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Accelerating Innovation

Presentation by Yigal Erlich

Seoul April 2012

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Introduction

Yigal Erlich

• Former Chief Scientist of the state of Israel

• Established the Technological Incubators Industry in Israel

• Founder & Manager of Israel’s anchor VC, Yozma

• Seed investor & active board member in technological

startups such as Biosense (acquired by J&J for $430M),

Conduit (current value: $1.3B) and Radiancy (traded in

Nasdaq with market cap of $200M)

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15 Years of Israeli Venture Capital Activity at a Glance

• More than 5,000 startups established

• NASDAQ: 100 Israeli high-tech companies are listed

• Main contributor to the economy, GDP, export and employment growth

• Human capital emerged as Israel’s main resource

• M&A: $28 billion, IPO: $6 billion

• $14 billion raised by Israeli VC funds

4Source: IVC Research Center

Foreign & Other

VC Investments in Startup companies10 Years Total: $15b

From Israeli Funds: $6b

From Foreign and Other: $9b

5Source: IVC Research Center

VC Investments by Stage as % of Yearly Total 2002-2011

2011 compared to 2008Seed/Early: 31% vs 41%, decrease of 32%Mid/Late Stage: 69% vs 59%, increase of 17%

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Yozma Venture Capital (1)

Mission: •To create a venture capital market in Israel

Policy: •Establish a $100M Government investment company.•Create professionally managed Funds.•Entice VC investments in Israeli early stage companies:

(i) create and invest in new VC funds together with experienced partners

(ii) make direct investments in startup companies

together with professional investors.

© Yozma Proprietary

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Yozma Venture Capital (2)

Investment method in Funds:

Investment of $8M in each drop-down fund (minority position)

A 5 year option to buy out Yozma’s share at predetermined conditions.

Yozma’s CEO / VP will be a voting member on each Fund’s investment committee.

Same terms for all VC Funds

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Yozma Venture Capital (3)

Results:

• Establishment of 10 drop down funds together with strategic partners ( 8 in the first two years).

• 15 Direct investments

• 8 out of the 10 drop-down funds have exercised their option and bought out the Government

• 9 out of the 15 companies Yozma Venture Capital has invested in directly, went public or have been acquired

• The Israel Venture Capital industry has been established

© Yozma Proprietary

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Yozma Drop-Down Funds

© Yozma Proprietary

FUND CAPITAL MANAGED ($MM)

Original size 10 years later

• Eurofund 20 90• Gemini 25 550• Inventech 20 40• JPV 20 675• Medica 20 130• Nitzanim-Concord 20 280• Polaris 20 945• Star 20 900• VERTEX 20 250• Walden 25 175

210 4,035

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Government Support Ministry of Industry - Chief Scientist support of industrial R&D

$400m annually - grants, MAGNET, Incubators, other programs R&D cooperation with countries and large companies employees – grants for up skilling and training programs

Favorable tax regime and grants for investors and companies tax exemption for foreign investors in VC funds tax benefits and grants for export-oriented industries, R&D centers

Science and education, reverse brain drain programs supporting excellence – Talpiot, research projects and centers establishing 35 academic Excellence Centers, $400m annual budget

Civilian commercial benefits of defense R&D exposure to cutting edge multidiscipline large technology projects special intelligence technology units: 8200, 8100, Air Force developed military industry – RAFAEL, IAI, Elbit Systems

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Building Blocks of Israel’s

Innovative Technology Sector

Academia, Universities, Engineers,

Postgraduates

Skilled Educated Man Power, Immigration,

Reverse Brain Drain

Executives, Veterans from Global Firms

Innovative & Entrepreneurial Culture, serial Entrepreneurs

Venture Capital, Exit Avenues: M&As, IPOs

Modern Infrastructure, Government

Support

Academic Science and

Research Centers,

Researchers

Defense R&D

Multinationals: R&D Centers,

Strategic Investors

Technological Incubators

Technology Clusters, Startups,

Large Companies

Technology Infrastructure

Human Capital

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Professional VC funds

Capable to raise funds Choosing the right investments Managing the investments Building value for exit

Government vs. VC role

Government Involvement

Market failure conditions Government as a catalyst Predetermined exit conditions No government control Indirect investments (funds) Risk sharing

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• Board level

• Assist/support management with strategic partners

& customers

• Assist/support in recruitment of senior management

• Build/Approve Business Plan

• Help raise additional capital (Equity/Debt)

• Entice EXIT

• Step-in at crises.

The Role of VC in early stage companies

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Thank You