1. ISRAEL CREATIVE ECO-SYSTEM Yigal Erlich YOZMA September 2014

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 (value: $1.35B) and Radiancy (traded in Nasdaq with market cap of $340M). Chairman of Hadasit, TTO of Hadassah hospital; HBL – traded on TASE. Consultant to governments and VC on Private Public Partnerships and investments (Russia, EEC, Canada, Portugal, New Zealand, Greece..).

5. Ingredients for Success Mixture of knowledge, innovation and entrepreneurship High quality of human resources Entrepreneurial culture Commercialization of Research (TTO’s) Strong presence of major global technology companies Critical mass: capital, investors, VC funds, start-ups Modern legal and financial infrastructure Government support: incentive plans, tax benefits

6. some R&D indicators (2011 %) R&D expenditure from GDP: 4 (~$10b) 3.9 Israel OECD US Korea R&D performed, of total national 84 67 68 76.6 expenditure(by business sector) NATIONAL EXPENDITURE ON R&D, BY FINANCING sectors: Business 36.6 50.7 60 71.8 Funds from abroad 47.3 10 0 0.2 Government 12.2(4) 34.9 33.4 26.7 OECD 2011

7. Israel VC “DNA” – Drivers of Entrepreneurship and Innovation Forward Informal Creative Ambitious Non-Conventional Communicative Improvisation Innovative Experimental Independent-thinking “Chutzpah” Going global from inception Must-win attitude, Tolerance of failure Question everything, Knock on any door Using limited resources cost effectively Solution-driven approach to real problems Short history – past is not a constraint Vision Integrity Personal Example Courage Out of the box Capable Persistent Hard Working Team Family ChallengingAction Driven Education Competitive Friendship

8. Innovation Value Chain Basic ResearchRTD&I Growth Sales and profit Gov. Support PPP’s High Risk/ Uncertain Return High Risk/ Uncertain Return Low Risk/ High Return Low Risk/ High Return Private Equity “Early Stage” “ Intermediate VC” “Classic VC” IP value

9. The R&D Fund 2012 budget is ~ $300M. The R&D Fund is the main instrument of The R&D Law. It gives grants to “Approved R&D Projects” Grants are from 20 to 50 percent of the total approved R&D expenditures. Companies pay royalties (3-5%) when a granted R&D project is commercially successful – up to the amount of the grant plus interest

10. Hi Tech vs. Life Science Hi Tech Life Science Capital invested 67%21% International Companies 90% 10% VC Funds >90% <10% 10

11. Venture Capital Management Company VC raises money from financial investors (& institutional investors) Invest it and expect to realize capital gains. VC provides equity based capital to fund technology companies. VCs invest in one or all stages (seed to mez/lbo) and with or without tech./market focus VCs take an active role in building the company, do not want to control Ready to take Risk Seek to invest in Management more than in Technology Expect high return on investment (IRR>20%) © Yozma Proprietary

12. Startup Sources New Immigrants Repatriate Israelis Defense Universities Spin-offs Corporations R&D centers Startup Sources © Yozma Proprietary

13. Yozma I Venture Capital (1993-98) 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 (from abroad). (ii) make direct investments in startup companies together with professional investors. © Yozma Proprietary

14. The Government as a Catalyst Return>$100M MarketFailure Government Intervention Intervention Establishment of Yozma Problem Solved Solved Government Exits Exits Yozma Privatized $100M Investment 1993 1997 © Yozma Proprietary

15. Yozma III - IRR IRR on Investments - 26% IRR on Conduit – 107%

16. 10-Year Total – New: 7,027, Closed: 2,882, Net: 4,145 2013 – Internet 41% of Established Source: IVC Research Center # The Israeli VC Ecosystem Startups - New, Closed, Net

17. Source: IVC Research Center Israel VC Ecosystem VC Investments by Sector 2013 – Internet is Growing

18. InternetCommunications Semiconductors Life Science IT/SW Cleantech Israel VC – Value Creation Select Companies Expected to Reach $1b plus Valuation

19. Source: IVC Research Center $b 10-Year Total: $17b Israeli VC Funds: 35% of total, 2013: 22% Increased activity by foreign investors Investments in Israeli Startups 2013 - 10 Year Record

