Transcript The Israeli VC Industry: Emergance, Operation and Impact

The Israeli VC Industry:
Emergence, Operation and
Impact
Emergence….
• Clearly, Yozma played a significant role in the
development of the Israeli VC Industry.
• Yozma acted as main catalyst in creating the
VC industry in Israel – the supply side
• However…The success of Yozma was much
depended on the existence of other enabling
factors - mainly the demand size.
Main Objectives
• Identifying the background conditions for
Yozma success
• Learning some lessons on policy design
processes.
• Implications for Italy
Contents Of Presentation
• Part A: Background- Phases in the Israeli high
tech industry and Innovation Technology Policy
• Part B: Phases in the Emergence and growth of
the Israeli VC industry
• Part C: Policy Implications for Italy
• Part D – The Israeli case of Biotechnology
Part A: Phases in the Israeli High
Tech Industry and Innovation
Technology Policy:
1. R&D penetration period: 60-89
2. Silicon Valley period: 90-00
R&D Penetration Period
1960-1970
• 50’s-60’s: emergence of an innovative agriculture
sector.
•After 67’: create a domestic capability for
supplying advanced military equipment (this
required also high level Military R&D).
•Military R&D cooperation with US, Germany and
France - transfer of technology from those countries
to Israel’s military industry.
R&D Penetration Period
1970-1980
•70’s-80’s: dominance of strong military industry
•70’s-80’s: first foreign multinational companies
establish R&D centers in Israel: Motorola (1964),
IBM (1972), Intel (1974) and National
Semiconductors (1978).
• In 1972, Elscint (Hi-Tech company) became the
first Israeli company to be traded on an US stock
exchange.
R&D Penetration Period
1980-1990
•
Mid 80s: re-structuring of the military
industries
•
Share of high-tech industries in total
manufacturing output (and exports) increased
between 1968 and 1983 from 6 % (5%) to 24%
(28%).
R&D Penetration Period
1980-1990 – Cont.
• High Growth Rate of industrial Civilian R&D from 26 M$ real to 347 M$ between 1970 and
• Numbers of Skilled employees in Manufacturing
grew from 3400 in 1968 to over 20000 in 1987;
• Skill intensity increased from 1.3 % to 5.8%
Silicon Valley Period
1990-2000
• The breakdown of the Soviet Union, which brought
a very large number of immigrant Scientists and
Engineers to Israel.
• Liberalization process which generate a better
environment for doing business in Israel.
• Beginnings of Globalization of US capital markets
with respect to SU
Intermediate Conclusions (1):
• The creation of the high-tech industry
(the “demand side”) was a result of:
–
–
–
–
Changes in national priorities
Institutional changes
Global Economical changes
Availability of skilled labor
Part B: Innovation & Technology
Policy
Innovation & Technology Policy
1950-1970
• 50’s-60’s: Promotion of capital investments in
Industry. This stimulated the establishment of R&D
performing MNE in Israel during the 70s & 80s
•No policy supporting Industrial R&D till 1969.
Innovation & Technology Policy
1970-1980
•
1969-70: Establishment of the Office of the Chief
Scientist (OCS)
•
R&D incentives since 1970 induced a high rate of
growth of business sector R&D and a strong
process of learning about innovation
Innovation & Technology Policy 1980-
1990
•
1977 Implementation of BIRDF
• Till the 90s, more than 90 % of R&D subsidies to
companies still came through the regular “R&D
Industrial fund”(‘backbone’ program)
New ITP Programs
• Other OCS support programs– Marketing,
Innovation in SMEs, Export research, etc.
• Technology Incubator program – supporting
startup companies in very early stages..
• INBAL program – gives guarantee to public VC
companies on the down side.
• MAGNET program – Support generic R&D.
• …… Yozma program (1993-97)
Influences of the R&D Policies
•
Significant growth in R&D expenditures
•
Rapid growth in employment of Engineers &
Scientists in the Industry
•
Strong ‘Learning to Innovate’ process
•
Creation of a identifiable civilian oriented High
Tech industry
•
High growth rate in high tech output and exports
•
Rapid increase in the share of High Tech in
Manufacturing output and exports
Table 1: OCS R&D Grants (Nominal M$)
Year
Total
Grants
Regular R&D
support
MAGNET
1990
136
NA
0
1991
179
NA
1992
199
1993
Technology
Incubators
Miscellaneous
Royalties
0
NA
NA
0
1.8
NA
NA
NA
5
10
NA
NA
231
NA
10
18
NA
NA
1994
316
NA
10
23
NA
NA
1995
346
286
15
31
13
64
1996
348
276
36
30
5
91
1997
397
303
53
30
11
121
Table 2: IT High Tech Manufacturing Industry
Year
Total Sales
(000$)
Exports (000$)
Employees
Sale per
Employee (000$)
1991
3,618
2,283
33,000
109
1992
3,996
2,660
34,000
117
1993
4,610
3,200
36,500
126
1994
5,200
3,750
38,000
137
1995
5,890
4,300
40,000
147
1996
6,500
4,880
42,000
155
1997
7,200
5,700
43,000
166
1998
8,030
6,550
44,700
180
1999
8,580
7,130
45,800
187
2000
12,500
11,000
53,800
232
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Intermediate Conclusion (2):
• The different support schemes of the
OCS and the Incubator programs have
created the conditions for civilian R&D
oriented industries and for
entrepreneurship.
