Preserving Israels Technological Edge

1
Preserving Israels Technological Edge
Dr Orna Berry, Chair, Israel Venture Association
Venture Partner, Gemini Israel Funds Based on
research by Applied Economics for the IVA

• IVA Conference
• Tuesday May 19, 2009

2
Main Contributors To Israels Present
Technological Edge
3
Hi-Tech Contribution Share of Hi-Tech in Exports
of Goods and Services, 1995 2007
Hi-Tech

Year

Source CBS

• The share of electronics and software in
  manufacturing exports is 50
• The share of high-tech exports in total exports
  grew by 10 between 1995-2007.
• The share of manufacturing high-tech exports grew
  by almost 6.
• The share of software, computing and RD services
  almost quadrupled.

4
Hi-Tech ContributionShare of Hi-Tech in Business
Sector GDP, 1995 2007


Hi-Tech
Year
Source CBS

• The share of the high-tech sector in the
  business sector GDP doubled between 1995 2007.
• The share of high-tech manufacturing grew much
  less than the share of software, computing and
  RD services which almost quadrupled.

5
Hi-Tech Contribution Share of Hi-Tech in
Business Sector Employment, 1995 2007


Hi-Tech
Year
Source CBS

• The share of high-tech employment in the
  business sector grew by 3 between 1995 2007.
• Most of the growth stems from the more than
  doubling of relative employment in software,
  computing and RD services.

6
Worldwide VC Investments by Cluster - 2008


Source Dow Jones VentureSource (EY)
7
Issues of Concern
Policy Recommendations
8
Why is the VC sector important to the Israeli
Economy?
Note Raw data sources Bank of Israel, CBS,
IVC The estimates are medium to long The above
results have been estimated with a low number of
observations. The numbers are point-in-time
estimates and are therefore subject to variations
in the economic variables they refer
to. Therefore they should be regarded as
indicators only.
9
Over Dependence on Foreign Capital VC
Investments in Israeli Hi-Tech Companies -
Total
Year
Source IVC

• The share of only Israeli VC in total VC
  investments in Israel has stayed constant at
  around 40.
• Investments are sticky even though dot com
  bubble burst in 2000, investments fell until 2003.

10
Over Dependence on Foreign CapitalVC Investments
in Israeli Hi-Tech Companies - Israeli VC Share
by Stage
Source IVC

• Shares vary significantly depending on the stage
  of development. Variation stems from 2 sources
• (1) Investment policy relative investment size
  required at different stages
• (2) Availability of alternative/complementary
  sources of funds at later stages
• The high share (70 in average) of only Israeli
  VC founding in seed companies emphasizes the
  importance of the industry for early start-ups
• Foreign funds rarely have well-based local
  office, so screening of seed companies left to
  local VCs
• High growth potential.

11
Over Dependence on MNCsEmployment in Foreign RD
Units as a Share of Total Employment in RD
Companies - Israel and Selected European
Countries, Selected Available Years


Source OECD
12
Declining RD Personnel in Higher
EducationHigher Educations RD Personnel Per
Million Capita Israel, Europe, Asia




Source OECD
13
Business Sector RD Personnel Per Million Capita
Israel, Europe, Asia




Source OECD
14
Risk of missing the lead at the global technology
curve?Israel Over focus on ICT VC Investments
by Industry 2008, US Israel
Israel Total VC Investments 1.4 Billion
US Total VC Investments 28.3 Billion
Zoom in
Zoom in

• Israels VCs focus on Hi-Tech only
• In Israel the Software, communications,
  networking and semiconductors sectors receive 70
  of VC investments Vs. 32 in the US
• In Israel the Biotechnology Healthcare sectors
  receive only 10 of investments, Vs. 30 in the
  US
• Israels OCS support focuses on manufacturing
  RD.

Source PricewaterhouseCoopers Money Tree
Reports
15
Risk of missing the lead at the global technology
curve?Investments in Israeli Hi-Tech Companies -
Israeli VC Share by Sector

Source IVC

• Shares in communications and software have been
  above the average
• Life sciences shares have systematically
  declined.

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Proposed Policy Recommendations
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Recommendations for LPs and Partners

• Significant MNCs presence
• Reliable business alliances
• MA opportunities
• Objective measurements of HC talent
• Reflects early exits
• Syndication with Israeli VCs allow on the ground
  representation and incubation
• Increased life cycle before exits will increase
  growth and productivity hence VALUATIONS and
  ability to sustain INDEPENDENT GROWTH.
• Israel offers a valuable opportunity for
  investments in innovations and growth

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Thank You
In my visits to universities around the world, I
mostly hear how theyve been able to duplicate US
technology the Israeli universities I visited
aspire to innovating well beyond that.
Professor Yannis Yortsos, Dean of Engineering,
Viterbi School of Engineering, University of
Southern California, May 2009
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• Global Entrepreneurship Week, Nov. 16-22, 2009
• In 2008, 77 countries participated in this
  event, with 9000 partners playing host to over
  25,000 activities designed to inspire, connect,
  mentor and engage the next generation of
  entrepreneurs.

Israel will participate in the 2009 Global
Entrepreneurship Week. The scope is to leverage
the entrepreneurship role model of the Israeli
high-tech and inspire youth from all
socioeconomic sectors in Israel to discover and
develop their entrepreneurial skills. IVA
members and affiliates shall participate and
support! Global sponsors Kauffman Foundation,
Make Your Mark (U.K), IBM, Ernst Young. Joint
Israeli hosts Technion, Hebrew University, MIT
forum. Contact Anat Rotstein, anath_at_tx.technion.a
c.il, 0522-629707
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The VC Industry in IsraelAn Empirical Analysis
of Economic Potential
Annex More Data
21
DiversificationVC Investments by Industry
2008, US
US Total VC Investments 28.3 Billion
Source PricewaterhouseCoopers Money Tree
Reports
22
DiversificationVC Investments by Industry
2008, Israel
Israel Total VC Investments 1.4 Billion
Source PricewaterhouseCoopers Money Tree
Reports