Israels Success Story of the Tech -Industry by Edouard Cukierman and - - PowerPoint PPT Presentation

Israel’s Success Story of the Tech-Industry

by Edouard Cukierman and Yair Shamir

Hong Kong, July 2015

Key Success Factors of Israel’s Technology Cluster

• 1. Education

and Universities

• 4. Defense

Industry

• 5. VC and

Access to Global Financial Markets

Israel Cluster

• 6. Entrepreneurial

Spirit

• 7. Attractive

Investment Environment

• 2. Government

Support

• 3. Technology

Sector Expanding Globally

1- Education and Universities: brainpower that can be leveraged

140 85 65 53 38 35 35 34 28 25 22 19

Number of Engineers Per 10,000 Employees (1)

9.2% 7.0% 6.4% 6.4% 6.2% 5.9% 5.7% 5.5% 5.3% 5.0% 4.7% 4.0%

Investment in Education % GDP (4)

• Largest number of academic degrees per capita (64 per 1000 people) (1)
• Highest expenditure on education in the world (9.2% of GDP) (2)
• 12 Israelis won the Nobel Prize, 8 within the last decade (3)
• Israel invests more than 4% of its GDP in R&D, which is the highest ratio of any country in the world (1)
• Israel is blessed with an exceptional entrepreneurial workforce, ranked 3rd in the world (4)
• c.1 million people from the FSU emigrated to Israel since early 90s (20% of engineers and 3% of scientists),

representing 16% of the economically active population(5)

(1) Source: Ministry of Finance, Israel, 2013 (2) Source: Technion, Israel's Institute of Technology (3) Source: Worldbank Report 2012 (4) Central Bureau of Statistics, Israel, 2013 (5) Ministry of Absorption, Israel, 2012

1-1 Israeli Innovation Model: “The Tech Transfer” from University to Industry

Technology transfer: the secret engine

• The tech transfer from universities to industries has created

the institutionalized basis for scientific research

• Israel is the world’s pioneer in tech transfer since 1959
• 2 of the world’s top 15 tech transfer companies
• Yeda, Weizmann Institute of Science (1959)
• 7 out of the leading 25 world’s blockbuster drugs

have been developed in the Weizman Institute

• US$ 400M in 2013 in licensed product revenues
• Yissum, Hebrew University of Jerusalem (1964)
• $8 billion in licensed product sales
• US$ hundreds of millions in tech transfer

revenues

• Dozens of spinoffs

Source: ITTN

• Dr. Albert Einstein, on his visit to the Technion, 1923

Creation of institutionalized basis for scientific research

2- Government Support in Israel

Technology Education

• Government spending on high-tech

education one of the highest in the world(1)

• Highest spending on R&D as a

percentage of GDP in the world (1)

Military Budget

• Military as Talent Incubator for young

entrepreneurs, engineers and scientists

• Managerial experience at young age

fosters entrepreneurial culture

Chief Scientist

• Incubators
• R&D grants

Co- Investment with VC Industry

• Yozma VC Fund & Health Fund

Immigration Support

• Jewish Agency
• Gvahim
• MASA
• Nefesh B’Nefesh

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5%

(1) Source: WEF Global Competitiveness Report 2013-2014

Company Sector Size Position Solar Energy Raised US$615m in equity; received US$1.2bn grant from US Dept of Energy Global leader in design and development of solar thermal power technology with 1.8GW of power under contract with California’s two largest utilities Security Software Market cap: US$9.6bn World leader in network security solutions. Pioneered industry with Firewall and inspection technology Medical Technology Market Cap. US$550mn Revolutionized GI imaging with invention of the PillCam, enabling a capsule-camera endoscopy Water: Desalination Estimated valuation c. US$1bn Leading global player in development, engineering, production & operation of advanced water desalination plants Industrial Technology / Process Acquired for US$5bn valuation by Warren Buffet Leading producer of cutting edge precision carbide metal cutting tools Agritech: Crop Protection Acquired for US$2.4bn by ChemChina Leading worldwide manufacturer and distributor of crop- protection solutions Digital Technology/ Software c.25% stake acquired at company value