20. Select Foreign Investors in Israeli Startups Increased Activities and Presence Source: IVC Research Center Select InvestorsExposure/Mode of Operation Source of Capital Type Sequoia Israel, Greylock Israel, Orbimed Israel, DFJ – Tel Aviv, Credit Agricole  Domestic team  Usually co-invest with Israeli funds Israel- dedicated funds VC Funds Index, Bessemer, Accel, Highland, Battery, Lightspeed, HarbourVest, Canaan, Benchmark, Norwest, USVP, Crescent, SVB, Kima Ventures, Paul Capital, Kreos Capital, Blumberg Capital, Horizon Ventures, Fortrers, Mangrove  Israel is part of investment strategy  Most have domestic presence  Usually co- invest with Israeli funds Allocation from main fund VC Funds Kleiner Perkins, New Leaf, NEA, Matrix, Mayfield, Opus, MPM, Storm, Charles River, RHO, JK&B, DAG, Globespan, Soffinova, Andresseen Horowitz, Union Square, Atlantic, Softbank, Coller Capital, Silver Lake, Goldman Sachs, JP Morgan, Vector, Apax, Francisco Partners, Susquehanna, Amadeus  Opportunistic approach  No domestic presence  Usually co-invest in Rounds B, C or later stage with Israeli funds Allocation from main fund VC Funds P/E Funds Intel Capital, Motorola Ventures, ABB Ventures, Singtel, Siemens, T Ventures, GE, Samsung, J&J, Itouchu, Bosch, EMC, IBM, Cisco, BASF, Google, Microsoft, Qualcomm, Facebook, LG, Mitsui, SAP Ventures, AVG, Ebay, Huawei, Lenovu, Deautche Telekom Ventures, GM, Alcatel-Lucent, Vodaphone, HP Ventures, Nielsen Innovate Incubator  Strategic interest  Most have domestic presence  Usually co–invest with Israeli funds Corporation nostro and VC Arms CVC - Corporate Venture Capital Innovation Endeavors, Tel Aviv Angel Group, Initial Capital, Jeff Pulver, Eric Schmidt, Zeev Oren, UpWest Labs, The Founders Fund, Yossi Vardi, Corporate Accelerators: Google, Microsoft, EMC, IBM  Added value approach  Seed, pre Rounds A investors Individuals, Family wealth Super Angels Accelerators Incubators

21. Source: IVC Research Center Actively Seeking Technology Innovation Select Multinationals Presence in Israel

22. Source: IVC Research Center 2006- includes acquisitions of Mercury by HP $4.5b, and M- Systems by SanDisk $1.6b 2012 – includes Cisco acquisition of NDS $5b The Israeli VC Ecosystem – Exits 10-Year Total: $51b #$b M&As: $47b, 93% of Total VC-Backed: $22b, 43% of Total

23. Select Multinationals Success Stories in Israel Source: IVC Research Center 7,700 employees, first R&D center outside the US, currently 4 R&D centers, 2 manufacturing facilities. Developed: Pentuim, Centrino, Core 2 Duo, acquisitions: $2b, investment $7.3b, growing 800 employees, R&D strategic centers, first R&D center outside US, acquisitions over $700m in 2007-2011, Azure accelerator: 1 of 3 global innovation centers for startups, growing 400 employees, 2 R&D centers, 1 of 3 global support center for startups and growing (just bought Wase for $1bil) 500 employees, 2011- first R&D center outside US, first acquisition: $390m, Anobit, today: 3 R&D Centers and growing 400 employees, 4 R&D centers, support center for startups, acquisitions – more than $1b, growing (just bought Trusteer for $800M) 1,000 employees, 2 R&D centers, acquisitions: $835m. 3/2013 - MassChallenge, startups ecosystem, first and only program outside of Boston, growing (bought ExtrimIO for $435M in 2012) 1,200 employees, R&D center, manufacturing facility, acquisitions: Galileo:$2.7b, RADLAN: $195m,growing 3,600 employees, 2 R&D centers, largest software development site outside the US, growing 500 employees, 6 R&D sites, acquisitions – over $950m, growing 300 employees and growing, 2 R&D Centers, 2013- 1 out of 3 global innovation centers for startups, growing 200 employees and growing, R&D Center, growing

24. Israel VC – Performance 1997-2013 More than 6,500 startups established NASDAQ: 100 Israeli high-tech companies are listed Human capital emerged as Israel’s main resource M&A: $50 billion, IPO: $4 billion raised $15 billion raised by Israeli VC funds $26 billion invested in the VC sector Global recognition as a leading innovative technology center, 2 nd only to the Silicon Valley Source: IVC Research Center VC – the Accelerator of the High-Tech Industry Innovation and Growth The economy growth engine

25. THANK YOU yigal@yozma.com 25

26. Yozma Drop-Down Funds (1) © Yozma Proprietary FUNDPARTNERS (GPs) EurofundDaimler-Benz, DEG (Germany) GeminiAdvent (USA) InventechVan Leer Group (NL) JPV Oxton (US/Far East) MedicaMVP (USA) Nitzanim-ConcordAVX, Kyocera (Japan) PolarisCMS (USA) Star TVM (Germany & Singapore Tech VERTEXVertex International Funds (Singapore) WaldenWalden (US)

