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Arie SADOVSKI Center for Study of Organizations


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Arie SADOVSKI Center for Study of Organizations

  1. 1. Arie SADOVSKI Center for Study of Organizations & Human Resources University of Haifa
  2. 2. IFISE Objectives <ul><li>Validation of two complementary financial mechanisms for the creation of high-tech start-up companies in Israel: The Yozma and the Technological incubators programmes . Analyzing the success factors and identifying those that may be relevant to Europe </li></ul><ul><li>Validation of a methodology for the creation of seed and start-up financial sources for new high-tech firms and dissemination to prominent European policy-makers </li></ul><ul><li>Planning of one or more public programs for the creation of seed and start-up financing sources in Italy and presentation to Italian policy makers </li></ul>
  3. 4. The Yozma and Technological Incubators programs were put in place by the Office of the Chief Scientist Ministry of Industry and Trade
  5. 6. Venture capital funds in Israel today (Funds and other capital sources as of December 31, 1998) <ul><li>Funds Number $ Millions </li></ul><ul><li>Technology venture capital funds </li></ul><ul><li>Yozma funds 10 256* </li></ul><ul><li>Private funds 43 1,512 </li></ul><ul><li>Public and other funds 4 98 Total 57 1,866 </li></ul><ul><li>Other private equity Funds 31 764 </li></ul><ul><li>All funds 88 2,630 </li></ul><ul><li>Investment companies 13 236 </li></ul><ul><li>All capital sources 101 2,865 </li></ul><ul><li> (Source: Reiter & Klein 1999) </li></ul>
  6. 7. Venture capital in Israel up to 1992 ? N=1
  7. 8. Yozma biography <ul><ul><li>Established as a wholly-owned Venture Capital Company by the government </li></ul></ul><ul><ul><ul><li>Total capital : $ 100 million </li></ul></ul></ul><ul><ul><li>Inaugurated in mid 1992, began operation in 1993 </li></ul></ul><ul><ul><li>Privatized in 1997 </li></ul></ul>
  8. 9. Yozma objectives <ul><li>To create VC industry as a source for capital for the emerging hi-tech start-up companies </li></ul>
  9. 10. Yozma methodology <ul><li>To entice the private sector and foreign investors to set up new VC funds </li></ul><ul><li>Participation of Yozma (Government sponsorship) as a partner in the new VC funds </li></ul><ul><li>To secure an obligation of the new VC funds to invest in start-up companies in Israel </li></ul>
  10. 11. Yozma operational guidelines <ul><li>Yozma investments in the new VC, up to 40% of the VC’s capital and not more than $8 millions per fund </li></ul><ul><li>The incentive to the private investors: An option to buy the government (Yozma) </li></ul><ul><li>shares during the first five years of the funds’ existence at the government investment price plus Libor+1% and 7% of the future profits </li></ul>
  11. 12. Yozma programme agenda (1/2) <ul><li>Importing knowledge and experience to set up and operate VC funds and creating local management teams </li></ul><ul><li>Raising capital for investment in the high-tech start-ups. </li></ul><ul><li>Creating an international network with foreign VCs and other investors. </li></ul>
  12. 13. Yozma programme agenda (2/2) <ul><li>Government shares the risks and takes a leading role for a limited period of time </li></ul><ul><li>Creating up to 10 small size new funds </li></ul><ul><li>To invest directly in start-up companies </li></ul><ul><li>(Invested in 15 companies) </li></ul>
  13. 14. Yozma 10 baby funds and the leading foreign investors <ul><li>Eurofund Daimler-Benz, DEG (Germany) </li></ul><ul><li>Gemini Advent (USA) </li></ul><ul><li>Inventech Van Leer Group (NL) </li></ul><ul><li>Jerusalem Ventures Pacific Oxton (US/Far East) </li></ul><ul><li>Medica MVP (USA) </li></ul><ul><li>Nitzanim-Concord AVX, Kyocera (Japan) </li></ul><ul><li>Polaris CMS (USA) </li></ul><ul><li>Star TVM (Germany) & Singapore Tech </li></ul><ul><li>VERTEX Vertex international funds </li></ul><ul><li>Walden Walden (US) </li></ul>
