Concord Venture II is a fund with a well-bred family tree in the Lilliputian world of the Israeli venture capital industry. The new fund's grandmother is Nitzanim, set up at the end of 1993 by Marshall Butler (currently a partner in the Infinity fund) and Kardan Technologies, with the respectable sum of $20 million, and investors such as Kyocera Corp of Japan and AVX. "It was a classic example of a first generation fund, with the investors owning the management company," says Matty Karp, Concord managing partner, who was Nitzanim chairman (following executive positions in Elbit). Another Concord partner, Yair Safrai, was Nitzanim general manager from the beginning (formerly of BVR).
Karp says that like most large funds today, at the time, Nitzanim invested at the early stage and baby-sat the company closely throughout its lifetime. "We had the smallest portfolio in that period. We were most active in the companies, and in most cases, the leading investor. We recruited American management and CEOs for several of the companies."
Among the few companies in Nitzanim's portfolio were several stars, that have already exited, or are expected to exit: Galileo, ESC, Neoprobe, WaveAccess (sold to Lucent), Accord (which is being issued shortly), RADCom and XTL. One company was struck down, one was sold, another seven were issued or are on their way, and Matty Karp believes we'll be hearing about another four. To date, they report an average return of 121% a year. "These are the best results in Israel," Karp says, "and they match the top ten percent of US funds established at around the same time as Nitzanim."
Concord Venture I, launched in 1996, more closely resembles US funds, according to Karp. Control of the management company was handed over to the fund's managers: Karp, Safrai, and Shlomo Kalish (founder of Jerusalem Global), and Batsheva Ellern (pharmacist and attorney), who joined them. The new fund more or less continued in the same investment areas, investing at the early stages and maintaining positions at later stages. They decided that with $75 million, they could also enter companies at later stages, which is what they did with Oridion, RT Set of the BVR group, CommTouch and Accord.
In addition, the fund tried to build up clusters of companies in tangential spheres, mainly medical and life sciences, communications and the Internet. Concord Ventures Its treasure trove includes Saifun, which seems to be Israel's most secret start-up and which developed a breakthrough memory technology; Friendly Robotics, which recently appeared with its lawn mower robot in our Start-up feature; Optical Solutions, an altogether US company engaged in optic communications; Remon Medical Technologies, which developed a telemetry medical monitoring device; PharmaSpec, which developed technology for focused-release of drugs; and SeeLight, which developed a broadband optical communications access solution.
Concord Venture II closed two months ago with $180 million, far from being one of Israel's largest funds. Kalish returned to Jerusalem Global, and Avi Domoshevizki, founder and general manager of Seabridge, sold to Newbridge and Siemens in 1998, joined as a partner.
Despite the decline in life sciences' investment luster, Concord decided to continue to invest in the sector.
Ellern: "Despite the fact that large US funds closed the gates to investments in life sciences, we understood from talking to people that those who succeeded in the field continue to invest in it. We believe it to be a sort of specialization field we should stick with. At first, we focused only on medical equipment. In 1999, we started investing in eHealth, but the field still remains to be proved. We recognized a business opportunity in Healinx, which built a doctors-patients-colleagues communications platform."
"Globes": You said you don't invest in Internet services.
Safrai: "I don't think we would have invested in Healinx if it was located in Israel. It's a group of Israelis located in the Valley, very abreast with the politics of the sector."
A company in this fund's portfolio will receive on average a $7-10 million investment, double that of a portfolio company in Concord I, during the company's lifetime. "From our viewpoint, investing $200,000 is the same as putting in $5 million. We either invest, or we don't. Perhaps at the mezzanine stage we won't participate," Safrai says.
Concord is optimistic.
Karp: "The market will revert to what it used to be. By that, I mean the peak is already behind us.
"As a result of the market situation, there will also be less money allocated by overseas institutional investors for investments outside their countries' borders. Consolidation of funds will therefore take place in Israel; there will be fewer players, who will be more professional. I think there will be a number of very prominent funds that will find their specialization areas, and they will have advantages. Many players, however, will disappear."
Business Card
Name: Nitzanim, Concord Venture I, Concord Venture II
Investment Stage: Seed to late stage
Investment areas: Communications, Internet infrastructure, medical and life sciences
Volume: $255 million
Investments offered: $7-10 million (Concord II)
Portfolio companies: Accord, Aisys, Nanomotion, Sizary, Super Dimension, XTL, Flash Networks, Saifun, Friendly Robotics, Oridion, Optical Solutions, RT Set, Voltaire, Proficiency.
Investors: Kyocera Corp, AVX, Goldman Sachs, JP Morgan, Bell Atlantic, US West, HarborWest, Migdal Insurance, Bank Leumi Investments, Bank Leumi Provident Funds, United Mizrahi Bank Provident Funds, Discount Bank Provident Funds, and Kardan Technologies.
Partners: Matty Karp, Yair Safrai, Batsheva Ellern, Avi Domoshevizki
Exits: ESC, Galileo, Neoprobe, RADcom, WaveAccess, CommTouch, RT Set, Oridion.
Published by Israel's Business Arena on 6 June, 2000