of “Information and Communication
Technology” (ICT) as a portion of GDP is also the highest in the world.
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 9/36
999 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
VC Investment in ICTVC Investment in ICT
Relative to GDPRelative to GDP
Source: OECD 1999-2002, IVC Research Center 2002, CBS (Isr.)
0.0%
0.1%
0.2%0.3%
0.4%
0.5%
0.6%
0.7%
0.8%
I s r a e l
U S
A
C a n a d
a
K o r e
a
S w e d e
n
U
K
N e t h e r l a n d
s
I r e l a n
d
F r a n c
e
F i n l a n
d
B e l g i u m E U
N o r w a
y
N e w
D e n m a r
k
G e r m a n
y
A u s t r a l i a
I t a l y
S w i t z e r l a n
d
G r e e c
e
S p a i n
P o r t u g
a l
A u s t r
i a
J a p a
n
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 10/36
101010 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
R2
= 0.57
4
5
6
7
8
9
10
11
12
13
14
0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9
Israel
FinlandKorea
UK USA
Sweden
France
Netherlands
Japan
Canada
Ireland
The Correlation between VC and ICTThe Correlation between VC and ICT
*Finland was removed from the sample (Nokia biased).Source: USA Census, OECD 1999-2002, IVC Research Center 2002, CBS (Isr.)
% VC investment in ICT as a proportion of GDP
I C T s h a r e
o f G D P ( % )
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 11/36
111111 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
The Contribution to Human CapitalThe Contribution to Human CapitalWage payments to Israeli workers for R&D lead to an accumulation
of experience and expertise and creates an intangible but important
asset for the Israeli economy, even in cases of start-up closure dueto unfeasible business models.
We should view VC investment in failed enterprises as a
contribution to the overall development of Israeli technology. Afailed business is not necessarily a failure from a national economic
point of view.
We find the cumulative experience (of failures and successes) as partof the total Israeli relative advantage in the advanced technology
sectors.
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 12/36
121212 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
The Contribution to theThe Contribution to the
StartStart--up Sector up Sector 90% of VC investments are in early stage start-ups; VC investment is the
dominant source of capital for these companies.
We believe that without VC funding, the Israeli start-up sector would
not have developed to the current level.
The electronics and software sectors include a range of companies that
began as start-ups and matured.
Growth of the electronics and software sectors is influenced by the
maturation of start-ups which rely upon VC investment.
Vast majority of VC investments (over 90%) is in the electronics and
software sectors (including medical equipment and other
implementations).
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 13/36
131313 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
The Contribution to theThe Contribution to the
Electronics and Software SectorsElectronics and Software SectorsCurrently, over 40% of the electronics and software sectors product
is in companies that were invested by VC (during the first decade of
their operation), compared to about 10% in 1995.
The electronics and software sectors have grown during the last
decade (1995-2004) in an average annual rate of 11%.
We estimated that internal processes in these sectors allowed it to
grow in a high 7% annual rate, however, an addition of 4 percentage
points was created by maturity of Start-up companies.
Therefore, we see the major VC indirect contribution as about 35%
of the electronics and software sectors growth.
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 14/36
141414 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
Electronics and Software SectorsElectronics and Software SectorsEstimated ProductEstimated Product
* Companies supported by VC during the first decade of the company’s operation.
Source: CBS (Isr.), Economic Models
4.5
5.9
10.4
20042004
0.4
3.5
3.9
19951995
Total electronics and software sectors product
Electronics and software sectors product, by
companies supported by VC*
Electronics and software sectors product, bycompanies not supported by VC
2004 $B
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 15/36
151515 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
IPO
Foreign M&A –
operation in Israel
The Growth Model for IsraelThe Growth Model for Israel’’s Electronicss Electronics
and Software Sectorsand Software Sectors,1995,1995--20042004
Foreign M&A –
operation abroad
Israeli ElectronicsIsraeli Electronics
and Softwareand Software
CompaniesCompanies
Defense Industries Academic
ContributionContribution – – 4%4%
Annual GrowthAnnual Growth
Israeli StartIsraeli Start--upup
CompaniesCompanies
Incubators /Incubators /
AngelsAngels
Ceased OperationM&A in Israel
Venture Capital
7% Internal Annual7% Internal AnnualGrowthGrowth
Office of the
Chief Scientist
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 16/36
161616 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
VC Contribution to Growth of theVC Contribution to Growth of theElectronics and Software SectorsElectronics and Software Sectors
*We assumed that 20% of VC investments would find alternative funding
11.4%
4.2%
7.2%Growth of the Electronics and Software Sectors, without
VC investment*
Growth of the Electronics and Software Sectors
Growth due to VC Contribution
Average annual growth rate, 1995-2004
Source: CBS (Isr.), Economic Models
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 17/36
171717 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
Summary of the Total ContributionSummary of the Total ContributionUnder current economic conditions in Israel, it is necessary for 1.5
$B to be invested in start-ups on an annual basis to achieve 11%
continuing growth of the electronics and software sectors.
