From the Incubator to NASDAQ The Experience in

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

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

Ofer Hi-Tech Diversified Portfolio Structure q Pre-Seed § Naiot - “The Best Incubator Award” for 6 years 1999 -2004 with 43 projects q 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 q Public Companies § ECI, Tecnomatix, etc. 3

Israel at a Glance 4 q Population – ~7 Million q Area – 21, 000 sq km q Gross Domestic Product) GDP – $112 Billion q GDP/Capita - $17, 000 q Total exports – $27. 7 Billion q Net foreign debt (2003) - $0. 55 Billion q Inflation rate (2000 – 2003 average) – 1. 75% q World record rate in R&D expenditure - 3. 5% of GDP q Highest number of engineers per 10, 000 people - 136 q Natural Resources – Virtually none q Penetration: Mobile – 105%, PC – 43%, Internet – 42%

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

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

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

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

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

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

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

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

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

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

Yozma Venture Capital at a Glance Yozma Fund Eurofund Gemini Inventech JPV (JVP) Medica Nitzanim (Concord) Polaris (Pitango) Star Vertex Walden Direct Investments © Yozma Proprietary 16

Yozma Drop-Down Funds FUND CAPITAL MANAGED ($M) Original size - 1993 • Eurofund • Gemini • Inventech • JPV-JVP • Medica • Nitzanim-Concord • Polaris-Pitango • Star • Vertex • Walden © Yozma Proprietary 17 20 25 20 20 25 210 2004 90 550 40 675 130 280 945 900 250 175 4, 035

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

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

Exits of Israeli Venture Backed Companies ($M) Year M&A Volume Capital Raised in Public Offerings 1996 593 638 1997 838 308 1998 1, 847 220 1999 2, 967 1, 382 2000 10, 586 2, 065 2001 1, 357 201 2002 1, 254 0 2003 1, 095 0 2004 706 413 Total 21, 243 5, 227 Israel #3 on the NASDAQ (after US & Canada) 20

Exits of Israeli Venture Backed Companies ($M) Israel #3 on the NASDAQ (after US & Canada) * US & Europe Source: IVC Research Center Total 21 M&A Volume Capital raised in public offerings 21, 243 5, 227

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

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

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

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

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

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

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

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

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

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