“Managing a corporate venture capital fund is a step up from managing an ordinary venture capital fund,” says Koor Corporate Venture Capital managing director Yiftach Atir. He joined Koor VC in August 2000, after several years of veteran service as managing partner at Evergreen Venture Capital Fund.
Atir sees the move from Evergreen to Koor as a natural professional and personal step up. He says the sole reason for the move was the need for a change of scenery after many years in one place. He notes, “Take a look at how many people work in one place for more than five years. But I won’t duck your question. Evergreen was my first job after my discharge from the army. In Evergreen, I learned what venture capital is, what civilian industry is, and how to relate to money. In the army, I was only on the side that spends money, and didn’t worry where I would find it. But after five years, I think that the time has come to change; not just my colleagues, but as a step up. There is an opportunity to activate more money here, as well as establishing companies within Koor’s portfolio.”
Before Atir joined Koor VC, the woman in charge of establishing his new job was Einat Wilf, who has been at Koor VC for two and half years. She came to Koor VC from McKinsey & Co. in New York, where she served in several consultancy positions after receiving her degree from Harvard. She knew Koor Industries (NYSE: KOR) vice chairman and CEO Jonathan Kolber from the McKinsey’s connection with Claridge, the largest shareholder in Koor, with 28%, and McKinsey’s involvement in Koor’s acquisition process. “I was very interested in becoming a part of Koor’s restructuring, together with the sale of its large holdings,” she says. At the same time, Wilf handled several major Koor deals, such as the merger of ECI Telecom (Nasdaq: ECIL), and Tadiran Telecommunications. Her last task was the sale of some of Telrad’s Israeli operations to Nortel.
As Koor’s restructuring gathered apace, Wilf searched for other deals for herself. When the restructuring was completed, Koor was left with very few companies. Throughout the period, the investment in ECI was Koor’s technological focus, expressed in its four main holdings: ECI, Telrad, Elisra and 28% of Nortel Israel. Koor also has a stake in Makhteshim Agan. These holdings constituted Koor’s base upon which it planned to build a new network of holdings that would create synergy between the companies.
After consulting with venture capital funds, accountants and attorneys, Koor concluded that in order to attain a reasonable level of ownership, the corporation needed an in-house organization to coordinate its venture capital investments and be responsible for new investment. Thus was born Koor Corporate Venture Capital in early 2000.
Koor’s board of directors allocate $250 million of the company’s equity to the venture, without any external investors. This is why Koor preferred to define themselves as “Corporate Venture Capital”, which they claim is inherently different than the definition of an ordinary venture capital fund. Wilf lists Koor VC’s other objectives, beyond the usual aims of a simple venture capital fund, which are directly related to Koor’s holdings:
“On one hand, we operate as an ordinary venture capital fund, taking minority positions in companies. On the other hand, we also widely cooperate with companies in which Koor has a stake, in order to identify their technologies, check for possible spin-offs, or build companies independently. We also work in the other direction – if one of Koor’s companies is interested in cooperating with a start-up, we act as its eyes and ears.”
One for all or all for one?
Koor did not want to risk $250 million by itself, without sharing the risk with other investors, so it therefore operated contrariwise: Instead of recruiting investors for the fund, why shouldn’t Koor invest in other funds, thereby spreading its net wider than the five executives working at Koor Corporate Venture Capital?
The result was that out of the $250 million budget, Koor allocated $73 million to invest in venture capital funds. The largest investment was $35 million to Polaris Venture Capital, making Koor the largest Israeli investor in the fund. Koor also invested $10 million each in Genesis Partners, BRM Capital and Carmel Ventures, $5 million in Star Ventures and $2 million in Delta Ventures. In 2000, Koor VC invested $70 million in 19 companies.
Atir says that as far as investment size is concerned, Koor VC has “unlimited resources”. The fund’s investments range from $500,000 to the $12 million invested in Chiaro Networks $100 million financing round. Koor now holds 2.5% of Chiaro.
Why go in concert if one can go solo?
Koor stresses that all the corporation’s new investments are carried out through Koor VC, and that the investment risk is not shared among several partners, just as the chances of success are not shared either. Atir says, “We don’t see ourselves as money managers for other people; just like Lucent doesn’t raise money for its funds, neither does Koor.”
Koor decided however to set up a separate fund to enter into the life sciences. Unlike in telecommunications, Koor VC lacks the home ground advantage for due diligence, and therefore decided to look for investment partners for life science projects.
Wilf identifies three kinds of venture capital funds in Israel: First are funds such as BRM Capital that are uninterested in the life sciences, because it requires too much specialization; second are funds such as Polaris, Evergreen and Concord Venture Capital that have a partner responsible for the life sciences; and third are small specialist funds. Wilf says that the latter funds are very parochial, mostly based on one or two individuals with Israeli connections.
Wilf says, “I think that a single individual within a fund who concentrated on communications and software finds it hard to handle the load. The pace in the life sciences is different. Yields are different, and the field requires high specialization. It is hard for a single person to manage all the operations.”
The money, as usual, goes to Switzerland
Koor looked for external analysts to handle the search and analysis operations for Koor itself and Israel in general. The search located a small ten-man Swiss firm called MedaBioTech. At this stage, one can wonder what the Swiss group is looking for in Israel, but just like everywhere else in the world, there is an Israeli connection. Two of MedaBiotech’s managers are Israelis, who have worked closely for years with Israeli universities and technology incubators.
In March 2000, Koor invested $10 million in the Swiss company as a trial. If it produces results – further financing will be made available. To date, the money has been invested in four life sciences companies, and two more investments are in the pipeline, which will leave the first fund fully invested. Koor VC is now establishing a $50 million follow-up fund, of which Koor Industries has committed $10 million, with the rest coming from external investors. The new fund will be defined as Israeli, but Wilf says that if interesting companies suddenly pop up in the Netherlands, the fund will definitely consider investing there.
When comparing Koor Corporate Venture Capital to ordinary venture capital funds, Atir says the model is similar to the organization of the RAD group, which founds companies and helps them take off. Atir emphasizes that this is not another kind of incubator that provides a desk, phone and attorney.
Wilf says that she and Atir do not believe in the American general manager trend. “We do not look at start-ups and think, ‘what can we fix?’. This is part of the reason we can invest relatively quickly, because we are not looking to fix start-ups before investing in them. The four most successful Israeli companies had Israeli entrepreneurs who managed them. It turns out that they did rather well, and brought them to where they are today. We take care not to invest in companies in which the entrepreneur tells us that he is going to bring in a new CEO. We want to work with the entrepreneur from beginning to exit.”
Published by Israel's Business Arena on 5 February 2001