In a few weeks time, Orion will have becomes Israel's biggest venture capital fund. It will complete its next, $35 million capital-raising exercise, bringing it to $110 million. But, even today, it is a very interesting fund. Not because it completed, this week, a capital-raising series that brought it to a volume of $75 million, but by virtue of the investors behind the money, and the targets to which the funds will be directed.
Orion is what is known as a "specialist fund". All its investments will be made in Internet-related companies, starting from e-commerce technologies, services, through basic technologies, including even the manufacture of communication chips of a completely new type.
All the fund’s managers have "practical" experience in high-tech. Eyal Levy managed Pele-Phone and served as senior manager in Motorola. Garry Liebler was one of the Mirabilis investors, founded a start-up company for the distribution of Encyclopaedia Judaica on CD Rom, and managed the activity of the Liebler group - a family group owned by Australian tourism company Jet-Set, the biggest of its kind in the southern hemisphere. Research group manager Dr. Gavri Goren was advisor to the Chief Scientist. Six professional managers are currently being recruited.
Behind the money, however, stand some interesting partners. The investment fund of AIG insurance company, the biggest company investing in emerging markets, in a total volume of $7 billion; Comcast, that holds QVC, one of the largest e-commerce companies on the Internet; Microsoft and communications equipment company 3-Com.
How will the fund operate, what makes it different from other funds in Israel? Eyal Levy, former Pele-Phone general manager and currently senior partner and manager in the Orion fund, explains that the principle will be long-term investments. Orion, through its large "oxygen supply" and its partners, will ensure Israeli companies a good oxygen supply which will save them from one of the most prevalent errors to which the Israeli high-tech industry is prone, namely premature flotation.
"Globes": When will you start making investments?
Levy: "At present, we are examining investments which, I assume, will be made during the next six weeks. The companies are under examination with the assistance of strategic investors in the Fund, which also enjoy the right to make a joint investment in companies in which the Fund invests. We are examining a number of companies in the e-commerce field. Comcast is helping us make our assessment.
"3-Com helps examine companies in security fields, and 3-Com and Microsoft are interested in video-compression technologies".
What are your fields of interest?
"All Internet-related information technologies. This means a diverse range of technologies: hardware, software, basic information transfer technologies, modems and so forth. In practise, our partners are characteristic of the expanse in which we are about to invest. We have a software company (Microsoft), a communications company (3-Com), a service company (Comcast) and an infrastructure company (Global Crossing)".
How did you establish contact with AIG?
"The connection was formed after Aura exited from the management of the fund. We came to AIG via UBS bank, which serves as a broker between us and potential investors. We met with Peter Hugh, president of AIG Capital. He was excited about the idea and put Investment Team onto it. This Investment Team is the biggest private fund in the world investing in emerging markets, and manages $7 billion worth of investments.
Will the partnership with so large a fund affect Orion’s investment policy?
"Today, funds operating in Israel lack the capability to support their portfolio companies in such a way as to prevent them from rushing into capital-raising exercises. The post-issuance performances of Israeli companies are not flattering, and one of the reasons for this is that they issued prematurely. In Israel, there is a dearth of financial resources for supporting the later stages, when it comes to large investment sums.
"If a company needs to raise $20 million, it is difficult to raise that amount in Israel, and companies take refuge in flotation. I do not believe that, in the long term, this can continue. Going into a large financial body such as AIG will enable us to invest in companies for the long term and upgrade their value in a more methodical manner".
Will you invest in seed companies or large companies?
"We are planning well-balanced investments. We will focus on young companies, but we plan to invest in incubation. We have even allocated space in our offices for entrepreneurs with good ideas. They will be given the basic tools for developing their ideas. In effect, we are setting up an incubator in our offices in the Ramat-Gan Diamond Bourse compound. We will also invest in companies at more advanced stages, which have a blueprint or are in their initial business stages. But we will also invest in more mature companies. The object will be to provide these companies with coverage throughout their life cycle".
What will the scope of investment be?
"We will invest an average of $3 million each in some twenty-five to thirty companies. We will start by investing $0.5 million, and reach as much as $5-6 million. This is where our connection with the financial world enters the picture. It will enable us to organise investments in a range of $20-25 million each".
Who are your competitors in Israel?
"I don’t see any real competition. In Israel, most transactions are syndicate-style, with the participation of a number of funds. Most will regard us as a natural partner for investments in the Internet field. We have good ties with a not inconsiderable number of funds, such as the Benny Steinmetz group, which also invested in the Orion fund".
With whom do you work in the 3-Com and Microsoft management teams?
"In Microsoft we are well-connected at the highest levels. Numbers two and three in Microsoft, including Israelis holding senior positions in Microsoft, who worked with me in previous years in Motorola and Medicom. In 3-Com we work vis-a-vis Yair Sakov, who manages 3-Com’s investment activity in Israel and Europe. But the decision to invest passed via (3-Com chair) Arik Ben-Hamou himself. In Comcast, we work with top management levels, and vis-a-vis their business development activity".
Do Israeli companies still have a low value?
"Values are still significantly more reasonable than in the United States. We also see that the rate at which new companies are opening up continues to increase. By and large, since Microsoft President Steve Ballmer came here last year, we have received offers from 300 companies that we are examining. We have an applications rate of five companies a week".
Published by Israel's Business Arena May 6, 1999