Arie SADOVSKI Center for Study of Organizations & Human Resources University of Haifa

Sadovski, U. od Haifa, 2 IFISE Objectives 1.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 2.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 3.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

Sadovski, U. od Haifa, 3

4 The Yozma and Technological Incubators programs were put in place by the Office of the Chief Scientist Ministry of Industry and Trade

Sadovski, U. od Haifa, 5 THE YOZMA PROGRAM

Sadovski, U. od Haifa, 6 Venture capital funds in Israel today Venture capital funds in Israel today (Funds and other capital sources as of December 31, 1998) Funds Number $ Millions Technology venture capital funds Yozma funds * Private funds 43 1,512 Public and other funds 4 98 Total571,866 Other private equity Funds All funds882,630 Investment companies All capital sources 1012,865 (Source: Reiter & Klein 1999)

Sadovski, U. od Haifa, 7 Venture capital in Israel up to 1992 ? N=1

Sadovski, U. od Haifa, 8 Yozma biography Established as a wholly-owned Venture Capital Company by the government Total capital : $ 100 million Inaugurated in mid 1992, began operation in 1993 Privatized in 1997

Sadovski, U. od Haifa, 9 Yozma objectives To create VC industry as a source for capital for the emerging hi-tech start-up companies

Sadovski, U. od Haifa, 10 Yozma methodology To entice the private sector and foreign investors to set up new VC funds Participation of Yozma (Government sponsorship) 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

Sadovski, U. od Haifa, 11 Yozma operational guidelines Yozma investments in the new VC, up to 40% of the VC’s capital and not more than $8 millions per fund The incentive to the private investors: An option to buy the government (Yozma) shares during the first five years of the funds’ existence at the government investment price plus Libor+1% and 7% of the future profits

Sadovski, U. od Haifa, 12 Yozma programme agenda (1/2) Importing knowledge and experience to set up and operate VC funds and creating local management teams Raising capital for investment in the high-tech start-ups. Creating an international network with foreign VCs and other investors.

Sadovski, U. od Haifa, 13 Yozma programme agenda (2/2) Government shares the risks and takes a leading role for a limited period of time Creating up to 10 small size new funds To invest directly in start-up companies (Invested in 15 companies)

Sadovski, U. od Haifa, 14 Yozma 10 baby funds and the leading foreign investors EurofundDaimler-Benz, DEG (Germany) GeminiAdvent (USA) InventechVan Leer Group (NL) Jerusalem Ventures Pacific Oxton (US/Far East) MedicaMVP (USA) Nitzanim-ConcordAVX, Kyocera (Japan) PolarisCMS (USA) Star TVM (Germany) & Singapore Tech VERTEXVertex international funds WaldenWalden (US)

Sadovski, U. od Haifa, 15 Yozma baby funds growth From $200 millions take off capital to managing $2.9 billions capital, collectively Yozma baby funds take a prominent position in the list of the 20 major funds that comprise the leading VC funds in Israel

Sadovski, U. od Haifa, 16 Yozma baby funds maturity Yozma baby funds maturity ($) millions Capital Planned for 2001 Eurofund Gemini Inventech Jerusalem Ventures Partners Medica 70 - Nitzanim-Concord Polaris Star VERTEX Walden Yozma Total billions

Acknowledgement The assistance of Mr. Yigal Erlich Chairman&Managing Partner THE YOZMA GROUP And the initiator of the Yozma Program to the 1st part of the presentation is gratefully acknowledged

Sadovski, U. od Haifa, 18 Government sponsored TECHNOLOGICAL “INCUBATORS” IN ISRAEL

Sadovski, U. od Haifa, 19 The official program objectives To support the initiation of high-tech industry by supporting novice entrepreneurs at the earliest stages of technological entrepreneurship To encourage new export oriented industry To create new employment opportunities for technologically skilled persons

Sadovski, U. od Haifa, 20 The program methodology To provide a supportive and protective environment to individual inventors and entrepreneurs, for the development of technological innovations into business ventures.