This ambitious level of growth is necessary for GDP growth to
reach over 6% a year, allowing Israel to reach 15th place in the
world in 20 years time (Israel today is in 22nd
place).
Under current conditions, it is difficult to see an alternative route
to the unique contribution of VC investments in supporting start-
ups. This is an unusual situation where few succeed in attractingforeign investors to invest in technology development in Israel with
all of its associated risks.
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 18/36
181818 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
Implementing the IsraeliImplementing the Israeli
Relative AdvantageRelative AdvantageThe scale of the Israeli economy is small and it lacks the critic mass
for local market “merchantable products” production.
It’s hard for Israeli companies to reach a major international statuswhich would allow them to continuously produce standard products
for the international market.
Therefore, we see the Israeli relative advantage to produce uniqueproducts and to sell the knowledge and technology to third party.
This situation, in witch there’s a wide variety of knowledge and
technology allows part of the companies to become major andsuccessful companies in Israel (Ishkar, Teva, Check point and other)
Additionally, an industry of advanced products does not have to be
based on Israeli companies. (Intel, Motorola, Vishay)
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 19/36
191919 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
Knowledge and Technology ExportKnowledge and Technology ExportAs mentioned before, the relative advantage of the Israeli economy
is development of ideas and technologies and production of unique
products.
Therefore, we believe that a major export sector in Israel for the
long run would be new ideas and technologies (the overall
production potential would be much greater than the local
production potential).
We hope that this sector would expand and encourage Israel to
become an international center for ideas and technologies (the
“Silicon valley” is a development center, not a production center).
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 20/36
202020 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
No Massive Knowledge andNo Massive Knowledge and
Technology LeakageTechnology Leakage
In vast majority of VC investments, the development activity stays
(at least at this point) in Israel.
We believe that most of the developers stay in Israel, even though
some of the projects leaders stop dealing with the projects
development after the exit.
As much as the start-up companies in Israel succeed, it stimulates
Israelis to return to Israel and establishing the development centers
in Israel.
Most of the Israelis who are part of the development procedures
stay in Israel even if the operations move abroad.
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 21/36
212121 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
Investor Investor ’’s Exits Exit
1. IPO (mostly in the US).
2. M&A with Israeli based company.
3. M&A with foreign based company, which continue their operations
in Israel.
4. M&A with foreign based company, which discontinue theiroperations in Israel.
The foreign investor’s objective is to sell their part in the projects with profit(Exit). That’s the basis for their entry to the VC funds and their investment
in Israel. The Exit in case of a success is made in one of 4 options:
Each one of the options described above is legitimate and the actual actionis selected by the investors according to the best market value. About 75%
of the exits are made with options 1 and 2.
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 22/36
222222 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
The Fear of Transfer of The Fear of Transfer of
Manufacturing OperationsManufacturing OperationsFrom our analysis, less than 10% of companies that have received VC
investment have transferred activities abroad.
In most cases, the main activities remain in Israel and definitely the
development capabilities.
Location of manufacturing in Israel is in accordance with theadvantages of the location and we see the transfer of some
operations abroad as a natural process.
We are of the belief that operations in Israel can also be establishedby foreign companies (Intel, Motorola, etc.) and the opportunity to
expand these operations are in accordance with the economic
advantages of the location (government policies).
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 23/36
232323 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
The Technology Sales PriceThe Technology Sales PriceU.S. data shows a long-term average yield of investments in VC at
13% annually in real terms, with a high component of volatility
(since 2000, yields have remained negative).
We believe that this rate is reasonable for high risk investments,
therefore it represents a reasonable price for the projects.
Most VC investments in Israel have been made since 2000 and
have not yet accumulated high yields and the complaint that
foreign investors are acquiring Israeli IP and technology at low
prices does not accord with reality.
