david heller
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Venture Capital Financing as a Driver of Israel High Tech Industry
Presented
by
David Heller Managing Partner, Vertex Venture Capital
Israeli-Hungarian Innovation Day, Budapest, October 2013
Venture Capital as a Bridge to the World
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Capital $ € ₤ ¥
Start-Up Companies High Tech Products
Export
Import
Venture Capital Funds
Uniqueness of Israeli Venture Capital
Capital for VC funds >90% foreign sources
VC funds invest in high technology only
VC managers are skilled in risk evaluation of early stage companies
VC managers take an active role in assisting portfolio companies in business development worldwide
M&A is the main route to exit (although Israeli companies are #2 on NASDAQ after China)
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Capital Inflow (Import)
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History of the VC Industry in Israel
• One small venture capital fund of US$30 Million
• Technology R&D was conducted in a few large local companies
Until 1993
• Israeli government established Yozma Fund of Funds
• Yozma’s objective was to encourage foreign investors to invest with local partners to establish VC funds in Israel
1993:
VC Industry is Established (Yozma)
• Large industry of independent venture capital funds (without government money) raised more than US$17 Billion
• Technology R&D is conducted in many small companies (start-ups)
Post-Yozma
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Principles of the Yozma Fund
Government Fund of Funds with budget of US $100 million
Yozma invested in 10 VC funds, US $10M in each fund
Cash invested in each VC fund: 40% Yozma; 60% foreign investors
Sources of capital: USA, Europe & Asia
Option for investors to buy Yozma’s shares from the government at a fixed price (cost + interest)
Israeli Fund Foreign Investor Origin
USA
Europe
Asia
To date, Israeli VC Funds raised approximately US $17 Billion
170X on the Government investment
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Polaris
Jerusalem
Pacific
Ventures
Israel: The Start Up Nation
0 25 50 75 100 125 150 175
Israel
United States
Norway
Sweden
Switzerland
Finland
Denmark
France
Britain
Ireland
Netherlands
Belgium
Austria
Sources: National Venture Association; European Private Equity and Venture Capital Association; Israel Venture Capital Research Center; UN
The Economist, January 21, 2012 Venture Capital investment (in USD) per person, selected countries
• Eco-system of VCs, dozens of incubators and accelerators and repeat entrepreneurs
• Over 4800 active startup companies
• Over 600 new start ups created every year
• $1-2B VC investment in high tech companies annually
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Innovative Technology Outflow (Export)
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Necessity Drives Innovation & Globalization
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No Natural Resources
Economy based on human capital, innovation and knowledge
Scarce Water & Land
Development of water and agriculture technologies
No Energy Resources
Development of solar energy and other alternative energy
Security Needs
Development of defense technologies
Commercialization of technologies
No Domestic Market
Companies target foreign markets from Day One
Israeli Start-Up Landscape
Every year, ~600 new high tech start-ups are established in Israel
Venture capital funds are the main source of capital for high tech start-up companies
Most high tech R&D is done in small companies (10s-100s employees)
Manufacturing capabilities in Israel are relatively limited, therefore, many companies manufacture their products overseas
All high tech companies export their products overseas
Many Israeli companies are being acquired by foreign companies mainly from the USA
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High Tech Start-Up Industry Sectors in Israel
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12%
16%
21%
18%
9%
18%
7%
Communication
IT & Software
Semiconductors
Life Sciences - Medical Devices and Biotechnology
Cleantech
Internet
Other
Multinational Corporations Establish R&D Centers in Israel
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Build R&D
Center
Acquire Israeli Company (M&A)
Over 100 Fortune 500 multinational corporations identified Israel as an
innovation center and have established local operations and/or have presence
through acquisition of Israeli companies
+250 R&D Centers of Multinational Corporations in Israel (partial list)
Vast majority started through acquisitions of local companies
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Israeli Companies Were Acquired for Over US $66B (1997-2013)
Partial list of M&As. Source: IVC Online 14
Israel’s Technology Success in NASDAQ Listings
0
20
40
60
80
100
120
140
China Israel Canada Hong Kong France Japan UK
No
n-U
S N
ASD
AQ
Lis
tin
gs
Israel has the largest number of companies traded on the NASDAQ after the USA and China, many of which are venture-backed
Source: www.globes.co.il; www.nasdaq.com, January, 2012
Israeli companies headquartered in Israel but incorporated in the US (for tax and other reasons)
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Why Is Israel Different?