  14. 15. Yozma baby funds growth <ul><li>From $ 200 millions take off capital to managing $2.9 billions capital, collectively </li></ul><ul><li>Yozma baby funds take a prominent position in the list of the 20 major funds that comprise the leading VC funds in Israel </li></ul>
  15. 16. Yozma baby funds maturity <ul><li> ($) millions </li></ul><ul><li> Capital Planned for 2001 </li></ul><ul><li>Eurofund 72 150 </li></ul><ul><li>Gemini 350 - </li></ul><ul><li>Inventech 100 - </li></ul><ul><li>Jerusalem Ventures Partners 255 350 </li></ul><ul><li>Medica 70 - </li></ul><ul><li>Nitzanim-Concord 270 - </li></ul><ul><li>Polaris 700 - </li></ul><ul><li>Star 600 350 </li></ul><ul><li>VERTEX 150 100 </li></ul><ul><li>Walden 120 70 </li></ul><ul><li>Yozma 180 150 </li></ul><ul><li>Total 2.87 1.17 billions </li></ul>
  16. 17. Acknowledgement The assistance of Mr. Yigal Erlich [email_address] Chairman&Managing Partner THE YOZMA GROUP And the initiator of the Yozma Program to the 1st part of the presentation is gratefully acknowledged
  17. 18. <ul><li>Government sponsored </li></ul><ul><li>TECHNOLOGICAL “INCUBATORS” IN ISRAEL </li></ul>
  18. 19. The official program objectives <ul><li>To support the initiation of high-tech industry by supporting novice entrepreneurs </li></ul><ul><li>at the earliest stages of technological entrepreneurship </li></ul><ul><li>To encourage new export oriented industry </li></ul><ul><li>To create new employment opportunities for technologically skilled persons </li></ul>
  19. 20. The program methodology <ul><li>To provide a supportive and protective environment to individual inventors and entrepreneurs, for the development of technological innovations into business ventures. </li></ul>
  20. 21. Establishment of an incubator How and Who... <ul><li>Government: </li></ul><ul><li>Initiates, provides </li></ul><ul><li>incentives and sets </li></ul><ul><li>eligibility criteria. </li></ul><ul><li>Candidate must offer: </li></ul><ul><li>-Facility suitable for R&D </li></ul><ul><li>-Capabilities to assist in </li></ul><ul><li>financial and business </li></ul><ul><li>management </li></ul><ul><li>Public organizations: </li></ul><ul><li>Municipal/regional </li></ul><ul><li>authorities, research </li></ul><ul><li>institutes/universities, </li></ul><ul><li>industrial organizations </li></ul><ul><li>and investors groups </li></ul>
  21. 22. The program structural lay-out
  22. 23. An incubator is... <ul><li>Independent legal entity </li></ul><ul><li>Non-profit organization </li></ul><ul><li>Has: -A professional experienced manager </li></ul><ul><ul><ul><li>- Board of directors from industry, business </li></ul></ul></ul><ul><ul><ul><li>sector, research institutes </li></ul></ul></ul><ul><ul><ul><li>- Suitable facilities for R&D activity </li></ul></ul></ul><ul><li>In each incubator: 10 - 15 projects </li></ul>
  23. 24. Incubator offers the entrepreneur ... (1/2) <ul><li>Facilities appropriate for R&D (low rent) </li></ul><ul><li>Financing of 85% - 100% of R&D expenses </li></ul><ul><li>Assistance in obtaining the complementary financing (15%) </li></ul><ul><li>Central administrative services (secretarial, accounting, legal, acquisition) </li></ul>
  24. 25. Incubator offers the the entrepreneur ... (2/2) <ul><li>Assistance in management, logistics and business development </li></ul><ul><li>Assistance in commercialization </li></ul><ul><li>A use of a structural and professional infrastructure </li></ul><ul><li>Inter-tenant synergism </li></ul>
  25. 26. Project selection criteria <ul><li>Product oriented </li></ul><ul><li>Rooted in technological R&D </li></ul><ul><li>Innovation and uniqueness </li></ul><ul><li>For export mainly </li></ul><ul><li>Feasible with available resources </li></ul><ul><li>Individual initiative </li></ul>
  26. 27. Project proposal...
