|
(Last updated: 2 Apr 2011)
Trends and opportunities
The market
Until 1993, there was only one real venture capital (VC) fund operating out of Israel. Up to that time, most R&D activities in the country took place within the framework of the military infrastructure (defence forces and government owned companies), private industry and some government R&D incentive programs that existed at the time.
The creation of the Israeli VC industry can be traced back to 1993 when the government (through the office of the Chief Scientist at the Ministry of Industry and Trade) established the Yozma Program (Yozma can be translated into ‘initiative’ in Hebrew). The main objective of the Yozma Program was basically to build a viable VC industry through an investment structure where government would share the risk with private investors. Under the Yozma Program, 10 new VC funds were formed managing US$20 million each, of which Yozma's share was 40 per cent and the foreign investors' share was 60 per cent. The Yozma Program was terminated eventually when the private investors bought out the government’s share and an independent and thriving VC industry was created.
The Yozma Program was complemented by a variety of commercial R&D promotional activities that included:
- The commercialisation units at Israeli universities
- The establishment of a government sponsored network of technological incubators (most of these were privatised as time passed)
- Government subsidies for R&D research amongst medium-large corporations
- A network of bilateral R&D agreements between Israel and other nations (eg. the VISTECH agreement between Victoria and Israel)
- Government sponsored generic R&D programs (eg. Magnet Program)
- Government sponsored pre-seed R&D programs (eg. Tnufa, Nofar and Heznek Programs)
- Israeli participation in European Union sponsored R&D programs and more
It is interesting to note that in 2010-2011 Israel will become the first non-European nation to chair the largest publicly funded commercial R&D program in the world called Eureka.
All of the above was further reinforced by:
- A highly educated work force supported by several top ranking universities
- The Israel Defence Forces which serve as a catalyst for state-of-the-art defence related research (often translated into civilian applications)
- A massive influx of well educated immigrants from the former Soviet Union in the early 1990s
- An Israeli business culture characterised by an entrepreneurial spirit and a risk taking attitude
Since the early 1990s, the Israeli VC industry has prospered and reached a prominent position in the world, possibly second only to the US with the total capital raised to date in excess of US$10 billion. By 2008, there were about 80 VC funds operating in Israel, with the total capital raised at US$10.6 billion (much of this originating from foreign investors, mostly from the US and Europe) and investments made in more than 1,000 Israeli start-up companies. Many of these start-ups went through successful initial public offerings (IPOs), and since the 1980s, more than 200 Israeli companies went through an IPO in NASDAQ with dozens more traded on various European exchanges. Israel currently has more companies listed on NASDAQ that any other nation outside North America (USA and Canada).
Since 1993, the average size of the leading Israeli VC funds has grown dramatically from US$20 million in 1993 to more than US$250 million today.
The Israeli VC industry invests in a variety of start-up companies engaged in the development of technological innovation with a large emphasis on sectors such as ITC, semiconductors, life sciences (mostly medical devices and biotechnology, homeland security and clean tech.
The growth of the VC industry in Israel has turned the country into one of the most technologically advanced countries in the world in terms of commercial R&D. Many of the global leading technology companies like IBM, Motorola, Intel, Microsoft, Cisco, HP, Applied Materials, Google and others have established R&D centres in the country.
Israeli VC structure
Israeli VCs are structured in a similar operational manner to their US counterparts, meaning that the preferred structure is that of limited partnerships with the VC firm serving as the general partner and the investors as the limited partners.
The fund has a predetermined life span (eg. 10 years) and operates as a closed fund with fixed capital. The relationships between the general partner and the limited partners may vary from one fund to another, but, in general, the general partner is entitled to a management fee and shares in the capital gains that may accumulate as a result of a successful exit of a portfolio company.
A VC firm may have more than one fund in existence taking into account that the funds are typically considered closed funds. After a few years of operations, a venture firm may raise an additional fund for the purpose of continuing investing in technology-oriented companies.
Opportunities
Opportunities for Australian companies:
- Creation of a joint Australian-Israeli VC Fund (similar projects have been created between Israel and China/India (with a local VC as partner)
- Inward and outward investment opportunities
- Joint commercial R&D collaboration projects
Competitive environment
Relevant players include:
A visual map of the main VC investors in Israel is available on the d&a hi-tech information site.
|