• f US$1.5bn by BlackRock, Fidelity,

Wellington, Sailing Capital, Enterprise Rent-A-Car Manufacturer of anti-collision driver safety solutions that help drivers avoid traffic risks Flash Memory Acquired for US$1.65 billion Invented USB Flash storage drives Agritech/ Water: Micro irrigation Acquired for c. US$900mn Leader in smart drip & micro-irrigation solutions Geothermal Energy Market cap. US$900mn Leading geothermal technology company globally Pharmaceuticals Market Cap: US$40.6bn #1 global generics company specializing in generic and propriety branded pharmaceuticals Mobile Application Acquired for US$1.1 billion by Google World's fastest-growing community-based traffic & navigation app, pioneer of crowd sourced maps, traffic, road info

Leading Global Innovative Enterprises

Decades of history producing robust and continuous flow of leading global innovative companies

3 -The high-tech sector is the growth engine of the Israeli economy

Source : The Central Bureau of Statistics, Israel

1990 Manufacturing Exports $7.7 billion 2014 Manufacturing Exports $45.8 billion

High Tech, 30% Medium High Tech, 32% Medium Low Tech, 19% Low Tech, 19%

High Tech, 47% Medium High Tech, 17% Medium Low Tech, 31% Low Tech, 5%

• In

2014 Israel’s manufacturing exports represented 78.6% of total exports and amounted to US$ 45.8 billion (excluding diamonds), compared with US$ 7.7 billion in 1990

• Israel’s High-Tech exports totaled US$

21.5 billion in 2013, which is 47% of the total manufacturing exports and represent a significant increase compared to 1990 when the High- Tech amounted to US$ 2.31 billion

• Israel’s economy keeps growing and

continues to be a “safe haven” among the OECD markets → 45% of Israel’s growth comes from the high tech Industry

Defense Industry

• 4
• Israel 2014 military budget is 56.9 bn NIS (≈ US$ 13.5 bn), approximately 5.2% of the GDP and 13.0% of

the total budget

• Israel is the 4th largest military equipment exporter after USA, Russia and Germany
• Israel Aerospace Industry’s (IAI) 2014 sales grew by 5% and reached US$ 3.83bn

“Many Israeli start-ups should pay royalties to the army. The military service deserves some of the credit. Israel's army does not just train soldiers, it nurtures entrepreneurs”*. –

Edouard Cukierman , interview with “The Economist”. Source: SIPRI (sipri.org); 2014

1.2 1.4 2.06 2.2 2.6 3.5 4.5 5.2

Germany Brazil China UK S.Korea US Russia Israel

Military expenditure as percentage of GDP, 2014 (%)

5 - VC and Access to Global Financial Markets

• Early stage investment by VC in Israel equals 50% of early stage investments for all of Europe
• Israel has a prospering start-up & VC industry, 2nd largest in the world
• Over the last decade, c. US$ 18 billion were raised by Israeli High-Tech companies, at the VC level

VC Investments per Capita in 2014, US $

200 400 600 800 1000 1200 1400 1600

Foreign Direct Investment Per Capita by Nation (2014 in US$)

5-1 Israel’s IPOs in Europe & US

Israeli Equity Offerings Europe USA Year Number

• f Equity

Offerings Capital Raised ($M) Number of Equity Offerings Capital Raised ($M) Up to 1997 9 78 60 2,398 1998 5 122 14 871 1999 12 446 20 3,375 2000 7 353 33 2,806 2001-2003 1 118 12 2,806 2004 5 150 12 1,117 2005 20 1,106 4 355 2006 16 2,078 8 3,460 2007-2009 8 2,339 19 1,628 2010-2013 6 1,084 36 4,010 2014 8 2,100 29 3,900 Total 97 9,974 247 26,726  Portfolio companies of Catalyst, which went public on NASDAQ: PowerDsine (PDSN), Scopus (SCOP), Omrix (OMRI), Commtouch (CTCH), BOS (BOSC), Cyalume (CYLU), Dot Hill (Hill), Orckit (ORCT). Some portfolio companies like MTI went public on AIM.  Cukierman & Co. (CIH) is the leading Investment House for IPOs of Israeli firms in Europe. Transactions of CIH include: Summit, Visonic and Metaltech in London, Astra and VCON in Paris, Wizcom, OTI and Electronics Line in Germany.  As of today, Israeli companies raised over $37B through foreign public equity offerings, in addition to over $46B in secondary sale on the market by shareholders.  With over 200 companies going public on American Stock Exchanges, Israel was ranked #3, after China and Canada, in terms of number of foreign companies (excl. North American companies) listed on NASDAQ.  With over 90 Israeli companies going public on European Stock Exchanges, Israel was ranked #2 in terms of number

• f foreign companies traded on European Exchanges.