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 24/36
242424 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
OCS Grants and VC InvestmentsOCS Grants and VC InvestmentsVC investments are in most cases made in new start-ups at various
stages of research and development.
The greater the supply of start-ups, the more Israel is attractive and
the greater the amounts of VC investment in Israel.
At the incubator stage, VC’s usually do not invest as they are unable
to evaluate the potential risks involved.
At this initial and critical stage, the start-up is usually funded by the
entrepreneur (and close friends) and by OCS grants.
The more start-ups at incubator level, the more start-ups there will
be for VCs to invest in. We therefore view favorably an increase in
OCS grants to new entrepreneurs as a necessary condition for the
increase in funding of VCs.
S i
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 25/36
252525 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
Seed
R&D
Incubator
Revenue
growth
StageStage
705705
600600
160160
4545
1313
2020
VCVC1,4651,465$$ MM
OCSOCS7878$$ MM
100%
% Funded by% Funded bythe OCSthe OCS
7%
7%
0%
StartStart--Up FundingUp Funding
* Excluding Magnet and international cooperation projects. Source: IVC Research Center, OCS,Economic Models
US$ Millions, 2004
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 26/36
262626 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
# of New Start # of New Start--ups per Year ups per Year
In 2004, the Chief Scientist awarded $20 million in grants toincubator-stage companies.
According to this model, we can double the number of new start-
ups in Israel at an investment of only $20 million per year.
As criteria for initial start-up success is vague, the second group of
start-ups (if doubled) may have less chance of succeeding to create
businesses.
We are of the opinion that it is preferable for VCs not to be
involved at the initial stage as this is where Chief Scientist funding is
most beneficial and where it can best contribute to the economy.
We believe that an increase of $80 million in the Chief Scientist’s
budget to support new start-ups can lead to a multiple increase of
VC investments in Israel in a few years.
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 27/36
2. Growth Potential of the Economy 2. Growth Potential of the Economy
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 28/36
282828 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
The Potential and its RealizationThe Potential and its Realization
Israel has a tremendous potential for growth inherent in its hi-techindustries, being the main “growth engine” of the economy. Israel
belongs to a small group of countries that excel in this area.
Fuelling the growth engine is the combination in Israel of a high level of technological ability in electronics and software companies, together
with enormous research capabilities, globally-embracing export ties,
and a rare ability for fund raising.
While the risk in technological developments is high, the reward is
proportionately high. In the past, mainly institutional bodies supported
development but in recent years, private entrepreneurs and private
investors have entered the arena.
Israel has succeeded to attract foreign investment at a level unmatched
elsewhere. The result is the high growth of the technology sector in
Israel.
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 29/36
292929 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
The relative position of theThe relative position of the
Israeli economyIsraeli economyThe Israeli economy is ranked 22nd in the world by GDP per
capita. Israel’s relative rank is unchanged since 1980 (the
bottom third of developed countries).
When evaluating Israel’s ranking, we see that Israel is among
the leaders in the world in many areas of technology.
In terms of potential, Israel is able to be among the 15 ranking
economies in the world, but his potential is not realized.
During this time, other economies such as Ireland, Spain andSouth Korea, have improved their relative rank significantly.
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 30/36
303030 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
79.3
26%
4.5%
440
38.0
10.4%
16.9
IsraelIsrael
12.0%R&D Expenses (% of GDP)
27 (of 28)500Science Achievements of 8th Graders (2000)
215%University Education (% of 25-64 year olds in 2002)
777.5Life Expectancy (2002)
2226.6GDP per capita (US$ 2004)
257.5%Unemployment (2004)
25 (of 28)35.8Gini Index of Distribution of Wealth (2002)
Relative Rank Relative Rank AverageAverage
OECDOECD
IsraelIsrael
’’s Rank s Rank
Relative to the 30 developed OECD economies
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 31/36
313131 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
Macroeconomic Conditions in IsraelMacroeconomic Conditions in Israel
Israel has no foreign debt, no deficit in its balance of payments, an
enormous Forex reserve, the lowest inflation in the developed world and
a budget deficit that is low in comparison with many developed
economies.
The Defense budget has diminished drastically to 5.5% of GDP (vs. 13%
in the ’80’s) and is expected to further decline to 4% in about 10 years
(over 3% in the U.S.).
Israel’s manufacturing potential is very high due to the current highunemployment and the low output per worker.
Israel has a high level of accessibility to global equity markets though the
level of investments in the economy remains very low.
