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

2. THE ISRAELI OPPORTUNITY
The Right Ingredients
Wealth of Human Capital
Mass Immigration
• 1 Million people
Israel
(mostly within 3 years)
USA
# of Engineers/
Scientists per
• Quantity: 20% of Israeli Population
Japan
Germany
• 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.)
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4. Deal Flow Deal Flow Sources Repatriate Israelis Defense Sources
Corporations
Deal Flow
Sources
Spin-offs
R&D centers
Universities
New
Immigrants
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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
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6. Government Support for the High-Tech Industry- Pros and Cons
Chief Scientist  Only R&D
Tech. Incubators  Only Seed
Gov’t Guarantees  No Risk Lowering
Venture Capital  Equity-Based
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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
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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)
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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
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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
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11. Yozma Drop-Down Funds (1)
FUND PARTNERS
Eurofund Daimler-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
Eurofund
Gemini
Inventech
JPV
Medica
Nitzanim-Concord
Polaris
Star
VERTEX
Walden
,880
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13. The Government as a Catalyst
Intervention
Establishment
of Yozma
Market
Failure
$100M Investment
1993
Government
Exits
Yozma Privatized
1997
Problem
Solved
Return>$100M
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14. Countries Following the Yozma Example
Czechoslovakia
Taiwan
Denmark
Australia
New Zealand
Korea
South Africa
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15. 2nd Wave: Yozma Funds Raise Continuation Funds
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 90s00 90 80
Number of SUs: ~
3000 ~
300 ~
150
Number of VC Companies: ~
100 2
Accumulated No of
IPOs (hi tech): ~
130 9 1
Accumulated VC-backed IPOs: ~ 70 3 1 %
Foreign Sources in SU funding
67% NA NA
תכונות של האשכול %
IT Exports in Manufacturing Exports 45 . 7% ~
33% ~
20%

19. Capital Raised in US Public Offerings of Israeli Companies (94’-01’)
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. Total Amount Invested ($m) : 812 No. of Deals : 656
Israeli VC Activity in 2001
Total Amount Invested ($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
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24. Average Leading VC Size ($M)
VC firms development over the years
1993-5
1996-8
Average Leading VC Size ($M) 20 80
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 Round Product/Initial Sales
(Attractive)
Pre-IPO Profitability, Expansion
(Love it)
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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
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29. Korea Venture Fund
Korean Government
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