|
The Israeli Venture Capital
Industry Review (Published in 1999 IVA Yearbook)
Allon Reiter, Associate Yishai
Klein
Analyst Giza Investment
Management
Introduction
This review
examines the development and performance of Israel’s private equity
industry focusing on quantitative data that illustrates the industry’s
growth.
We included
data highlighting the success of selected venture-backed companies in the
capital raising on world stock markets. In addition, a summary of the
numerous M&A transactions of Israeli companies in recent years is
outlined, depicting a growing trend by large international corporations to
acquire Israeli high tech companies.
Tables 1-3
summarize capital raising efforts of the Israeli venture capital industry,
amounts raised by year and amounts still available for investment. These
tables distinguish between the types of venture capital funds and other
investment funds and companies.
Table 4
shows investments of over 450 venture backed companies by industry sector.
Table 5 provides a comprehensive summary of the major public offerings made
by venture-backed companies from1993 through 1998 on world stock exchanges.
Tables 6 and 7 present the total amounts raised by Israeli companies in
equity public offerings on US and UK stock exchanges in recent years. Table
8 summarizes public offering data on Euro N.M, the pan-European network of
five stock exchanges.
Table 9
outlines the most significant M&A transactions involving Israeli
technology companies as the target (the entity being acquired) from 1994 to
1998.
Methodology
Data for
tables are 1-3 derived from information reported to Giza by most private
equity funds and cross-checked with other available information. In cases
where funds did not disclose all relevant figures, estimates were used.
“Amounts Invested” in Table 3 are estimated and include investments in
portfolio companies, commitments for future investments and fund management
fees. In Table 1 “Active Funds” are defined as funds that have a minimum $3
million available for investment. Tables 4 is based on data provided to
Giza by funds. Table 5-9 are a compilation by Giza Group of publicly
available information.
Note that
yearly figures related to venture capital fund raising and amounts invested
(Tables 1-3) may differ from those reported in past years due to fund
reclassifications or new information that has become available.
Definitions
Technology
Venture Capital Funds. These include funds focused on investments in
technology companies.
- Yozma funds – funds established as part of
the Yozma program
- Private funds – funds established with
private capital
- Public and other funds – includes several
public venture capital funds as well as several other companies with
venture-like investment strategies
Other
Private Equity Funds. These
include all private equity funds that have a diversified investment
strategy, i.e., funds that invest most of their capital in:
- non-technology companies or
- late-stage situations (including
technology companies).
It should
be noted that several of the “Other Private Equity Funds” do invest a
portion of their capital in start-up technology companies.
Investment
Companies. These include
investment companies that can be characterized as operating in a similar
manner to venture capital funds, yet lack the structure unique to a venture
capital fund.
According to our definition:
Their only
activity is investing in Israeli/Israeli related high tech companies.
They are
funded by one corporate investor or a limited number of investors. They
have a professional privateequity management team.
They often
do not have a specified amount of capital under management, but rather
operate on a “capital supply when needed” basis.
Industry Growth
In 1990,
there was only one venture capital fund operating in Israel. There were,
however, several established investment companies which were investing in
high technology companies. Today, there are 46 active venture capital funds
with $1.9 billion in capital.
The growth
of the venture capital industry has accelerated over the past few years. In
1998, venture capital funds raised $668 million, reflecting a slowing in
the capital raising process. In 1997, venture capital funds raised a record
$712 million, almost double the $397 million raised in 1996.
