1. 1 From the Incubator to NASDAQ The Experience in Israel Shmulik Aran – Vice President shmulika@oferhitech.com

2. 2 Ofer Hi-Tech  Leading Israeli corporate investment fund established by the Ofer Brothers Group in 1996  Healthcare focus with strong presence in IT & communication  Assets under management of a mid size VC  High quality portfolio with strong growth potential  Strong core management team  Strong operational, finance, healthcare, IT & communication team  Extensive experience in all investment stages with hands-on participation in seed companies  Operation, business, science & investment network

3. 3 Ofer Hi-Tech Diversified Portfolio Structure  Pre-Seed  Naiot - “The Best Incubator Award” for 6 years 1999-2004 with 43 projects  Early-Stage  Fund of funds activities (Yozma, Carmel, BRM, Start, Formula)  Direct investment portfolio with focus in Health-Care  Active network to dozens Israeli, US & European VCs  Public Companies  ECI, Tecnomatix, etc.

4. 4 Israel at a Glance  Population – ~7 Million  Area – 21,000 sq km  Gross Domestic Product) GDP – $112 Billion  GDP/Capita - $17,000  Total exports – $27.7 Billion  Net foreign debt (2003) - $0.55 Billion  Inflation rate (2000 – 2003 average) – 1.75%  World record rate in R&D expenditure - 3.5% of GDP  Highest number of engineers per 10,000 people - 136  Natural Resources – Virtually none  Penetration: Mobile – 105%, PC – 43%, Internet – 42%

5. 5 o Entrepreneurship spirit o Military related technologies o Success in R&D o Failure in marketing & management o No Venture Capital funds o Few IPOs, No M&As o Lack of international involvement o ~60 Venture Funds o American & ROW VCs o $10B raised by VCs o $21B M&A deals o #3 in NASDAQ o Cisco, IBM, Intel, Microsoft… 1992 2005 The Israeli Hi-Tech Industry Transformation Government Infrastructure Professional VCs

6. 6 o Entrepreneurship spirit o Military related technologies o Success in R&D o Failure in marketing & management o No Venture Capital funds o Few IPOs, No M&As o Lack of international involvement o ~60 Venture Funds o American & ROW VCs o $10B raised by VCs o $21B M&A deals o #3 in NASDAQ o Cisco, IBM, Intel, Microsoft… 1992 2005 The Israeli Hi-Tech Industry Transformation Government Infrastructure Professional VCs

7. 7 Government Engine for the High-Tech Industry TechnologyIncubators Yozma Venture Capital Tnufa Bi-NationalFunds Magnet Seed Fund Office of the Chief Scientist$400M/year Direct R&D Grants (OCS) Infrastructure for support from inception and on

8. 8 Government Engine for the High-Tech Industry TechnologyIncubators Yozma Venture Capital Tnufa Bi-NationalFunds Magnet Seed Fund Direct R&D Grants (OCS) Infrastructure for support from inception and on Office of the Chief Scientist$400M/year

9. 9 Government Engine for the High-Tech Industry TechnologyIncubators Yozma Venture Capital Tnufa Bi-NationalFunds Magnet Seed Fund Direct R&D Grants (OCS) Infrastructure for support from inception and on Office of the Chief Scientist$400M/year

10. 10 Government Engine for the High-Tech Industry TechnologyIncubators Yozma Venture Capital Tnufa Bi-NationalFunds Magnet Seed Fund Direct R&D Grants (OCS) Infrastructure for support from inception and on Office of the Chief Scientist$400M/year

11. 11 Technology Incubators – Background / Main Goals  Initiated in 1991  Located all over Israel, including Periphery  Situated near Academic Institutes  Built an infrastructure to exploit entrepreneurial resources  Several hundred $K grant plus 15% minimum match

12. 12 Current Status  23 Technology incubators (Best ones are privately owned)  5-6 Projects in each incubator per year  ~1,000 Graduate Projects

13. 13 Ofer’s Leading Technological Incubator: “Naiot”  Operated since 1997  Winner of “The Best Incubator Award” for 6 years 1999-2004  Co-founded 43 companies, 70% life sciences  50% of graduates are active independents  Over $160M raised, VC & Strategic investments  Building a company from scratch to early-stage

14. 14 Government Engine for the High-Tech Industry TechnologyIncubators Yozma Venture Capital Tnufa Bi-NationalFunds Magnet Seed Fund Direct R&D Grants (OCS) Infrastructure for support from inception and on Office of the Chief Scientist$400M/year

15. 15 Yozma Funds - The Government as a Catalyst Return>$100M MarketFailure Government Intervention Intervention Establishment of Yozma Problem Solved Solved Government Exits ExitsYozmaPrivatized $100M Investment 1993 1997 © Yozma Proprietary