 CIH is the sole NYSE Euronext’s Israeli listing sponsor. Source: Capital IQ, Dec. 2014

Blue Chip Acquirer Israel Acquisitions / Investments Total Invested

DSPC*, Envara, Oplus, Comsys, Sentrigo, Telmap, 2 Fabs $7.1bn Indigo, Scitex*, Mercury*, Orana, NUR Macroprinters $6.1bn Iscar $6.0bn Makhteshim Agan $2.4bn M-Systems* $1.6bn P-Cube, Pentacom, Seagul, HyNex, InfoGear, Intucell $1.3bn XIV Storage, Guardium, WorkLight, Trusteer $1.25bn MentorWave, LabPixies, Waze $1.2bn Dune, Percello, Provigent , SC Square, Broadlight $869m Anobit, PrimeSense $845m Tecnomatix, Arava, Solel $703m superDimension, Oridion Systems $622m Omrix*, Given Imaging $488m Peach Networks, Maximal Innovative, Whale, Gteko, Secured Dimensions, YaData, MSN Israel, 3DV Systems, Zoomix VideoSurf $460m Mobileye* $400m Medingo $325m Snaptu, Face.com, Onavo $300m Sightline*, Surpass Medical $285m Alma Lasers $240m Attenti $230m ELGEMS, Versamed, Lightech, Orbotech $100m Algotec Systems, OREX Computed Radiography* $94m

5-2 Israel the Blue Chip Supermarket

• Since 2000, approximately 1,000 Israeli companies

were acquired by international corporations

• Catalyst principals have been involved in over 140

completed transactions (including exits and investments in Israeli and related companies)

• Many global blue chip corporations have made

significant acquisitions and / or multiple acquisitions in Israel

• Many key strategic products or solutions of leading

blue chips were developed in Israel

• Intel with 7,000 employees, 4 R&D centers, 2

manufacturing facilities developed the Pentium, Centrino and duo core chips in Israel

• Microsoft's most popular operating systems were

developed primarily in Israel. Microsoft has had a strong presence in Israel for many years, and has 2 R&D centers that employ 600 people. CEO Steve Ballmer said that MSFT is as much Israeli as it is American

• HP has made more than 5 significant investments

in Israel since 2000, investing more than US$6 bn and obtaining many key technologies

• Outside of high-tech, many life sciences, med-tech

and industrial companies are actively investing and acquiring Israeli companies

* Transactions involving Catalyst Fund Principals

5-3 Emerging Markets Acquiring Israeli Companies

EM Acquirer Israel Acquisitions / Investments Total Invested

ChemChina (CN) Makhteshim Agan (2011) $3.7bn Bright Food (CN) Tnuva (2014) $2.5bn Rakuten (JP) Viber (2014) $900m Fosun Pharma (CN) Alma Laser (2013), Check-Cap (2014), Phoenix Insurance Company (2015) $723m Access Industries Inc. Clal Industries (2012), GetTaxi (2012) $665m XIO Group Luminis (2015) $510m SingTel (SN) Amobee (2012) $321m Alibaba (CN) Tango (2014) $280m Horizon Ventures (Li Ka-Shing, CN) Kaiima, Waze, MCS Medial, Onavo, Tipa, Hola, Nipendo, Cortica, Feex, Magisto, Ginger Software, Meteo Logic, everything.me, Wibbitz, Stevie Inc., Peen.me (2010-2014) $188.1m Sichuan Hebang Corp. Stockton Israel Ltd. (2015) $176m Hutchison Whampoa (CN) Partner Communications, Orange, Kinrot (2012) $155m Li Ka-Shing Foundation (CN) Technion – Institute of Technology (2014) $130m Chabad 770 (RU) Z.B.I. Ltd. (2013) $100m Samsung (S-Korea) StoreDot (2014), Mantis Vision (2014) $100m China’s Sunpower Group (CN) Natali Seculife (2014) $70m Sailing Capital (CN) Mobileye (2013) $75m Yifang Digital (CN) Pegasus Technologies (2010) $60m Jain Irrigation Systems (IN) NaanDan Irrigation Systems (2012) $43m Yandex (RU) KitLocate, Face.com, TimeBooker, Gbooking (2013) $30m CITIC (CN) Bank Ha’Poalim $20m Zhejiang Sanhua (CN) HelioFocus (2012) $10.5m Han’s Laser (CN) Nextec Technologies (2013) $10m Baidu (CN) Pixellot (2014) $3M

