Sources inform ''Globes'' that Cedar Fund has held its first closing on $100 million of the $125 million that it wants to raise for its third fund. The firm raised the money in six months, at a time when larger and better known venture capital funds are struggling for every penny. Cedar Fund's partners were unavailable for comment.
Cedar Fund, founded in 1997, specializes in pre-seed and seed funding in IT, telecommunications, semiconductor, and Internet companies. The fund's partners are co-founder Gal Israely, previously a senior manager at Bear Stearns; Amnon Shoham, who is based in Boston, and previously worked for Star Ventures in Israel; and Nimrod Schwartz, a co-founder of NetVision Ltd. (TASE: NTSN) and former executive at Digital Equipment Corporation (DEC).
The Cedar I Fund managed a modest $50 million, and the Cedar II Fund managed $175 million. With the first closing of the Cedar III Fund, it will begin investing the promised money.
According to IVC Online, most investors in the Cedar I and II funds were US and European funds of funds. They include the Gilde Fund, Goldman Sachs Group Inc. (NYSE: GS), Horsley Bridge Partners, JP Morgan Chase & Co. (NYSE: JPM), and Morgan Stanley (NYSE: MS). Sources inform ''Globes'' that both current and new investors have invested in the Cedar III Fund.
Cedar Fund is an unusual fund in the Israeli venture capital landscape. Its premises are located in a handsome house in Kfar Shmaryahu, rather than on Hamanofim Street in Herzliya Pituah, and it operates quietly and without PR.
It is no coincidence that Cedar Fund's partners were able to make the first closing of the new fund quite quickly. The Cedar I and II funds both have had impressive returns, which is something investors always appreciate. Cedar Fund has had a number of exits by its portfolio companies. One example is BigBand Networks Inc. (Nasdaq:BBND), which Cedar Fund invested in at the beginning and on which it made an 11-fold return on investment at the IPO. Another example, is Onaro, which raised $10 million, mostly from Cedar, and was sold early this year to Network Appliance Inc. (Nasdaq: NTAP) for $124 million. A third exit was Octalica, which was acquired by Broadcom Corporation (Nasdaq: BRCM) in May 2007 for $35 million after raising less than $10 million.
Cedar Fund's portfolio currently includes a number of promising companies: Amimon Inc., Celtro Ltd., eGlue Software Technologies Ltd., Hiro Media Ltd., and WebCollage Inc.
Cedar Fund in many ways justifies the model of managing a small fund, investing in early-stage companies, and raising them to succeed. Since the Cedar II Fund, it has taken care to make follow-on investments in portfolio companies until the exit in order to maintain its relative stake in them. Cedar Fund's investment strategy is based on the confidence of its partners that their recipe for success is based on picking the right people, and not necessarily the right idea. For example, the idea underpinning BigBand's products was jointly formulated at Cedar by the partners and entrepreneurs. The same was true for both Amimon and Onaro.
In an interview with "Globes" a year ago, Israely said, "We invest in people. The chance that a team working with us could leave here without becoming a company is low. When the idea runs into a brick wall, we look for another direction from which to tackle the problem. We look for a team that can take the idea forward through to the exit stage. We believe that the best companies are those where the entrepreneur stays through to the end.
"We look for people that are capable of coming with an idea, abandoning it, looking for another one together with us, and setting up the company on the job. It's not the 'in-house entrepreneur' model, because we look for teams that have a leading technology expert and someone with ability and experience in business. A combination like this is hard to find. When we identify a team that we believe in, we start working on an idea and trial it with potential customers.
"Its a process of dialogue. Most ideas are killed in our conference room. We often find ourselves with an excellent technology which either has no market, or has a problem for which there's no solution. Sometimes there's a good idea, and a good market, but financially it isn't worthwhile. A good venture is one that can combine all three elements."
Published by Globes [online], Israel business news - www.globes-online.com - on May 22, 2008
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