Orna Berry - Hi-Tech November 0308

Technology Innovation as a Magnet for Venture Investments Orna Berry, PhD Chairperson IVA Venture Partner, Gemini Israel Funds November 2008

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Larry Ellison during a visit to Israel

“The Israeli hi-tech industry has become a huge success, with a large amount of IPOs, second only to the US, and high levels of innovation” Larry Ellison, Oracle

About Israel…

• Population: 7.3M • Area: 21,946 sq km / 8,473 sq mi • GDP per capita US$25,756 (2007)

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Summary – let’s start at the end • • •

Israel’s hi-tech track record is excellent

•

Israel’s investment sectors are evolving as markets and technologies change

•

Many exits

Circumstances make Israelis top-notch problem solvers Innovation exceeds capacity to operate locally, leading to global alliances

•

70 companies on NASDAQ (more than any country outside North America)

∀ ∼ 30 companies on various European exchanges • Numerous Israeli companies sold for hundreds of millions of dollars •

Future results are expected to be even better due to maturity of the market and the emergence of serial entrepreneurs

•

The government plays a key role Confidential

Israel’s Venture Capital Industry •

Israel’s venture market is now well established

•

Israel is ranked 2nd in the world for VC availability - the World Economic Forum

•

Equal in size to Greater Boston

•

In 2007, 462 Israeli hi-tech companies raised $1.76B in venture capital

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The Israeli VC industry has raised over $10B in the last decade

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Israel’s Venture Capital Industry •

Israeli VCs invest in technological innovation with global applications:

•

Communications, Computer Software, IT, Semiconductors, Life Sciences, Security, Greentech

•

All of this in just a decade and half – until 1993, there was very little VC activity in Israel

•

So what’s the magnet?

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Israel is itself an exercise in entrepreneurialism •

Source of new technological innovation

•

highest ratio of PhDs and engineers per capita in the world

•

among the highest number of patents per capita in the world

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world-class universities and institutes – Weizmann, Technion, Hebrew University, Ben Gurion

• •

global R&D center for key international technology players Israelis given life-and-death responsibilities and challenges at early age Confidential

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SOURCE: Israel Central Bureau of Statistics 0.0

Greece 0.5 1.0

Portugal

New Zealan d

Italy

Spain

Ireland

Norway

Czech Republic

UK

Holland

Australia

OECD Average

Belg ium

Fran ce

Canada

USA

Denm ark

Austria

Germany

Icelan d

Switze rland

Japan

South Korea

Finland

Swede n

Israel

2.5

3.0 3.5

4.0 4.5

Percentage of GDP

1.5 2.0

5.0

The high value placed on R&D

Proportionately, Israel spends more money on R&D than any other country in the world

National expenditure on R&D as percentage of GDP 2006

”The result: “Made in Israel Every day, you are using technology pioneered or developed in Israel • • • • • • • • •

Pentium (Intel) Centrino (Intel) Mobile Telephony (DSPC/TI) Telecom Billing (Amdocs) Call Center Logging (Nice/Verint) Voicemail (Comverse) Instant Messaging (ICQ, Ubique) PC Board Inspection (Orbotech) VoIP (VocalTec/AudioCodes)

• • • • • • • • •

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Generic Drugs (Teva) Agriculture (Netafim) Stents (Medinol) Firewalls (Check Point) Software Performance (Mercury) Chip Metrology (Applied Materials & KLATencor) Anti-virus (Aladdin, Commtouch) Regeneration of Spinal Cord Cells (Proneuron) Flash Memory (msystems, Saifun)

Some of Israel’s ‘Star’ Companies

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Some Israeli companies are very attractive

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Not to mention the IPOs

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After the Exits •

Israel’s high-tech industry has matured • experienced venture teams • returning entrepreneurs • “virtuous circle”: previous generations build the future • competitive businesses built around disruptive technologies

•

Change in culture - entrepreneurs aim much higher • have proven past success • know what it takes to build a multinational organization • will not stop half way to building a multi-billion dollar company • multinational DNA from day one • different go-to market strategy – go global • developed senior management and internationally experienced talent Confidential

Some of Israel’s star entrepreneurs

Gil Shwed Company: Check Point NYSE: CHKP $5B

Stef Wertheimer Company: Iscar Sold for $4B (Berkshire Hathaway)

Dov Moran Current Company: modu Former Company: msystems Sold for $1.6B (SanDisk)

Lucien Y Bronicki Company: Ormat NYSE:ORA $2B

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Zaki Rakib Current Company: Novafora Former Company: Terayon Nasdaq: TERN ~$7B (at peak)

Giora Yaron Companies: Exanet, Itamar Former Company: Mercury (Chair) Sold to HP for $4.5B

Inon Beracha Current Company: Prime Sense Former Companies: Ceragon, DSPG Nasdaq: CRNT $325M, DSPG $225M

Zohar Zisapel Current Company: RadLive Other Company: Rad Group $740M Annual Combined Revs

Global Companies Operating in Israel •

• •

•

Israel has one of the greatest concentrations of technology world leaders Most of them have established commercial & R&D centers in Israel Israelis who work for them learn important technological, management and other skills Some of them then found start-ups, utilizing their skills to good effect

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The Role of the Government • The government is hugely supportive of Israel’s hi-tech sector and has played a crucial role in its development.

• Its main instrument of innovation is the Office of the Chief Scientist • The most important government initiatives include: • The Yozma Program for jump-starting the venture capital sector • Israel-US BIRD Foundation - has provided $245M to 740 joint R&D projects - products developed have generated sales of over $8B • The R&D Fund • The Technological Incubators Program • The Magnet Program for creating consortia of industry and academia Confidential

The Role of the Government Favorable Regulatory Environment

• • •

Strict international standards for protection of trademarks, patents and intellectual property of all kinds Flexible labor market Investor friendly • comprehensive legal protection of foreign companies • an advanced banking and financial sector • favorable tax treatment for foreign investors • worldwide taxation treaties and free trade agreements

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Thus - a Magnet for Venture Investments Capital raised by start-ups from venture capital )funds (VCF) and investment houses ($M 3500

Foreign VCFs and other investors Israeli VCFs

3000

2500

1822 2000

1500

1174

1000

577 500

657

1081

682

665

655

651

678

2004

2005

2006

2007

590

1270 812

436

971

800

481

421

2002

2003

0

1999

2000

2001

SOURCE: IVC Research Center Confidential

Gemini Israel Funds •

Leader in seed and early-stage VC investments in Israel

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Funds managed: $700M in five funds

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Invested in over 100 private companies

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Successes: 26 M&As and IPOs

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Investors include some of the world’s top funds-of-funds and institutions

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8 partners with strong operational experience, technical engineering and business backgrounds

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Focused investment strategy

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Access to the best entrepreneurs and opportunities (Gemini sees over 95% of VC deals) Confidential

What the world’s most successful entrepreneur thinks

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“Israel is a major player in the hi-tech world…There is a greater concentration of talented hi-tech manpower here in comparison to other countries – almost to the extent of Silicon Valley.” Bill Gates, Founder, Microsoft Corp.

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