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Israeli Venture Capital

Due to lack of venture or any other capital on its home turf Israeli companies in the 70s turned to Wall Street to fuel their expansion. At that time the short-list of Wall Street companies who raised funds for their activities on Wall Street included BioTechnology General, Elbit Computers, Electronics Corporation of Israel (ECI), Elron Electronics Industries, Elscint, Fibronics, InterPharm, Laser Industries, Optrotech, Scitex and IIS Intelligent Information Systems. On September 30, 1984 the total stock market valuation of these companies stood at $780 million. In 1997 the Israel Ventures Association handbook listed that 22 Israeli public offerings in the US raised $743 million.

The first generation of venture capital funds began to operate in the late 1980s and this movement accelerated in 1990s. Local and international "money men" were noticing that Israel had become second only to the United States with its number of start-up companies. The conclusion was reached that there existed a pool of entrepreneurial capabilities and a continuous flow of new ideas within Israel. In view of the modest beginnings of the Israeli venture capital industry it is mind boggling that as of December 1997 Israeli technology and private equity funds had raised $2.1 billion of which $1.2 billion had been invested and $900 million remained to be invested.

The explosive boom in startups has attracted the nucleus of an expanding venture capital industry. There are 85 venture capital firms active in Israel. Technology venture capital funds have raised between 1991-1997 more than $1.5 billion.

The Israel venture capital industry was born in 1985. At the time it was a remarkable birth yet inconspicuous. In retrospect, as some babies tend to be, it was amazingly small, highly precocious but long on hope and full of promise. The infant was named Athena Venture Partners. Athena's managing partner was a past Commander of Israel's Air Force Dan Tolkowsky. Another partner Fred Adler, was one of America's premier venture capitalists who had assisted several Israeli companies in raising capital on NASDAQ. Glen Tobias, a General Partner at Bear Stearns helped to structure the fund which raised $25 million. Glen Tobias wrote to the Israel High-Tech and Investment Report at the time, "Athena Venture Partners represents an attractive investment opportunity to participate in quality high-technology companies at the venture capital stage, with an emphasis on such companies based in Israel".

The high-tech sector, crowned by enthusiasm, engendered by the successes already achieved, has created an encouraging environment for its further rapid growth and expansion. It provides an atmosphere which can nurture the dreams of young scientists, investors and entrepreneurs, with the dreams being turned into the realities of tomorrow.

At the same time there began a continuing and harmonious interaction between the Israeli Government and hi-tech entrepreneurship. It undoubtedly accelerated the successful development of all stages of the "smart" industries, including academic, R&D, transition to commercialization, and venture capital - the business development catalyst.

An expression of that support is the Government of Israel research and development (R&D) budget of $400 mln. The R&D expenditure represents 2.2% of Israel's Gross Domestic Product, according to data published by the Central Bureau of Statistics. The funding subsidizes the average startup with about $150,000 a year.

On a percentage basis the business sector, primarily high-tech industries accounted for 46% of the total. 37% was allocated for R&D in the country's universities, 10% for government and 7% for non-profit organizations.

The recent resounding and high profile acquisitions of Israeli high-technology companies by America OnLine and Platinum and will undoubtedly add to the impetus to launch a second generation of venture capital funds with capital of $100 million, or more.

The business press now regularly quotes heads of venture capital management companies. Many of these, if not household names, have become prominent due to their ability to spot "a good deal". Giza, Veritas, Evergreen, Dovrat/Schrem, Clal Venture, Challenger, Comverse, Apax-Leumi, Jerusalem Venture, Kardan, Marathon, Medica Ventures, Neurone, Medmax, Mofet, Ofer, Shirat, Rennaissance and Walden have shown that they have the ability to attract foreign capital and and invest it in the expanding sea of the universe of Israeli high-tech. What gave credence to these activities were the outlandishly bountiful rewards garnered from venture capital backed companies such as ESC Medical, Gilat Satellite, Mirabilis and most recently Memco.

There is tendency to address 'earlier stage' enterprises that require more management attention. More venture capital funds are creating internal structures which can provide management assistance along with capital. Another trend is the growth in size of individual funds who can provide funding at later stages when greater sums are generally required.

Just as Israeli companies look to attracting foreign strategic partners so foreign financial groups seek suitable Israeli partners with whom to co-invest in high-tech investments.

Israel's Clal Group recently announced that together with the French Banque Nationale de Paris and Rind Butler Group of the US it has established the "Omega" Capital Venture Fund, amounting to $100 million. The fund will invest in Israeli high tech companies, with the cooperation of US and French companies. Clal is to make connections with Israeli companies, and experts from technological and financial fields. Hillel Milo, who founded the Clal Capital Venture Fund in 1995, has been appointed the fund's CEO.

The Zisapel brothers founders of the RAD Group of companies, a group of companies specializing in electronics and computer communication with a turnover in excess of $500 million, are forming the RAD Ventures Fund which aims to raise $100 million from local and foreign investors for investment in Israeli computer, telecommunication, intranet and internet companies.

The local venture capital industry was on full display in mid-September 1998 when the Israel Venture Association hosted an International Conference on high-tech venture capital.

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