US investment bank Landmark Ventures will set up a private equity fund in Israel for high-tech companies. Landmark Ventures managing director Doron Birger told "Globes", "Israel has no technology private equity fund, and it is hard for companies to grow to a large size just through organic growth. There is also no financial institution that can make small deals of $20-100 million. We believe this lack is a business opportunity."
New York-based Landmark Ventures was founded in 1995. It specializes in the life sciences, biotech, enterprise software, media content and Internet, cleantech, and semiconductors. The company operates in two ways: as an investment bank that specializes in M&As and the raising of capital for start-ups; and the provision of strategic and business development consultancy services for companies seeking to enter the US market. The company opened an office in Israel three months ago.
"Globes": What do think the Israeli market lacks?
Birger: "Financing activity for more mature companies, companies in the growth and late stages. I think that this is a national problem that blocks the development of Israeli high-tech. We hope that within a year, we can announce the start of Landmark's activity in this area. I don’t know what the format will be right now, a designated fund or some other model, but we want to establish our activity in Israel and bring in money. This will complete tripartite activity - as an investment bank, business development, and financing arm - and we'll be able to provide mature companies with financing that will give them the oxygen to expand and grow."
Birger said that, except for the Dovrats' Viola Partners, there is no Israeli fund that can make large investments. "Companies that need to create value and increase sales usually need to raise at least $10 million in capital. Venture capital funds cannot always meet the need, and there's no real alternative for technology on the Tel Aviv Stock Exchange (TASE). In effect, there's a vacuum.
"Israel needs private equity activity that targets growing technology companies. There are 500 companies with more than $10 million in annual sales, and they should be given a chance."
How do you explain the absence of US private equity funds in Israel?
"They come one by one. I believe that if there was a successful local industry, it would encourage US funds to come and seek opportunities. If the government chooses to support, like it did for biotech, it would be an importance incentive."
Birger says that he has met mature companies over the past year. "These are unknown companies, and which have money to acquire a company for $20-100 million. I'm not dreaming of building an Israeli Microsoft, but if there are many companies with more than $100 million in sales, it would change the picture. They would create a center of gravity that it would not be possible to export or close them."
Are your services relevant for a period in which Israeli entrepreneurs have already learned about the US?
"Yes. It's still hard to penetrate markets. This is a heavy budget item if you want an office in the US. Salespersons cost a lot of money. We take a smaller payment and a percentage of the success. But this is cheaper than taking someone and settling him there. We have the added value of knowing the market and the potential customers. How to reach the right person at Microsoft, for example."
If you're already paying for an investment bank, why not go all the way to the top, to Morgan Stanley or a similar brand?
"All the big US banks have representatives in Israel, but in truth, most of them aren’t interested in small deals. For hefty payments, these companies are handed over to junior managers. Besides, the economic climate has improved, and the investment banks' thresholds have risen. Jefferies & Co has already set a $100 million threshold. William Blair & Co. is in a similar place. Everyone sends representatives to Israel, but there is no bank with a presence like ours."
How do you think next year will look?
"I believe that we'll see more M&A activity, as well as the raising of capital. On the other hand, we'll see fewer international equity funds investing in Israel. They're moving eastward. We'll have to grow companies ourselves, and currently there are no financial resources for this."
Birger serves as chairman of start-ups BioCep Inc., CheckLight Ltd., MST, SightEra Technologies Ltd. and GeoEnergy Inc., and as a director at Given Imaging Ltd. (Nasdaq: GIVN; TASE: GIVN) and Medingo Ltd.
Published by Globes [online], Israel business news - www.globes-online.com - on December 14, 2010
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