16. 16 Yozma Venture Capital at a Glance © Yozma Proprietary

17. 17 Yozma Drop-Down Funds © Yozma Proprietary FUND CAPITAL MANAGED ($M) Original size - 19932004 Eurofund20 90Eurofund20 90 Gemini25 550Gemini25 550 Inventech20 40Inventech20 40 JPV-JVP20 675JPV-JVP20 675 Medica20 130Medica20 130 Nitzanim-Concord20 280Nitzanim-Concord20 280 Polaris-Pitango20 945Polaris-Pitango20 945 Star 20 900Star 20 900 Vertex20 250Vertex20 250 Walden25 175Walden25 175 210 4,035

18. 18 Venture Capital Raised for Israeli Hi-Tech 1st Wave: Establishment of Yozma 2nd Wave: Yozma Funds Raise Continuation Funds 3rd Wave ($87B in the US) Recovery Total raised: ~$9B Available: $1B (50% for new investments)

19. 19 Total Amount Raised by Israeli High-Tech Companies ($M) Source: IVC Research Center

20. 20 YearM&A VolumeCapital Raised in Public Offerings 1996593638 1997838308 19981,847220 19992,9671,382 200010,5862,065 20011,357201 20021,2540 20031,0950 2004706413 Total21,2435,227 Exits of Israeli Venture Backed Companies ($M) * US & Europe Source: IVC Research Center Israel #3 on the NASDAQ (after US & Canada)

21. 21 5,22721,243Total M&A Volume Capital raised in public offerings Exits of Israeli Venture Backed Companies ($M) Israel #3 on the NASDAQ (after US & Canada) * US & Europe Source: IVC Research Center

22. 22 International companies in Israel – 1970/80: Cheap labor, academic institutes

23. 23 International companies in Israel – 1990 and on: Business opportunities, skilled work-force, M&As

24. 24 Government Engine for the High-Tech Industry TechnologyIncubators Yozma Venture Capital Tnufa Bi-NationalFunds Magnet Seed Fund Direct R&D Grants (OCS) Infrastructure for support from inception and on Office of the Chief Scientist$400M/year

25. 25 Government Engine for the High-Tech Industry TechnologyIncubators Yozma Venture Capital Tnufa Bi-NationalFunds Magnet Seed Fund Direct R&D Grants (OCS) Infrastructure for support from inception and on Office of the Chief Scientist$400M/year

26. 26 Government Engine for the High-Tech Industry TechnologyIncubators Yozma Venture Capital Tnufa Bi-NationalFunds Magnet Seed Fund Direct R&D Grants (OCS) Infrastructure for support from inception and on Office of the Chief Scientist$400M/year

27. 27 Bi-National Funds BIRDF - with U.S.A. SII-RD - with Singapore CIIRDF - with Canada BRITECH - with the UK KORIL-RDF - with S. Korea International Cooperation

28. 28 o Entrepreneurship spirit o Military related technologies o Success in R&D o Failure in Marketing o No Venture Capital Funds o Few IPOs, No M&As o Lack of international involvement o ~60 Venture Funds o American & ROW VCs o $10B raised by VCs o $21B M&A deals o #3 in NASDAQ o Cisco, IBM, Intel, Microsoft… 1992 2005 The Israeli Hi-Tech Industry Transformation Government Infrastructure Professional VCs

29. 29 o Entrepreneurship spirit o Military related technologies o Success in R&D o Failure in Marketing o No Venture Capital Funds o Few IPOs, No M&As o Lack of international involvement o ~60 Venture Funds o American & ROW VCs o $10B raised by VCs o $21B M&A deals o #3 in NASDAQ o Cisco, IBM, Intel, Microsoft… 1992 2005 The Israeli Hi-Tech Industry Transformation Government Infrastructure Professional VCs

30. 30 The Life Story of a Venture Capital Fund Find Analyze, Negotiate Invest Assist Build Evaluate Exit IPO M&A Close RaiseCapital

31. 31 Proper VC Involvement can make the difference $25M raised $4M in the bank $600K monthly b/r Sales: $250K/y 55 employees Boston & Israel Missed forecast VC’s Active Chairman Cut 70% employees Cut 70% burn rate Reform US office Build new team Refocus marketing Move focus to sales 6 customers (5 new) Sales: over $1M $3M, $8M forecast $5M fund raising VC back to passive Restructuring 18 months ago… Today

32. 32 Professional VC funds  Capable to raise funds  Choosing the right investments  Managing the investments  Building value for exit Ingredients for Success – Take home message from the Israeli Experience  Entrepreneurial spirit  Technological expertise Proper Government Involvement  Market failure conditions  Government as a catalyst  Risk sharing  Predetermined exit conditions  No government control  Indirect investments (funds)

33. 33 From the Incubator to NASDAQ The Experience in Israel Shmulik Aran – Vice President shmulika@oferhitech.com Thank You!