|
Table 1 : Number of Funds
and Capital Raised (as of December 1998)
|
|
|
Existing Funds
|
Active Funds*
|
|
|
Number
|
$ Million
|
Number
|
$ Million
|
|
Technology Venture
Capital Funds
|
|
|
|
|
Yozma Funds
|
10
|
256
|
2
|
72
|
|
Private Funds
|
43
|
1,512
|
26
|
1,309
|
|
Public & Other
Funds
|
4
|
98
|
4
|
98
|
|
Total
|
57
|
1,866
|
32
|
1,479
|
|
|
|
|
|
|
|
Other Private Equity
Funds
|
31
|
764
|
9
|
267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Funds
|
88
|
2630
|
41
|
1,746
|
|
|
|
|
|
|
|
Investment Companies
|
13
|
236
|
5
|
147
|
|
|
|
|
|
|
|
All Capital Sources
|
|
|
|
|
|
Total
|
101
|
2,865
|
46
|
1,893
|
|
Funds that have a
minimum $3 million available for investment
|
|
A number of
reasons can be attributed to the surge in amounts raised in the past two
years. One significant reason is that tax exempt institutions were granted
tax exemption on their investments in Israeli venture capital funds as of
late 1996. Another reason is that many funds were formed in cooperation
with large international banks and finance companies. Many of the world’s
most prominent financial institutions have therefore taken an active role
in the Israeli venture capital industry. So too, large international
corporate investors have become involved in the industry, as they seek to
capitalize on the numerous emerging technology companies emanating from
Israel. The involvement of major organizations has led to an increase in
fund capacity, and consequently larger investments have been made by
venture capital funds per round, allowing for the funds to take a more
active role in portfolio companies. From the portfolio company point of
view, increased capital raised per round enables it to seek funding less
frequently and allows the company to concentrate on those issues which will
guarantee its progress and development.
|
Table 2: Capital Raised by Year ($ millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1991
|
1992
|
1993
|
1994
|
1995
|
1996
|
1997
|
1998
|
Total
|
|
Technology Venture Capital Funds
|
|
|
|
|
|
|
|
|
Yozma Funds
|
0
|
0
|
149
|
40
|
15
|
20
|
5
|
27
|
256
|
|
Private Funds
|
49
|
27
|
33
|
72
|
45
|
244
|
599
|
443
|
1,512
|
|
Public & Other Funds
|
0
|
54
|
22
|
0
|
0
|
0
|
22
|
0
|
98
|
|
Total
|
49
|
81
|
204
|
112
|
60
|
264
|
626
|
470
|
1,866
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Private Equity Funds
|
0
|
45
|
128
|
242
|
91
|
110
|
66
|
83
|
764
|
|
|
|
|
|
|
|
|
|
|
|
|
All Funds
|
49
|
126
|
332
|
354
|
151
|
374
|
692
|
553
|
2,630
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Companies
|
9
|
34
|
10
|
20
|
5
|
23
|
20
|
115
|
236
|
|
|
|
|
|
|
|
|
|
|
|
|
All Capital Sources
|
|
|
|
|
|
|
|
|
|
|
Total
|
58
|
160
|
342
|
374
|
156
|
397
|
712
|
668
|
2,865
|
There are
over 20 active venture capital funds, each with a capital base in excess of
$50 million. Furthermore Giza estimates that as of March 1999 there were
more than 10 new Israeli venture capital funds that were at various stages
of planning, with a potential aggregate capital base in excess of $700
million.
According
to Giza estimates, total capital raised by venture capital funds and
investment companies amounts to $2.87 billion. Of the total amount raised
Giza estimates that 60% of funds have been invested, with approximately
$1.15 billion available or investment.
|
Table 3 : Amounts Raised and invested ($ millions, as of December 1998)
|
|
|
Amount Raised
|
% Invested
|
Amount Invested
|
Remainder to be invested
|
|
Technology Venture Capital Funds
|
|
|
|
|
Yozma Funds
|
256
|
85%
|
219
|
37
|
|
Private Funds
|
1,610
|
46%
|
702
|
809
|
|
Public & Other Funds
|
98
|
66%
|
65
|
33
|
|
Total
|
1,866
|
53%
|
986
|
880
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Private Equity Funds
|
764
|
80%
|
609
|
155
|
|
|
|
|
|
|
|
All Funds
|
2,630
|
61%
|
1,595
|
1,035
|
|
|
|
|
|
|
|
Investment Companies
|
236
|
54%
|
126
|
109
|
|
|
|
|
|
|
|
All Capital Sources
|
|
|
|
|
|
Total
|
2,865
|
60%
|
1,721
|
1,144
|
Table 4: Industry sector distribution of 450 venture
capital backed investments
|
Industry
|
Distribution
|
|
Biotech / Pharma / Healthcare
|
11%
|
|
Industrial
|
7%
|
|
Medical Devices
|
12%
|
|
Other
|
4%
|
|
Other Technology Company
|
18%
|
|
Software
|
28%
|
|
Telecom / Datacom
|
20%
|
Table 5: Selected Public Offerings of Venture Backed
Companies
|
Company
Name
|
Business
|
Year
|
Stock Exchange
|
Amount Raised
($
M)
|
|
IPO
|
|
|
|
|
|
Tecnomatix
Technologies Ltd.