  27. 28. Government financial support <ul><li>To incubator : 100% of approved budget - up to $180,000 annually </li></ul><ul><li>To project : - 85% of approved budget - up to $150,000 annually - 2 years maximum </li></ul>
  28. 29. Special attention to regional development Incubators in peripheral regions: 100% government participation in R&D costs to three projects per year but only for the the first year of each project
  29. 30. <ul><li>Registered as an independent company </li></ul><ul><li>Staff size: 3 - 5 </li></ul><ul><li>Support duration- up to 2 years </li></ul><ul><li>85% - by the Government -up to $300,000 </li></ul><ul><li>15% - by private investors - about $50,000 </li></ul><ul><li>100% budget per 2 years - about $350,000 </li></ul><ul><li>Covered expenses include: salaries, materials, equipment, subcontracting, consulting, patent applications, marketing, overheads . </li></ul>Project organization and financing
  30. 31. Preliminary ownership distribution of a project company
  31. 32. Government incubators budget: $ 223m in 10 years
  32. 33. Current status as of mid 2000 <ul><li>24 Technological incubators </li></ul><ul><li>200 Projects operating currently </li></ul><ul><li>9 Projects in average in each of the incubators </li></ul><ul><li>619 Projects have been already out of the incubators </li></ul>
  33. 34. Current status of projects as of mid 2000 <ul><li>24 Technological incubators </li></ul><ul><li>200 Projects operating currently </li></ul><ul><li>9 Projects in average in each of the incubators </li></ul><ul><li>619 Projects have been already out of the incubators </li></ul>
  34. 35. Incubators’ projects fields of activity
  35. 36. Summary of projects graduation and evolution pattern as of mid 2000
  36. 37. Collaboration with private investors <ul><li>Private investors are already partners in 16 out of the 24 Incubators </li></ul><ul><li>The private investments are made to the Incubators’ budget in return for the Incubators shares in the projects </li></ul><ul><li>The Incubators are considered an “interesting” investment targets </li></ul>
  37. 38. Segmentation of private 2000 investments as of mid Total private investments $ 406 m Continuing graduate projects 376 During the incubation period 15 Complimentary financing 15
  38. 39. <ul><li>Significant financial support to the projects </li></ul><ul><li>Support is limited to technological R&D with </li></ul><ul><li>practical commercial potential </li></ul><ul><li>Limited Incubation term </li></ul><ul><li>Complementing the activity of VC funds </li></ul>The characteristic features of the program (1/2)
  39. 40. The characteristic features of the program (2/2) <ul><li>Depends to a large extent on involvement of representatives of the public from the public and the private sectors: From the industry, financial and scientific communities </li></ul><ul><li>Intends to nurture the innovation potential of individuals in the population at large </li></ul><ul><li>Bottom - up approach to the technology field of the projects- no specialization </li></ul><ul><li>Presence in all areas of the country </li></ul>
  40. 41. Success stories (1/2) <ul><li>$ </li></ul><ul><li>Company Investment Sales Fund raised </li></ul><ul><li>Visionix 20M 7.5M 12M (Frankfurt Stock E.) </li></ul><ul><li>Compugen 26.7 10.5 - </li></ul><ul><li>3T Ltd. 5.7 3.0 - </li></ul><ul><li>Nanomotion 16 4.0 - </li></ul><ul><li>Medicalith Merged with ESC Ltd. Raised 100M (NASDAQ) </li></ul><ul><li>Phono-Or Ltd 5.3 Sales agreement of 100M </li></ul>
  41. 42. Success stories (2/2) <ul><li>Company product </li></ul><ul><li>Visionix Ltd Optical surface characterization system </li></ul><ul><li>Compugen Ltd. Biological data computation </li></ul><ul><li>3T Ltd. True temp. pyrometere </li></ul><ul><li>Nanomotion Ltd Direct dive ceramic linear motors </li></ul><ul><li>Medicalith Ltd. Dermatological illumintors </li></ul><ul><li>Phono-.Or Ltd Optical microphones </li></ul>
  42. 43. A mature program but open to renewing amendments... <ul><li>Additional incentives to private investors for participating in incubators </li></ul><ul><li>Increased budget per project </li></ul><ul><li>New elements of competition: For entering an incubator and for project acceptance </li></ul><ul><li>More emphasis on support to regional incubators </li></ul>
  43. 44. Web site
  44. 45. Acknowledgement Consortium IFISE and Arie SADOVSKI wish to acknowledge the support that was provided to the a/m project and to the preparation of the 2nd part of the presentation in advice and materials by Rina PRIDOR Program Director OCS -Technological Incubators Ministry of Industry and Trade