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The Yozma Program - Success Factors & Policy Presented by: Yigal Erlich the Yozma Group Tel Aviv, Israel

The Yozma Program - Success Factors & Policy Presented by: Yigal Erlich the Yozma Group Tel Aviv, Israel. THE ISRAELI OPPORTUNITY. # of Engineers/. Scientists per. The Right Ingredients. Wealth of Human Capital. Mass Immigration. • 1 Million people.

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The Yozma Program - Success Factors & Policy Presented by: Yigal Erlich the Yozma Group Tel Aviv, Israel

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  1. The Yozma Program - Success Factors & Policy Presented by: Yigal Erlich the Yozma Group Tel Aviv, Israel

  2. THE ISRAELI OPPORTUNITY # of Engineers/ Scientists per The Right Ingredients Wealth of Human Capital Mass Immigration •1 Million people Israel 140 (mostly within 3 years) USA 82 •Quantity: 20% of Israeli Population Japan 80 Germany 60 •Quality: 40% with Academic Degree 10,000 people Entrepreneurial Spirit •2-3 New Startups every day • Highest Concentration of High-Tech Startups after Silicon Valley • 3rd in the world in IP (following US & Japan)

  3. Why Foreign Investors Choose to Invest in Israel • Entrepreneurial Spirit • Human Resources • Reputable Academic Institutes • Government Commitment to R&D • Strong Infrastructure for Entrepreneurs (CS, VCs, Incubators...) • International Activity (R&D centers, VCs, Corporations, • Investment Banks) • Deal Flow Sources (Immigrants, Defense, Repatriate Israelis, • Spin-offs, etc.) © Yozma Proprietary

  4. Deal Flow Sources Repatriate Israelis Defense Corporations Deal Flow Sources Spin-offs R&D centers Universities New Immigrants © Yozma Proprietary

  5. Israeli Venture Capital Before 1993 • Lack of investment capital for start-ups ($20 Million) • Lack of professional venture capital management • Successes in R&D vs. failures in marketing • Number of start-ups tripled from 1988 to 1992 © Yozma Proprietary

  6. Government Support for theHigh-Tech Industry- Pros and Cons • Chief Scientist  Only R&D • Tech. Incubators  Only Seed • Gov’t Guarantees  No Risk Lowering • Venture Capital  Equity-Based © Yozma Proprietary

  7. Venture Capital –an Engine for Growth for High-Tech Companies • Equity-based finance  VC • Need to go international quickly  VC • Short product life  Higher R&D spending  VC • Larger investment per Company Deep pockets  VC • Need for management and marketing assistance  VC © Yozma Proprietary

  8. Government’s Entry Into Business – Preconditions • Government as a Catalyst • Lowered Risk • Market Failure Conditions • Predetermined Exit Conditions • Timed Entry and Exit • No Government Control • Indirect Investments (Funds) © Yozma Proprietary

  9. Yozma Venture Capital (1) Mission: To create the venture capital market in Israel Method: To entice the private sector and foreign investors to set up new VC funds To participate as a partner in the new VC funds To secure an obligation of the new VC funds to invest in start-up companies in Israel Accomplished through: Establishment of a $100M investment company Use of proceeds: Establishment of 10 drop down funds together with strategic partners. 15 Direct investments © Yozma Proprietary

  10. Yozma Venture Capital (2) • Basic principles: • Investment of $8M in each drop-down fund • (minority position) • A 5 year option to Yozma’s partners to buy out the • Government’s share at predetermined conditions • Results: • 8 out of the 15 companies Yozma Venture Capital has • invested in directly, went public or have been acquired • 9 out of the 10 drop-down funds have exercised • their option and bought out the Government • The Israel Venture Capital industry has been • established © Yozma Proprietary

