Pamot Rehovot Advisors manager Ariel Landau smiles when he reads about plans to privatize incubators and convert academic research into industrial companies. “Everybody is talking about it now,” he says, “but we are the only ones to have taken practical steps since 1996.”
When Landau says “us”, he is referring to the fund in which he is a partner; a fund that manages $20 million and has completed its investments. Pamot Rehovot Advisors has made 11, mostly pre-seed, investments. The companies, based on academic research projects, most of which were developed at the Weizmann Institute of Science, have no generic technological applications. Two of the companies have since closed, and two others hope to sell their technologies soon. Landau considers four of the remaining seven companies to be promising.
After investing all its budget, Pamot is not raising a second fund, but in conjunction with a leading Israeli venture capital firm, is examining managing investment portfolios for funds that are struggling in the current harsh investment climate instead. Landau says that while a joint legal entity has not yet been established with the firm, there is an agreement and the two companies are already jointly negotiating with companies who want someone else to manage their portfolios, including their remaining investment capital.
“Globes”: Why not simply set up a Pamot II fund, instead of reinventing the wheel?
Landau: “I think there are better opportunities for me. The world is different from what it was two years ago. Raising a company and realizing the investment takes years. It is not certain that the venture capital model (a limited partnership for a fixed period, during which the general partner is the managing body and the investors, defined as limited partners, have no managerial rights, Z.B.) is suitable any longer.
“In my opinion, there could be for a model for an entity that does not have to break up. Such a model would also be suitable for advanced stage technology investments. To eliminate any doubt, this model obligates the management to work with the companies, rather than raise capital for the next fund or charge management fees. By the way, a legal solution was recently enacted in the US to incorporate companies while preserving the taxation rights of the limited partners.”
Landau’s approach is fundamentally different from most of his venture capital colleagues. Following the failure of companies like Yazam, Zinook and Emicom, many Israelis think there is no reason to manage a venture capital fund other than as a limited partnership. Conventional wisdom in the US also believes that the venture capital limited partnership model has proven itself over the past 30 years.
Landau’s progress
Landau has spent rather more time working in technology investments than many of his colleagues Trained as a chemical engineer with an MBA, specializing in applied mathematics, he participated in the establishment of one of Bank Hapoalim’s investment companies in the Tel Aviv in 1970, and stayed with the company for seven years.
Afterwords, he worked in textiles and real estate, and then served as Elscint vice president and CFO during the company’s recovery in the mid-1980s, responsible for Europe, South America and Asia. He also served as president of Elbit (ELBT), working on civilian applications of military technologies.
In the early 1990s, he was one of the architects of the government’s Yozma Fund, and managed Ilanot Discount (now Ilanot Batucha) for two years. He also served as a director at Africa-Israel Investments, Clal Electronic Industries and other companies, and is currently a director at Direct Insurance and Leumi & Partners.
In 1994, Landau began investing in start-ups as a private investor. His involvement varied. During this period, he invested in Ronny Ross’ Panorama Software Systems (which sold technology to Microsoft (Nasdaq:MSFT) for $20 million). Landau says Panorama had a second exit when it marketing rights for its product to another international company. The two exits generated large dividends, and Panorama continues operations under its original ownership, developing business intelligence products. Landau is chairman of the company.
Landau benefited from other exits: as an angel in Netect, which was sold for $35 million, in Sivron, a developer of capital market software, and in ViryaNet (Nasdaq: VRYA). He is particularly proud of this last investment.
Landau says, “I invested in Viryanet at a company value of $7 million. The company later faced financial difficulties and almost closed. Its desperate need for cash led it to hold a $1.5 million rights issue. Not every investor participated, and I had to accept the shares of other investors. Two months later, the company won a $19 million project for Sun Microsystems (Nasdaq:SUNW), which also invested in the company. Major companies then invested in Viryanet, such as Star Ventures Enterprises and Clalit Venture Capital Fund. I sold when they entered.”
In 1996, after a series of such investments, Landau founded Pamot with a Swiss businessman, whose identity he prefers not to disclose. Pamot raised $20 million from leading Israeli investors, including Discount Investment Corporation, the Federman group (a general partner in EuroFund), Israel Discount Bank’s provident funds, Israel Phoenix Assurance Co., two general partners and private Israeli investors.
Landau’s partners in Pamot are physicist Dr. Amir Beker and Meir Riba, who acts as Pamot’s CFO. Landau describes Pamot’s model as finding generic technologies while still in the lab, and accepting a very high degree of scientific, technological and business involvement. He notes that the model has inherent difficulties, as the investors is also the entrepreneur. Landau adds that he manages companies, not portfolios, and that Pamot does not specialize in any specific field, but fosters generic technologies into start-ups.
Published by Globes [online] - www.globes.co.il - on May 1, 2002