|
Computer
aided production engineering software
|
1993
|
Nasdaq
|
33.6
|
|
M-Systems
Flash Disk Pioneers Ltd.
|
Computer
Peripherals
|
1993
|
Nasdaq
|
4.6
|
|
Gilat
Satellite Networks Ltd.
|
Telecommunications
|
1993
|
Nasdaq
|
27.61
|
|
Mercury
|
Software
|
1993
|
Nasdaq
|
35.75
|
|
DSP Group
|
DSP Chips
|
1994
|
Nasdaq
|
28
|
|
Arel
Communications & Software Ltd.
|
Message Swiching
Systems
|
1994
|
Nasdaq
|
6.58
|
|
DSP
Communications Inc.
|
DSP Chips
|
1995
|
Nasdaq
|
28
|
|
Zoran
|
DSP Chips
|
1995
|
Nasdaq
|
27.7
|
|
ESC
Medical Systems
|
Medical
Equipment
|
1996
|
Nasdaq
|
46.5
|
|
VocalTec
Ltd.
|
Internet
|
1996
|
Nasdaq
|
47.5
|
|
Logal
Educational Software
|
Educational
software
|
1996
|
Nasdaq
|
15.2
|
|
B.O.S.
Better Online Solutions Ltd.
|
Computer
Communications
|
1996
|
Nasdaq
|
7.7
|
|
Check
Point Software Technologies Ltd.
|
Internet
|
1996
|
Nasdaq
|
58.8
|
|
Orckit
Communications
|
Communications
|
1996
|
Nasdaq
|
52.8
|
|
Geo
Interactive
|
Multimedia
|
1996
|
LSE
|
19
|
|
Summit
Design
|
Integrated
Circuits Design
|
1996
|
Nasdaq
|
38
|
|
Top Image
Systems
|
Software
for Scanning
|
1996
|
Nasdaq
|
6.06
|
|
TTI -
Team Telecom International
|
Software
for telecom services Providers
|
1996
|
Nasdaq
|
15.63
|
|
Eltek
Ltd.
|
Manufacturer
of printed circuit boards
|
1997
|
Nasdaq
|
7.5
|
|
OptiSystems
Solutions Ltd.
|
System
management products
|
1997
|
Nasdaq
|
15.2
|
|
RIT
Technologies Ltd.
|
Premise
wiring products
|
1997
|
Nasdaq
|
18.4
|
|
Galileo
Technologies Ltd.
|
Advanced
digital semiconductor devices
|
1997
|
Nasdaq
|
51
|
|
RadCom
Ltd.
|
Test
equipment for LANs, WAN’s & ATM
|
1997
|
Nasdaq
|
21.85
|
|
Fundtech
Ltd.
|
Solutions
in field of E-commerce
|
1998
|
Nasdaq
|
39
|
|
Paradigm
Geophysical Ltd.
|
Integrated
exploration software systems
|
1998
|
Nasdaq
|
23.45
|
|
Emultek
Ltd.
|
Embedded
systems applications software
|
1998
|
AMEX
|
15.05
|
|
Point of
Sale Ltd.
|
Retail
chain-store software programs
|
1998
|
Nasdaq
|
19.25
|
|
VCON
|
Video
Conferencing
|
1998
|
Nouveau March'e
|
17.6
|
|
Summary
for IPO (28 detail records)
|
|
|
727.32
|
|
Company
Name
|
Business
|
Year
|
Stock Exchange
|
Amount Raised
($
M)
|
|
Follow
On
|
|
|
|
|
|
DSP
Communications Inc.
