Persys: Strange fruit yields seed money

The local venture capital scene is turning into a farm for strange fruit, judging by this column. Here is another denizen – Persys Technologies, a sort of seed investment company which evolved from a semiconductor manufacturing equipment company. Incredibly, the original company is profitable, over a decade old, and completely private.

Persys Technologies was founded at the end of the 1980s by two Intel graduates, Gideon Drimmer and Arye Glazer. Drimmer, co-founder of the Intel plant in Jerusalem, bought Glazer’s share in 1998 and has remained with 80% of the company. Other shareholders include illustrious names like the Petruschka family (brother and father of Chromatis founder Orni Petruschka), which owns manufacturing company Quartz, an Intel supplier, among other things.

What does Persys do? The company develops and manufactures machinery for improving semiconductor manufacturing processes, which involves very serious technology, the company says. This means it has chemists, physicists, software and micro-electronics experts on board, alongside mechanical engineers. Persys also has a subsidiary in Houston (Persys Systems), in charge of international marketing.

From time to time, Jerusalem-based Persys was approached by all sorts of new entrepreneurs with various refreshing ideas, some of which the company liked. It looked at its cashbox, saw that all was well, and decided to invest. Persys currently places $50,000-500,000 at a company’s disposal, with an average $150,000-200,000 per company. It does not, however invest alone. In 1999, the company decided to set up a subsidiary named Persys Investments specifically for this purpose, not as a fund but as an investment company.

A group of diamond merchants climbed on the bandwagon, including Joseph Inbar, whose pre-capital raising round stake was 10% of share capital; Mike Hoffman, a former Israeli in the communications sector; and stock exchange-listed Excellence (15%). Persys Technologies holds 60% of the company’s share capital and senior employees hold 15%. To date, Persys Investments has invested $3-3.5 million and is currently trying to raise another $3 million, at a company value of $13 million, after money. Several weeks ago, Persys Investments was still planning a public issue in Tel Aviv, but under current market conditions the plan now seems more remote than ever.

With the large concerns investing in seed, and Persys investing in early stages too, one wonders exactly is the idea behind this activity. Perhaps the company uses its relatively unusual field of endeavor to specialize in specific investment areas?

”No,” Persys Investments operations manager Yaron Kimhi says. “If we focused only on micro-electronics in the seed stage, we would have a deal flow of five companies a year. It’s true that we do not invest in biotechnology, but if a medical equipment company approaches us and we understand its technology, we’ll invest.”

What does Persys invest in? Software, Internet, chemistry, machinery and semiconductors – a wide range of investment areas indeed. The company’s almost twenty-strong list of portfolio companies includes Melta, which developed printed circuits testing equipment; LIT (Latent Image Technology), which developed a platform for product verification and prevention of forgery; IntelliGate, which enables searches to be made by cellular device users, among others; Movie Star, which developed software for movie productions and has an agreement with the BBC; First Care Products, which developed a unique emergency bandage and has contracts with the US, Belgian and French armies and others; and SoftWatch, whose Nasdaq issue was postponed (Persys holds only 1%).

”Globes”: Only 1%, Does this underscore the saying that it is better to have 1% of a good company than 100% of a failing one?

Kimhi: “We don’t take control of companies. We take 10-20% of a company in exchange for a seed investment of $150,000-200,000.”

It doesn’t sound a very attractive ratio for the really good companies.

”That’s correct, but we assist in procurement and all sorts of other things. Funds don’t invest these kinds of sums – they invest $1-3 million and take 50% of a company. If the entrepreneurs go to angels for these sums, they won’t receive added value.”

Funds normally take 25-30%.

”Entrepreneurs prefer to take $200,000-300,000 from me and go after the funds when they build up the company’s value.”

Is there a small chance that truly prestigious companies will approach you?

”What do you mean by ‘truly prestigious company’? We are in a good, growing niche. On paper, it looks excellent. Obviously we won’t get to realize all of them, but overall, the deal flow is very good and we can therefore choose the companies that suit us. It seems to me to be a niche in which we have plenty to do.”

Published by Israel's Business Arena on 14 November, 2000