Glancing at macroeconomics, the Israeli economy is at its best sincethe establishment of the state though it has not managed to
improve its relative international rank.
i fA l d h i f
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 32/36
323232 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
Accelerated growth scenario for Accelerated growth scenario for
IsraelIsraelIn the analysis prepared by Economic Models for the Herzeliya
Conference in Dec. 2004, we showed that Israel has the potential to
reach the 15th place in the world in terms of GDP per capita, in 20
years time (2025).
The Finance Minister, Mr. Binyamin Netanyahu, and many economic
leaders have accepted the approach we presented at the Herzeliya
Conference and it is being used as a basis for long-term strategicplanning at a national level.
This scenario targets 6% average annual growth over the next 20
years and will realize most of the potential of the Israeli economywithin 20 years.
The main growth engine for achieving this goal is the export of the hi-
tech sector, based on the electronics and software sectors.
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 33/36
333333 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
IsraelIsrael’’s Growth Potentials Growth Potential
103%
43 %
12 %
50
16.9
115
22
CurrentCurrent20042004
Same rank Same rank scenarioscenario
AcceleratedAcceleratedgrowthgrowth
scenarioscenario
48%
34%
14%
124
3.8%
27.7
250
22
20252025
21 %
30 %
17 %
196
5.9%
42.4
383
15
Export, $B
Investment (without residential), % of GDP
Government spending, % of GDP
National Debt, % of GDP
Average Annual Growth Rate (since 2005)
GDP, $B
GDP per capita (US$ 2004)
Relative Rank
Source: Economic Models project prepared for the Herzeliya conference, Dec. 2004
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 34/36
343434 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
IsraelIsrael
’’s Accelerated Growth Scenarios Accelerated Growth Scenario
In the accelerated growth scenario, 70% of the export would be
advanced technology based, still, only 11% of employees will these
sectors.
Most workers will work in commerce, services and industry for the
local market.
The export of the advanced technology sector would allow theimport of products in witch Israel has no relative advantage.
The high productivity of the advanced technology sectors would
allow a continuous improvement in the quality of life. The indicationfor this process would be the fact that most workers will be
employed in the commerce and services sectors.
Projected Technology ExportsProjected Technology Exports
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 35/36
353535 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
Projected Technology ExportsProjected Technology ExportsAccelerated Growth ScenarioAccelerated Growth Scenario
*In 2004, there was no exports from Start-ups 52.6
60%
31.4
40%
21.3
3.7
5.8
11.7
0.0
4.3
7.4
2004
6.8%
‐
3.4%
‐
9.6%
6.2%
8.0%
10.9%
12.7%
9.8%
11.2%
Average
Annual
Growth Rate
208.3
31%
63.7
70%
146.9
13.3
29.5
103.2
9.7
24.5
69.0
2025
3.6Start-Ups*
44.0Total Electronics and Software
11.2Software Services
113.4Total Exports
42%As a % of Total Exports
29.1Electronics
15.2Chemicals and Pharma
7.8Metals, Machinery and Avionics
Other Sectors
As a % of Total Exports
Hi-Tech Sector
2015
59%
47.1
67.1
US$ Billions of 2004
Projected Employment in HiProjected Employment in Hi--TechTech
8/7/2019 Venture Capital’s Contribution to the Israeli Economy, by Yacov Sheinin and Chen Herzog
http://slidepdf.com/reader/full/venture-capitals-contribution-to-the-israeli-economy-by-yacov-sheinin-and 36/36
363636 DraftDraftDraft --- translated from Hebrewtranslated from Hebrewtranslated from Hebrew
Projected Employment in HiProjected Employment in Hi--TechTechAccelerated Growth ScenarioAccelerated Growth Scenario
2.5%
2.5%
‐
2.6%
1.3%
2.6%
3.3%
5.8%
2.6%
3.2%
Average
Annual
Growth Rate
4,033
3,576
11%
457
121.1
50.3
285.3
53.4
109.4
122.5
2025
3,280
2,904
11%
376
107.1
41.4
227.9
36.8
88.4
102.7
2015
2,136Other Sectors
16.4Start-Ups*
143.9Total Electronics and Software
64.0Software Services
2,401Total Employed
63.5Electronics
29.5Chemicals and Pharma
91.5Metals, Machinery and Avionics
2004
11%As a % of Total Employed265Hi-Tech Sector
Thousands