1. Enabling Environment: the Government’s Role in facilitating Innovation Presentation by Yigal Erlich June 2012
The average time to exit - ~7 years
10.5 B – invested in 10 years
9.5b created 34b = multiple of ~3.7 1 1

2. Introduction Yigal Erlich
Former Chief Scientist of Israel’s Ministry of Industry, Trade and Labor
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: $1.35B) and Radiancy (traded in Nasdaq with market cap of $200M)
The average time to exit - ~7 years
10.5 B – invested in 10 years
9.5b created 34b = multiple of ~3.7 2 2

3. 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
The average time to exit - ~7 years
10.5 B – invested in 10 years
9.5b created 34b = multiple of ~3.7 3 3

4. VC Investments in Startup companies From Foreign and Other: $9b
10 Years Total: $15b
From Israeli Funds: $6b
From Foreign and Other: $9b
Foreign & Other
Source: IVC Research Center

5. VC Investments by Stage
as % of Yearly Total
2011 compared to 2008
Seed/Early: 31% vs 41%, decrease of 32%
Mid/Late Stage: 69% vs 59%, increase of 17%
Source: IVC Research Center

6. 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

7. 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

8. 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

9. Yozma Drop-Down Funds FUND CAPITAL MANAGED ($MM)
Original size 10 years later
Eurofund
Gemini
Inventech
JPV
Medica
Nitzanim-Concord
Polaris
Star
VERTEX
Walden
,035
© Yozma Proprietary

10. 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

11. Building Blocks of Israel’s Innovative Technology Sector
Venture Capital, Exit Avenues: M&As, IPOs
Academic Science and Research Centers, Researchers
Academia, Universities, Engineers, Postgraduates
Skilled Educated Man Power, Immigration, Reverse Brain Drain
Defense R&D
Technology Clusters, Startups, Large Companies
Human Capital
Technology Infrastructure
Multinationals: R&D Centers, Strategic Investors
Executives, Veterans from Global Firms
Innovative & Entrepreneurial Culture, serial Entrepreneurs
Technological Incubators
Modern Infrastructure, Government Support 11

12. Government vs. VC role Government Involvement Professional VC funds
 Market failure conditions
 Government as a catalyst
 Predetermined exit conditions
 No government control
 Indirect investments (funds)
 Risk sharing
Professional VC funds
 Capable to raise funds
Choosing the right
investments
Managing the investments
Building value for exit

13. Thank You

14. Additional slides

15. The Role of VC in early stage companies
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.

16. Yozma - Direct Investments
Basic investment principles:
Yozma is a for profit company
Open the way to new industries, where risk is too high for other VCs
Lead rounds
Attract strategic investors
Examples:
Instent, Medsim (new investors)
BioSense (new entrepreneurs)
Ubiqe (new industry- the Internet)
Telegate (spin-off)
© Yozma Proprietary

17. Increased Multinational Presence in Israel
Seeking Technology Innovation and Development
All grow by accusations
US & EU, but also more and more SEA, Japan and now Chinese co’s
Partial list
Source: IVC Research Center 17

18. Multinationals - Success Stories
7,700 employees, first R&D center outside the US, 4 R&D centers, 2 manufacturing centers
Developed: Pentuim, Centrino, Core 2 Duo, acquisitions – more than $2b, investment in Israel $7.3b
500 employees, R&D strategic centers, acquisitions over $700m in , support center for startups, first R&D center outside US
400 employees, 2 R&D centers, support center for startups
first R&D center outside US, first acquisition: $390m, Anobit
400 employees, 4 R&D centers, support center for startups, acquisitions: $900m
1,000 employees, 2 R&D Centers, acquisitions – more than $400m
1,200 employees, R&D center, manufacturing facility, acquisitions –
$2.7b - Galileo
3,600 employees, 2 R&D centers, HP's largest software development site in the world
500 employees, 6 R&D sites, acquisitions – over $750m
Selected list
Source: IVC Research Center 18