How things change. At the beginning of the previous decade, the Dovrat-Shrem group founded the Polaris fund, one of the first venture capital funds to operate in Israel. To manage the fund, Aharon Dovrat recruited former Orbotec Europe general manager Rami Kalish.
Ownership of the fund's management company (entitled to fixed management fees and 20% of the fund's earnings on liquidation) was shared by the various subdivisions of Dovrat-Shrem. Kalish was promised a share in the fund's profits, if any.
Today, seven years after being formed, Polaris is divesting itself of its assets and its initiators are counting their profits. And it is at this time that Kalish and his fund management partners Hemi Peres and Rami Beracha are coming out with their declaration of independence. They are setting up a new management company, control of which they will share with Aaron Mankovski and Bruce Crocker, managers of the Eucalyptus venture capital fund.
The new management company, Polaris Venture Capital, will continue to manage the Polaris-1 and Polaris-2 funds founded by Shrem-Fudim-Kelner and also the Eucalyptus fund, in which the Tamir-Fishman investment house and Chase Manhattan of the US are partners. Besides managing these long-standing funds, the new management company is in full spate of a $300-400 million capital-raising exercise for a new venture capital fund, namely Polaris-3. Shrem-Fudim-Kelner will share the fund's profits, but this time will hold only a minority interest.
It is by no means certain that Shrem-Fudim-Kelner are happy with the timing of this announcement of the new management company, even if it is not such as to over-cloud the huge success of the first and second Polaris funds, in which the group has control of the management company. Subsidiary company Shrem-Fudim-Kelner Technologies, whose principal asset is the Polaris funds' management companies, is currently holding a private placement at high values of $80 million before money. A public offering is later expected, at twice the value.
The Kardan group, incidentally, made a similar move, when Matty Karp and Yair Safrai, managers of the Nitzanim Fund, took control of the next-generation fund, Concorde. Kardan, like Shrem-Fudim-Kelner, is in the process of floating its technology arm, which includes its share in the funds' management companies, at a value of $100 million before money.
Rami Kalish, who started out as a salaried manager at Polaris and went on to become a partner in the Polaris-2 management company (in which he and Peres hold 45% of the rights) agrees that this is one more step forward: "This is not an Israeli idea. The venture capital fund world started out with financial bodies and at the end of the process, the management company passed into the hands of the managers. We remained in a good, co-operative relationship with Shrem-Fudim-Kelner.
"Hemi Peres, who joined the management team of Polaris-2, which raised $125 million in 1996 (he previously managed the Mofet venture capital fund), said today that the new fund was already in the final stages of a capital-raising exercise: "The new funds will be on the American model of professional partners. A bunch of managers setting up a new management company and raising the fund themselves".
The third rib of the Polaris management team is Rami Beracha, who together with Bruce Crocker managed the Polaris Venture capital offices in Silicon Valley. Beracha emphasises that "The US market today is the most important market for most of the start-up companies we invest in".
The first Polaris fund is expected to produce a yield of 500% to entrepreneurs and gigantic profits for the Shrem-Fudim-Kelner group. Polaris, which raised $20 million in 1993, participated in giant high-tech successes such as Point of Sale, VocalTec, Shany Computers, Scorpio, Armon networking, RadCom and Card Guard, all of which were sold or issued at gigantic amounts. At the end of 1999, Polaris sold its crowning glory, the shares of Medinol, which it acquired for a few hundred thousand dollars, for $32 million.
The Polaris-2 fund, now in the middle of its lifetime, also became a highly profitable fund. The fund's portfolio contains investments in proven successes such as RADWare, AudioCodes, BackWeb and ITXE. The Eucalyptus Fund in 1997 raised $55 million. The funds investments include RADWare Chromatis, Xacct, Mercado, HyperBanner, BioControl, Mysticom, VigilTech, MixMe.com and CTI Squared.
Published by Israel's Business Arena on 29 February, 2000