• These conditions enabled the
emergence of the VC industry
Phases in the Emergence and
Growth of the Israeli VC
Industry
Phase1 (1993-1996)
Creation-Emergence and Learning
(1)
• Dominated by Yozma funds.
• Very low SU company valuations.
• Small funds (~$20M).
• Small amount invested in each startup and small
numbers of investments.
• Large share of co-investment with other Israeli VCs
• Little seed investments and no specialization in areas.
Phase1 (1993-1996)
Creation-Emergence and Learning (2)
•
Foreign partners had important role and operational
role.
•
Cumulative learning
•
Very little understanding of the market and the VC
business - Very small added value.
•
Goal of VCs to make fast exit through M&A (in low
valuations - $10M-$70M).
Phase2 (1996-1998)- Growth (1)
•
First round of private VC funds not related to Yozma
•
still low valuation in private investment, compared to US
startups.
•
medium sized funds (~$100M).
•
Increase in the amount invested in each startup and fewer
portfolio companies.
•
Increase in seed investments and beginning of
specialization in areas.
•
Foreign partners had less important, non-operational roles.
Phase3 (1999-2000) - Maturity (1)
•
Many VC companies and large variety of VC
company types.
•
Normal valuation in private placements,
compared to US startups.
•
Most VCs specialized in certain areas
•
increase in seed investments.
•
Increase in VCs added value capabilities.
Phase3 (1999-2000) – Maturity (2)
• Increase in co-investment with US VCs.
• Goal of VCs to create successful independent
companies or very high valuation Exits.
• Israeli startup companies becoming less dependent
on Israeli VC’s added value
The Israeli VC “Case-Study” suggests
That:
• Success of targeted policies is much depend
on:
– Clearly analyzing the failures
– Identifying the required enabling elements
– Create the condition for these elements to exist
• Timing is Crucial
• Carrying on-going learning process is
important
This may require:
• Coordination with existing policies
• The implementation of new
policies/schemes
• Institutional changes
• Political/Economical changes
• Cultural changes
• Etc.
The Emergence of VC industry was
the Result of:
• High demand backed with strong R&D
capabilities
• High entrepreneurial activity backed
with public support schemes
• Many good investments opportunities
• Proper economical and political
conditions
• …Targeted incentives for VCs (YOZMA)
Part C: The Israeli Biotechnology
Study
The Israeli Biotechnology Market
•
•
•
•
•
•
•
•
160 companies (30% in therapeutics)
10 Public companies
4000 employees
Market valuation: $3.5 billion
Market capitalization: $2.7 billion
Av. Growth in no. of companies: 14%
Sales: $800 million (incl. the Copaxon)
75% of the companies employs less then 20
• First IPOs in early 80th
• The experience gained in IT is partly be
relevant in Biotech
• Therefore, only 8 Israeli VCs are
focused on Biotechnology
• Other financial tools have been
developed during the 90th.
Other Financing Tools include:
•
•
•
•
•
•
Public Incubators
Private Incubators
Corporation Biotech Funds
TTOs’ funds
Angels
New Incubator scheme
Israel Biotechnology Sector
Israeli Biotechnology Companies by
Location
Tel-Aviv
19%
Rehovot
27%
Other Beer-Sheva
3%
8%
Jerusalem
22%
Haifa
21%
Israeli Biotechnology Companies By Field
of Technology
Segment
Thepeutics
Diagnostics
Agrobiotech
Biological
Bioinformatics
Other
Total
Companies Employees
43
27
30
14
6
48
160
1200
471
830
492
231
300
3524
1999
sales $M
166
28
114
79
3
250
640
2000 Market
Value $M
2,222
138
286
149
472
350
3,617
Typical Limitations of BioPharmaceutical companies
• Complex regulation
• Research is complex, lengthy and
costly
• Costly infrastructure is required carry
out the research
• Marketing of new drugs is an extremely
difficult task
Typical Business Model
Strong Team of entrepreneurs
Significant Innovative Idea
Pre - Clinical Tests
Royalties
Royalties
Phase I + II
After 2-3 successful drugs
IPO
Strategic Partner
Phase III
NDA + Marketing
Licensing / Selling of IPR
Phase III
Conclusion from the Israeli Biotech
Study (1):
• Bio-Pharmaceutical function as R&D
companies for long period of time without
reaching an economical independency
• IPO is commonly not an “Exit” but rather part
of R&D financing
• Complex networks are necessary for the firm
development (IPR, Regulation issues,
Financing, Infrastructure, CROs, Strategic
Partners, etc.)
Conclusion from the Israeli Biotech
Study (2):
• Proximity to academic institutes is important
in order to ease the flow of knowledge
• VCs find difficulties in entering biotechnology.
Thus relatively small no. of VCs are active.
• Policies directed towards Biotech can hardly
be mixed with other regional development
policies
Part C: Policy Implication For
Italy
Implication for Italy
The policy for promoting SU should focus on:
• Creating higher demand (increasing
entrepreneurial activity)
• Extending and simplifying the support for R&D
oriented firms
• Closing the information gap between potential
entrepreneurs and VCs
• Strengthening of relations between universities
and SU
• Institutional changes (especially in regards to
technology transfer)
end