1 enabling environment: the government’s role in facilitating innovation presentation by yigal...
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Enabling Environment: the Government’s Role in facilitating Innovation
Presentation by Yigal Erlich
June 2012
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Introduction
Yigal Erlich
• Former Chief Scientist of Israel’s Ministry of Industry, Trade and
Labor
• Established the Technological Incubators Industry in Israel
• Founder & Manager of Israel’s anchor VC, Yozma
• Seed investor & active board member in technological
startups such as Biosense (acquired by J&J for $430M), Conduit
(current value: $1.35B) and Radiancy (traded in Nasdaq with market cap
of $200M)
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15 Years of Israeli Venture Capital Activity at 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 Israel’s main resource
• M&A: $28 billion, IPO: $6 billion
• $14 billion raised by Israeli VC funds
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4Source: IVC Research Center
Foreign & Other
VC Investments in Startup companies10 Years Total: $15b
From Israeli Funds: $6b
From Foreign and Other: $9b
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5Source: IVC Research Center
VC Investments by Stage as % of Yearly Total 2002-2011
2011 compared to 2008Seed/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 $8M in each drop-down fund (minority position)• A 5 year option to buy out Yozma’s share at predetermined conditions.• Yozma’s CEO / VP will be a voting member on each Fund’s investment
committee.• Same terms for all VC Funds
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Yozma Venture Capital (3)
Results:
•Establishment of 10 drop down funds together with strategic partners (8 in the first two years).
•15 Direct investments
• 8 out of the 10 drop-down funds have exercised their option and bought out the Government
• 9 out of the 15 companies Yozma Venture Capital has invested in directly, went public or have been acquired
• The Israel Venture Capital industry has been established
© Yozma Proprietary
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Yozma Drop-Down Funds
© Yozma Proprietary
FUND CAPITAL MANAGED ($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 20 900• VERTEX 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 Israel’s
Innovative Technology Sector
Academia, Universities, Engineers,
Postgraduates
Skilled Educated Man Power, Immigration,
Reverse Brain Drain
Executives, Veterans from Global Firms
Innovative & Entrepreneurial Culture, serial Entrepreneurs
Venture Capital, Exit Avenues: M&As, IPOs
Modern Infrastructure, Government
Support
Academic Science and
Research Centers,
Researchers
Defense R&D
Multinationals: R&D Centers,
Strategic Investors
Technological Incubators
Technology Clusters, Startups,
Large Companies
Technology Infrastructure
Human Capital
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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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Thank You
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Additional slides
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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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Yozma - Direct Investments
Basic investment principles: • Yozma is a for profit company • Open the way to new industries, where risk is too high
for other VCs• Lead rounds• Attract strategic investors
Examples:• Instent, Medsim (new investors)• BioSense (new entrepreneurs)• Ubiqe (new industry- the Internet)• Telegate (spin-off)
© Yozma Proprietary
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Seeking Technology Innovation and DevelopmentIncreased Multinational Presence in Israel
Source: IVC Research CenterPartial list
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Multinationals - Success Stories
Source: IVC Research CenterSelected list
7,700 employees, first R&D center outside the US, 4 R&D centers, 2 manufacturing centers Developed: Pentuim, Centrino, Core 2 Duo, acquisitions – more than $2b, investment in Israel $7.3b
500 employees, R&D strategic centers, acquisitions over $700m in 2007-2011, support center for startups, first R&D center outside US
400 employees, 2 R&D centers, support center for startups
2011 - first R&D center outside US, first acquisition: $390m, Anobit
400 employees, 4 R&D centers, support center for startups, acquisitions: $900m
1,000 employees, 2 R&D Centers, acquisitions – more than $400m
1,200 employees, R&D center, manufacturing facility, acquisitions –$2.7b - Galileo
3,600 employees, 2 R&D centers, HP's largest software development site in the world
500 employees, 6 R&D sites, acquisitions – over $750m