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

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

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

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

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

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

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

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

Yozma Drop-Down Funds 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 © Yozma Proprietary

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

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

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

Thank You

Additional slides

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.

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

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

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 2007-2011, support center for startups, first R&D center outside US 400 employees, 2 R&D centers, support center for startups 2011 - 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