|
DSP Chips
|
1995
|
Nasdaq
|
38.7
|
|
Mercury
|
Software
|
1995
|
Nasdaq
|
64.6
|
|
Gilat
Satellite Networks Ltd.
|
Telecommunications
|
1995
|
Nasdaq
|
50
|
|
DSP
Communications Inc.
|
DSP Chips
|
1996
|
Nasdaq
|
91
|
|
Tecnomatix
Technologies Ltd.
|
Computer aided
production engineering software
|
1996
|
Nasdaq
|
47.2
|
|
ESC
Medical Systems
|
Medical
Equipment
|
1996
|
Nasdaq
|
94
|
|
M-Systems
Flash Disk Pioneers Ltd.
|
Computer
Peripherals
|
1996
|
Nasdaq
|
13.35
|
|
Check Point
Software Technologies Ltd.
|
Internet
|
1997
|
Nasdaq
|
61.25
|
|
Geo
Interactive
|
Multimedia
|
1998
|
LSE
|
42
|
|
Orckit
Communications
|
Communications
|
1998
|
Nasdaq
|
46.8
|
|
Gilat
Satellite Networks Ltd.
|
Telecommunications
|
1999
|
Nasdaq
|
271
|
|
Summary
for Follow On (11 detail records)
|
|
|
819.9
|
In 1998,
capital raising by Israeli companies through overseas public offerings
declined considerably, due mainly to volatile market conditions. In 1998
total capital raised by 12 companies on US stock exchanges amounted to $505
million. The extent of this reduction in comparison to recent years, is
further highlighted by the fact that one company’s offering accounted for
the majority of capital raised in total. In June 1998, Amdocs made an
initial public offering on the NYSE raising a total of $252 million, one of
the largest offering abroad by an Israeli company to date. These figures
stand in sharp contrast to 1997, when there were 25 public offerings made
by Israeli and Israeli-related companies on U.S. exchanges for a total of
$1.0 billion.
In 1998
there were two public offerings made by Israeli companies on the London
Stock Exchange, raising $89 million. In 1997, there were two offerings on
London’s stock market (one on the AIM market and the other on LSE), for a
total of $24 million.
The Euro.NM
network of European stock exchanges has recently become a popular address
for Israeli companies seeking to raise capital on an international stock
exchange. In December 1997, Astra Technological Investments became the
first Israeli company to go public on the Euro.NM., raising a modest $4
million. In 1998, three companies followed raising a total of $34 million.
In 1999 several Israeli companies are expected to follow this trend and
seek to raise capital on one of the five Euro.NM stock exchanges.
Table 6: Capital raised in Public Offerings of
Israeli Companies in the US (1993 - 1998)
|
|
All Offerings
|
Venture Backed
|
|
Year
|
Number of
Offerings
|
Capital
raised ($ million)
|
Number of
Offerings
|
Capital
raised ($ million)
|
|
1993
|
17
|
529
|
4
|
102
|
|
1994
|
10
|
336
|
2
|
35
|
|
1995
|
16
|
608
|
5
|
209
|
|
1996
|
31
|
982
|
13
|
534
|
|
1997
|
22
|
743
|
6
|
175
|
|
1998
|
12
|
505
|
5
|
144
|
|
Total
|
108
|
3,703
|
35
|
1,198
|
Table 7: Capital raised in Public Offerings of
Israeli Companies in the UK (1993 - 1998)
|
|
All Offerings
|
Venture
Backed
|
|
Year
|
Number of
Offerings
|
Capital
raised ($ million)
|
Number of
Offerings
|
Capital
raised ($ million)
|
|
1995
|
1
|
6
|
-
|
-
|
|
1996
|
5
|
44
|
1
|
19
|
|
1997
|
2
|
24
|
-
|
-
|
|
1998
|
2
|
89
|
1
|
42
|
|
Total
|
10
|
162
|
2
|
61
|
Table 8: Capital raised in Public Offerings of
Israeli Companies on the Euro N.M. (1997 - 1998)
|
|
All Offerings
|
Venture
Backed
|
|
Year
|
Number of
Offerings
|
Capital
raised ($ million)
|
Number of
Offerings
|
Capital raised
($ million)
|
|
1995
|
1
|
6
|
-
|
-
|
|
1996
|
5
|
44
|
1
|
19
|
|
1997
|
2
|
24
|
-
|
-
|
|
1998
|
2
|
89
|
1
|
42
|
|
Total
|
10
|
162
|
2
|
61
|
In recent
years, M&A’s have proven to be a successful exit avenue for young
Israeli high tech companies. Several large corporations, having recognized
the potential of Israeli technology firms, have adopted an acquisition
strategy. Conversely early stage companies have focused on developing their
technologies to a point where they will be viewed as attractive by the
world’s leading technology companies.