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Healthy Ecosystem for Entrepreneurship & Innovation
Talented Professionals
Support Infrastructure
Capital Availability
Culture of Entrepreneurship Culture of Innovation Highly Educated Inflow of Talented Immigrants
Experienced VC Community Government Financial Support
Extensive Corporate and Public R&D Defense Technology Transfer Top Universities and Research Institutions Technology Incubators Business Friendly Corporate & Tax Laws
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Healthy Ecosystem for Entrepreneurship & Innovation
Talented Professionals
Support Infrastructure
Capital Availability
Culture of Innovation
Experienced VC Community Government Financial Support
Extensive Corporate and Public R&D Defense Technology Transfer Top Universities and Research Institutions Technology Incubators Business Friendly Corporate & Tax Laws
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Highly Educated
Inflow of Talented Immigrants
Culture of Entrepreneurship
Culture of Entrepreneurship
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Entrepreneurial Culture: Israelis tend to prefer creating their own companies instead of working as an employee; They prefer to be their own boss…
Values that support entrepreneurial culture:
Individualism & Differentiation vs. Collectivism & Homogeny: Israelis tend to prefer to emphasize their own individual differences from the other rather than being “part of the group”
Error is forgivable: In school, Israelis are educated not to be ashamed to make mistakes, so long as one learns from his mistakes and fixes them
Failure in business is recoverable: Entrepreneur who failed once can recover from failure and start new company (e.g., he may get investment from investors who believe that he learnt the lesson from his failure and will be successful in his new venture)
Risk taking is encouraged: Entrepreneurs are willing to take risk because failure will not diminish their chances to do business in the future
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Healthy Ecosystem for Entrepreneurship & Innovation
Talented Professionals
Support Infrastructure
Capital Availability
Culture of Innovation
Experienced VC Community Government Financial Support
Extensive Corporate and Public R&D Defense Technology Transfer Top Universities and Research Institutions Technology Incubators Business Friendly Corporate & Tax Laws
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Highly Educated
Inflow of Talented Immigrants
Culture of Entrepreneurship
Culture of Innovation
Innovation Culture: At school, in university, in military service, in business, etc. Israeli society encourages individuals to create new ideas and materialize them
Values that support the innovation culture:
Informality vs. Hierarchy: Israelis tend to behave and speak in an informal manner with seniors the same way they do with their peers and with their subordinates; criticizing the boss is OK…
Directness vs. Harmony: Israelis speak most of the time directly, sometimes too direct … Israelis believe that open discussion brings better results than a discussion without disclosing the real opinions
Flexibility vs. “Working According to the Rules”: Israelis tend to “bypass” the rules when they think that the rules are wrong and that working against the rules will bring better results. Israeli believes that rules are negotiable…
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Top Universities and Research Institutions Technology Incubators Business Friendly Corporate & Tax Laws
Healthy Ecosystem for Entrepreneurship & Innovation
Talented Professionals
Support Infrastructure
Capital Availability
Culture of Entrepreneurship Culture of Innovation
Experienced VC Community Government Financial Support
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Highly Educated
Inflow of Talented Immigrants
Defense Technology Transfer Extensive Corporate and Public R&D
0
20
40
60
80
100
120
140
Israel USA Japan Germany Canada UK
Engi
nee
rs p
er 1
0,00
0 W
ork
ers
#1 in Engineers and Scientists per Capita
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Source: Ministry of Industry & Trade
Israel has the highest number of engineers per capita in the world
Culture of Entrepreneurship Culture of Innovation Highly Educated Inflow of Talented Immigrants
Healthy Ecosystem for Entrepreneurship & Innovation
Talented Professionals
Support Infrastructure
Capital Availability
Experienced VC Community Government Financial Support
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Top Universities and Research Institutions Technology Incubators Business Friendly Corporate & Tax Laws
Defense Technology Transfer
Extensive Corporate and Public R&D
0%
1%
2%
3%
4%
5%
Israel Japan Germany USA France UK
R&
D a
s %
of G
DP
#1 in Technology R&D Expenditure as Percentage of GDP
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Source: Ministry of Industry & Trade
Israel’s ratio of national expenditure on R&D to Gross National Product is the highest in the world
Healthy Ecosystem for Entrepreneurship & Innovation
Talented Professionals
Support Infrastructure
Capital Availability
Experienced VC Community Government Financial Support
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Top Universities and Research Institutions Technology Incubators Business Friendly Corporate & Tax Laws
Defense Technology Transfer
Extensive Corporate and Public R&D
Culture of Entrepreneurship Culture of Innovation Highly Educated Inflow of Talented Immigrants
Defense Needs As a Driver of Israeli High Tech
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Defense Technology Commercial Products
Military R&D Technology Engineers Civilian Entrepreneur
Vertex Israel: Top Ranking Israeli Investment Firm
Investing in Israeli hi-tech companies
Established in 1997 within the Yozma Program - investment from the Israeli government and Asian investors
Funds of US$600M under management; over 100 portfolio companies
Investors from US, Europe, Israel
Main investor base is from Asia: ~30 investors from Japan, China, Singapore, Hong Kong, Taiwan
Longest history with Asian investors
Largest number of investors & capital from
Asia
Vertex Asian investors enjoy access to Israeli
cutting-edge technology
Unique focus on bridging Israeli
technology companies with Asian strategic
network
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Vertex is the “fund-of-choice” for Israeli companies targeting Asian markets
Vertex’s Asian network assists portfolio companies in Asian markets
increase companies’ revenues profitable exits
Quality Israeli
Portfolio
Added Value in
Asia
Profitable Exits
Asia Access Contributes to Vertex Funds’ Financial Returns
•Technological innovation
•Entrepreneurship
• International experience
•Markets
•Manufacturing
•Capital
29 l
Successful Exits
(NASDAQ: SHOP)
$634,000,000
2004
Acquired by:
(London Stock
Exchange: BET)
$2,000,000,000
2010
Acquired by:
$98,000,000
2005
Acquired by:
$141,000,000
2005
(London Stock
Exchange: WLF)
$550,000,000
2003
Acquired by:
$150,000,000
February 2003
Shares sold to:
June 2013
Acquired by:
$225,000,000
2004
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Vertex Most Recent Exit
Community based real time traffic and navigation mobile application
2008 initial investment
12% ownership at exit
Invested a total of $6M and realized $127M
Return multiple of 21x and IRR of 120%
This transaction is the world’s largest mobile
application acquisition ever
4th largest acquisition of Google to date (among
>240 acquisitions)
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June 2013
1 Ha’Shikma Street P.O. Box 89 Savyon 56530 Israel
www.VertexVC.com
Main: +972 3 737 8888 Fax: +972 3 737 8889 [email protected]
Köszönöm
David Heller: [email protected]
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