Sadovski, U. od Haifa, 21 Establishment of an incubator How and Who... Government: Initiates, provides incentives and sets eligibility criteria. Candidate must offer: -Facility suitable for R&D -Capabilities to assist in financial and business management Public organizations: Municipal/regional authorities, research institutes/universities, industrial organizations and investors groups

Sadovski, U. od Haifa, 22 The program structural lay-out

Sadovski, U. od Haifa, 23 An incubator is... Independent legal entity Non-profit organization Has: -A professional experienced manager - Board of directors from industry, business sector, research institutes - Suitable facilities for R&D activity In each incubator: projects

Sadovski, U. od Haifa, 24 Incubator offers the entrepreneur... Incubator offers the entrepreneur... (1/2) Facilities appropriate for R&D (low rent) Financing of 85% - 100% of R&D expenses Assistance in obtaining the complementary financing (15%) Central administrative services (secretarial, accounting, legal, acquisition)

Sadovski, U. od Haifa, 25 Incubator offers the the entrepreneur Incubator offers the the entrepreneur... (2/2) Assistance in management, logistics and business development Assistance in commercialization A use of a structural and professional infrastructure Inter-tenant synergism

Sadovski, U. od Haifa, 26 Project selection criteria Product oriented Rooted in technological R&D Innovation and uniqueness For export mainly Feasible with available resources Individual initiative

Sadovski, U. od Haifa, 27 Project proposal...

Sadovski, U. od Haifa, 28 Government financial support To incubator : 100% of approved budget - up to $180,000 annually To project : - 85% of approved budget - up to $150,000 annually - 2 years maximum

Sadovski, U. od Haifa, 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

Sadovski, U. od Haifa, 30 Registered as an independent company Staff size: Support duration- up to 2 years 85% - by the Government -up to $300,000 15% - by private investors - about $50, % budget per 2 years - about $350,000 Covered expenses include: salaries, materials, equipment, subcontracting, consulting, patent applications, marketing, overheads. Project organization and financing

Sadovski, U. od Haifa, 31 Preliminary ownership distribution of a project company

Sadovski, U. od Haifa, 32 Government incubators budget: $ 223m in 10 years

Sadovski, U. od Haifa, 33 Current status as of mid Technological incubators 200 Projects operating currently 9 Projects in average in each of the incubators 619 Projects have been already out of the incubators

Sadovski, U. od Haifa, 34 Current status of projects as of mid Technological incubators 200 Projects operating currently 9 Projects in average in each of the incubators 619 Projects have been already out of the incubators

Sadovski, U. od Haifa, 35 Incubators’ projects fields of activity

Sadovski, U. od Haifa, 36 Summary of projects graduation and evolution pattern as of mid 2000

Sadovski, U. od Haifa, 37 Collaboration with private investors Private investors are already partners in 16 out of the 24 Incubators The private investments are made to the Incubators’ budget in return for the Incubators shares in the projects The Incubators are considered an “interesting” investment targets

Sadovski, U. od Haifa, 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

Sadovski, U. od Haifa, 39 Significant financial support to the projects Support is limited to technological R&D with practical commercial potential Limited Incubation term Complementing the activity of VC funds The characteristic features of the program (1/2)

Sadovski, U. od Haifa, 40 The characteristic features of the program (2/2) 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 Intends to nurture the innovation potential of individuals in the population at large Bottom - up approach to the technology field of the projects- no specialization Presence in all areas of the country

Sadovski, U. od Haifa, 41 Success stories (1/2) $ Company Investment SalesFund raised Visionix 20M7.5M12M (Frankfurt Stock E.) Compugen T Ltd Nanomotion MedicalithMerged with ESC Ltd.Raised 100M (NASDAQ) Phono-Or Ltd 5.3Sales agreement of 100M

Sadovski, U. od Haifa, 42 Success stories (2/2) Companyproduct Visionix Ltd Optical surface characterization system Compugen Ltd.Biological data computation 3T Ltd. True temp. pyrometere Nanomotion LtdDirect dive ceramic linear motors Medicalith Ltd.Dermatological illumintors Phono-.Or LtdOptical microphones

Sadovski, U. od Haifa, 43 A mature program but open to renewing amendments... Additional incentives to private investors for participating in incubators Increased budget per project New elements of competition: For entering an incubator and for project acceptance More emphasis on support to regional incubators

Sadovski, U. od Haifa, 44 Web site

Sadovski, U. od Haifa, 45 AcknowledgementAcknowledgement 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