Consequently,
there has been a noticeable increase in M&A activity involving Israeli
companies both as the target and as the acquirer. Moreover, the size of
M&A transactions has grown dramatically. During 1998 M&A
transactions exceeded $1.5 billion, including the America On Line
acquisition of Mirabilis, a start-up Internet software company, for $407
million. This was followed by numerous acquisitions, such as Memco which
was acquired by US-based Platinum Technology for $412 million and two
principal divisions of Elscint which were acquired by GE Medical and UK’s
Picker for a total of $370 million.
Table 9: Acquisitions / Mergers of Israeli
Technology Companies by / with Foreign Strategic Partners (1994-1998)
- Selected List
Israeli Company
|
Acquiring Company
|
Year
|
Details
|
|
Nicecom
|
3-Com
|
1994
|
Acquisition
of 100% for $53M
|
|
Shany
|
Intel
|
1994
|
Acquisition
of 100% for $9M
|
|
Pegasus
Medical
|
HBO
|
1995
|
Acquisition of 100% for $14M
|
|
Ubique
|
America On Line
|
1995
|
Acquisition of 100% for $14M
|
|
Ornet
|
Siemens
|
1995
|
Acquisition of 100% for $30M
|
|
Lannet (Nasdaq)
|
Madge
|
1995
|
Merger
|
|
Softalk
|
Callware
|
1996
|
Merger
|
|
Armon Networking
|
Bay Networks
|
1996
|
Acquisition of 100% for $36M
|
|
Orgenics
|
Selfcare
|
1996
|
Merger
|
|
Instent (Nasdaq)
|
Medtronic
|
1996
|
Acquisition of 100% for $200M
|
|
Scorpio Com.
|
U.S. Robotics
|
1996
|
Acquisition of 100% for $72M
|
|
Orbot Instruments
|
Applied Materials
|
1996
|
Acquisition of 100% for $110M
|
|
Opal (Nasdaq)
|
Applied Materials
|
1996
|
Acquisition of 100% for $175M
|
|
Algorithmic Research
|
Cylink
|
1997
|
Acquisition of 100% for $82.7M
|
|
Laser Industries
|
ESC Medical Systems
|
1997
|
Merger valued at $280M
|
|
Biosense
|
Johnson & Johnson
|
1997
|
Acquisition of 100% for $400M
|
|
RADNet
|
Siemens + Newbridge
|
1997
|
Acquisition of 100% for $75M
|
|
Elscint
(MRI & Nuclear medicine divisions)
|
GE Medical
|
1998
|
Acquisition valued at $100M
|
|
WaveAccess
|
Lucent
|
1998
|
Acquisition of 100% for $56M
|
|
Teledata Telecom
|
ADC Telecom
|
1998
|
Acquisition of 100% for $200M
|
|
Memco
|
Platinum
|
1998
|
Acquisition of 100% for $412M
|
|
Lannet
|
Lucent
|
1998
|
Acquisition of 100% for $117M
|
|
CLASS Data Systems
|
Cisco Systems
|
1998
|
Acquisition of 100% for $50M
|
|
Mirabilis
|
America On Line
|
1998
|
Acquisition of 100% for $407M
|
|
Elbit Ultrasound (Diasonics)
|
GE Medical Systems
|
1998
|
Acquisition valued at $230M
|
|
Picture Vision
|
Eastman Kodak
|
1998
|
Acquisition of 51%
|
|