  11. Yozma Drop-Down Funds (1) • FUND PARTNERS • EurofundDaimler-Benz, DEG (Germany) • Gemini Advent (USA) • Inventech Van Leer Group (NL) • JPV Oxton (US/Far East) • Medica MVP (USA) • Nitzanim-Concord AVX, Kyocera (Japan) • Polaris CMS (USA) • Star TVM (Germany) & Singapore Tech • VERTEX Vertex International Funds (Singapore) • Walden Walden (US) © Yozma Proprietary

  12. Yozma Drop-Down Funds (2) • FUND CAPITAL MANAGED ($MM) • Original size Today • Eurofund20 90 • Gemini 25 350 • Inventech 20 40 • JPV 20 580 • Medica 20 70 • Nitzanim-Concord 20 280 • Polaris 20 645 • Star 20 400 • VERTEX 20 250 • Walden 25 175 • 210 2,880 © Yozma Proprietary

  13. The Government as a Catalyst Government Intervention Establishment of Yozma Market Failure $100M Investment 1993 Government Exits Yozma Privatized 1997 Problem Solved Return>$100M © Yozma Proprietary

  14. CountriesFollowing the Yozma Example Czechoslovakia Taiwan Denmark Australia New Zealand Korea South Africa © Yozma Proprietary

  15. Venture Capital Raised 3rd Wave 2nd Wave: Yozma Funds Raise Continuation Funds 1st Wave: Establishment of Yozma Source: IVC Research Center

  16. Total Amount Raised by Israeli High-Tech Companies ($M) 3,092 1,985 1,012 600 430 Source: IVC Research Center

  17. Capital Raised by Technological Sector – 2001 and 2000 Source: IVC Research Center

  18. Israel's high Tech Cluster of the 90s 00 90 80 Number of SUs: ~ 3000 ~ 300 ~ 150 Number of VC Companies: ~ 100 2 0 Accumulated No of IPOs (hi tech): ~ 130 9 1 Accumulated VC-backed IPOs: ~ 70 3 1 % Foreign Sources in SU funding 67% NA NA % IT Exports in Manufacturing Exports 45 . 7% ~ 33% ~ 20%

  19. Capital Raised in US Public Offerings of Israeli Companies (94’-01’) $M Source: IVC Research Center

  20. M&As of Israeli Technology Companies and Foreign Strategic Partners: 1996 $0.6B 1997 $0.8B 1998 $1.8B 1999 $2.9B 2000 $10.5B 2001 $0.6B Source: IVC Research Center

  21. Israeli VC Activity in 2001 • Total Amount Invested ($m) : 812 • No. of Deals : 656 • No. of Companies : 438 • Average Amount Invested ($m) : 1.2 Source: IVC Research Center

  22. Israel VC Industry - Trends & Challenges • Co-opetition • Volatile Capital Markets • Decrease in International Investments • Maintaining Existing Portfolios • Difficulties in Raising Capital • Focus on Future Technologies • Government Involvement

  23. Thank You © Yozma Proprietary

  24. VC firms development over the years 1993-5 1996-8 1999-01 Average Leading VC Size ($M) 20 80 100-200 No. of Venture Firms 15 40 60

  25. Share of Capital Invested by Israeli VCs(Financing rounds in which at Least One Israeli VC Participated) Other Entities Israeli VCs Source: IVC Research Center

  26. First and Follow-on Investments by Quarter Source: IVC Research Center

  27. Venture Capitalists – the Truth Revealed (part 1) SEED Hard & Fascinating First & Second Rounds Proof of Concept/Prototype/Beta (Good Chance) Third RoundProduct/Initial Sales (Attractive) Pre-IPO Profitability, Expansion (Love it) © Yozma Proprietary

  28. Venture Capitalists – the Truth Revealed (part 2) • Hate Risk • Management more than Technology • High return on investment (IRR>50%, X10 in 5 years) • Innovation, not revolution • Don’t want to control or micro-manage the company • No time, but always open for new ideas • As much details as possible • Usually long and tired investment process © Yozma Proprietary

  29. Korea Venture Fund KoreanGovernment © Yozma Proprietary

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