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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 of 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
1.21.4
2.062.2
2.6
3.5
4.5
5.2
GermanyBrazilChinaUKS.KoreaUSRussiaIsrael
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 $
0
200
400
600
800
1000
1200
1400
1600Foreign Direct Investment Per Capita by Nation
(2014 in US$)
5-1 Israel’s IPOs in Europe & US
Israeli Equity Offerings
Europe USA
Year Number of Equity Offerings
Capital Raised ($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 of 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 of emerging market players acquiring Israeli technologies from China, Russia, Japan and other 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 of 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 – רבה תודה - 谢谢