• Over the last decade, new

trend visible in Israel: formerly, majority of all acquisitions of Israeli companies and technologies were done by US and European companies

• Today,

growing trend

• f

emerging market players acquiring Israeli technologies from China, Russia, Japan and

• ther countries from Asia
• Bilateral trade between China

and Israel increased : from US$51 million in 1992 to US$8.8 billion in 2014

• Today, China (including Hong

Kong) is Israel’s second top export destination after the US

Source: Israel Export & International Cooperation Institute, 2014

6 - Entrepreneurial Spirit

• Jewish Education Studies: Questioning and Challenging (Passover, Hagada)
• “The Israeli Chutzpah”: The absence of hierarchical barriers promotes innovation at all levels of a firm
• Reaction to isolation and lack of resources
• Democracy - Culture of Transparency
• Melting Pot: Israeli Immigrants from more than 90 countries
• Problem-solving approach starting in the army.
• “A network of startups in a Start-Up Nation”: Israel has the highest amount of start-ups per capita in

the world

• R&D centers with world-wide recognition
• Israel is blessed with an exceptional entrepreneurial workforce, ranked 3rd in the world (IMD index)
• Ranked in 1st place for business entrepreneurship by IMD (2009)

Government reforms & regulations on concentration of wealth and deleveraging Upgrade to OECD and Exit of Emerging Market Funds Creates Vacuum Development of emerging oil & gas industry to buoy Israeli economy for decades

• Israel upgrade to OECD status in May 2010 has disqualified the core international institutional market investors
• Developed market funds slow to enter market playing in large cap liquid shares
• Two of the largest gas discoveries in the past decade globally (“Leviathan, Tamar” offshore Israel) expected to begin production in 2013 and 2017
• Estimated to generate USD$200+ billion in gas revenues for over the next 30 years starting in 2013
• Expected to act as momentous, long-term stimulus
• Expected lower energy costs will improve profitability for Israeli industry

Attractive Israel Investment Environment

14

Transparency of Governance

• Investment in Israeli / or developed market entity provides a significantly superior investment vehicle in terms of transparency, corporate governance

and overall legal environment

• Government reforms / regulations targeting local tycoons and holding companies with disproportional concentration of wealth and economic power
• 10 largest groups own 41% of Israeli market cap, the highest in the OECD
• New recommendations call for separation of large financial and non-financial holdings from single groups, weakening of holding company structure

and stronger corporate governance

• Holding companies and local tycoons which have traditionally been incumbent buyers of Israeli assets are no longer well positioned
• Many are in deleveraging phase and are in fact the source of many of the assets hitting the market

In light of recent developments in Israel and the current and expected market environment, there are and are expected to be very interesting opportunities for investors in the Israeli market over the next number of years.

• The “Israel Valley: The Technological Shield of

Innovation”, tells the story of Israel’s success in building the world’s leading High-Tech Industry

• The “Israel Valley” attempts to explain and

analyze the Israeli experience, to illustrate it through numerous examples and stories

• Taking

into account some

• f

Israel’s characteristics, such as the role of education, the Jewish culture, and the army, the book highlights the main ingredients of Israel’s successful

• economy. The economy is intimately intertwined

and connected with the High-Tech industry.

• The “Technological Shield of Innovation” model

which originally was meant to protect the country, became the source of innovation: Israel is the second Silicon Valley of the world, with companies like Checkpoint, Netafim, Given Imagin and others that are all “made in Israel”.

ISRAEL VALLEY

Merci – Thank you – הדות הבר - 谢谢