1

Enabling Environment: the Governments

Role in facilitating Innovation




Presentation by Yigal Erlich



June 2012
2
Introduction
Yigal Erlich

Former Chief Scientist of Israels Ministry of Industry, Trade and Labor
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: $1.35B) and Radiancy (traded in Nasdaq with market
cap of $200M)
3
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 Israels main resource
M&A: $28 billion, IPO: $6 billion
$14 billion raised by Israeli VC funds
4
Source: IVC Research Center
Foreign & Other
VC Investments in Startup companies
10 Years Total: $15b
From Israeli Funds: $6b
From Foreign and Other: $9b
5
Source: IVC Research Center
VC Investments by Stage
as % 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%
6
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
7
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 Yozmas share at predetermined conditions.
Yozmas CEO / VP will be a voting member on each Funds investment
committee.
Same terms for all VC Funds
8
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
9
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

10
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

11
Building Blocks of Israels
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
Infrastructur
e
Human
Capital
12
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


13
Thank You
14
15
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
16
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
17
Seeking Technology Innovation and Development
Increased Multinational Presence in Israel
Source: IVC Research Center Partial list
18
Multinationals - Success Stories
Source: IVC Research Center Selected 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