27. 27 YearExchangeSectorCompanyAmount $m 2006LSEInternet, SWPlaytech *460 2012NASDAQIT & Enterprise SWPalo Alto*260 2005LSEITC, Internet, SW888 Holdings *260 2007NASDAQCommunicationsBigBand160 2005NASDAQSemiconductorsSaifun135 2007NASDAQSemiconductorsMellanox117 2011NASDAQSemiconductorsMellanox 110** 2005LSELife SciencesFrutarom *101 2011NASDAQSecurityImperva90 2006NASDAQCommunicationsAllot78 2011NASDAQCommunicationsAllot 78** 2007NASDAQCommunicationsVeraz72 2005NASDAQCommunicationsIturan *72 2005NASDAQLife SciencesShamir Optical *64 2010NASDAQInternetMediaMind62 2007NASDAQCommunicationsVoltaire52 2007TASELife SciencesBioLine RX50 2005AIMITCVisual Defence *50 2007AMEXLife SciencesProtalix50 Largest Public Offerings 2005-2012 *Not venture-backed **Secondary Source: IVC Research Center

28. Israel High-Tech largest Acquisitions 2004-6/2013, $m Source: IVC Research Center, VC and non VC backed Company NameSectorExit TypeAmountAcquired by/ Stock ExchangeDate NDSCommunicationsAcquired5000Cisco Systems2012 MercuryIT & Enterprise SoftwareAcquired4500Hewlett-Packard2006 M-SystemsSemiconductorsAcquired1558SanDisk Corp.2006 WazeCommunicationsAcquired1130Google Inc.2013 AgisLife SciencesAcquired818Perrigo Co.2004 RetalixIT & Enterprise SoftwareAcquired800NCR2012 LipmanIT & Enterprise SoftwareAcquired793VeriFone Holdings Inc.2006 ObjetMiscellaneous TechnologiesMerged634Stratasys Inc.2012 Shopping.comInternetAcquired634eBay2005 MediaMindInternetAcquired517DG Inc.2011 Zoran Corp.SemiconductorsAcquired484CSR Plc2011 PROLORLife SciencesAcquired480OPKO Health2013 IntucellCommunicationsAcquired475Cisco Systems2013 PlaytechInternetIPO460AIM2006 XtremIOIT & Enterprise SoftwareAcquired450EMC Corp.2012 OmrixLife SciencesAcquired438Johnson & Johnson Inc.2008 SolelCleantechAcquired418Siemens AG2009 CyOpticsCommunicationsAcquired400Avago2013 MobilEyeSemiconductorsSecondary400 2013 Anobit (now HDC Apple)SemiconductorsAcquired390Apple2011 QuigoInternetAcquired363America Online (AOL) Inc.2007 AmobeeCommunicationsAcquired340SingTel2012 superDimensionLife SciencesAcquired300Covidien2012 TelmapCommunicationsAcquired300Intel Corp.2011 ActimizeIT & Enterprise SoftwareAcquired282NICE2007 Cotendo (Now Akamai)InternetAcquired268Akamai Inc.2011 888 HoldingsIT & Enterprise SoftwareIPO260LSE2005 Palo AltoIT & Enterprise SWAcquired260IPO: NASDAQ2012 ScaleIOIT & Enterprise SoftwareAcquired250EMC Corp.2013 ConduitInternetSecondary100 2012

29. Summary – Israel’s High-Tech Sector  Within 65 leading years, Israel has evolved from a primarily agricultural economy to become a global technology center  The main growth engine of the economy, the magnet attracting foreign investors and leading multinational companies  Increased number and activities of global companies and investors seeking innovative technology, result in increased M&As activities  Strong, high-quality deal flow from new and experienced entrepreneurs  Shortage of capital result in favorable investment terms  The few active experienced and mature Israeli VC funds have the best exposure and right teams to leverage the current Israeli VC opportunity

30. Human Capital Resources Engineers Per 10,000 Employees 5 nobel prize winners in science in recent years High quality academic institutions 8,000 engineers graduating annually exposure to large defense R&D projects skilled labor force, immigration entrepreneurial culture serial entrepreneurs exposure to managerial culture and methodologies of multinationals

31. Quality of scientific research institutionsVenture capital availability Israel on WEF Rankings World Economic Forum Global Competitiveness Index 2011-2012 Additional Sources: World Economic Forum Global Competitiveness Index 2011-2012 31

32. Success Story– one of Yozma’ s drop down funds ROI > 3 2 companies returned all the fund’s capital, each Investment in 27 Startups  3 IPOs, 4 M&As, 5 are still active. After 5 years, Investors exercised the option and bought Yozma share (40%) for $10M - 4 years later, the $10M returned $33M