Germany's PolyTechnos Venture Partners, founded in 1998, has been deeply involved in Israel's high-tech industry for a long time. PolyTechnos cofounder and managing partner Knut Heitman invested in Elron Electronic Industries' (Nasdaq: ELRN; TASE:ELRN) first high-tech companies during the 1970s.
Heitman still visits Israel to invest here and further strengthen his longstanding ties with Israeli high-tech leaders.
PolyTechnos managing partner Dr. Simon Waddington also makes frequent visits to Israel. He says, "PolyTechnos's chiefs think that Israel is Europe's Silicon Valley. In our opinion, Israel has excellent technologies and wonderful entrepreneurs, which is why we visit regularly to see exactly what's going on in Israeli industry."
PolyTechnos manages $200 million in capital. It has invested in three Israeli companies to date: Enigma Inc., in a joint investment with Millennium Material Technologies Fund) (MMT); Power Paper, together with Clal Industries and Investments (TASE:CII); and ColorChip, together with Walden Israel and Eurofund.
PolyTechnos has invested in twelve high-tech and seven life sciences start-ups to date. Life sciences are PolyTechnos's competitive edge. In contrast to US venture capital companies, which are still mainly interested in telecommunications and software, PolyTechnos is deeply involved in Europe's medical devices and biotechnology industries, and wants to invest in similar companies in Israel.
A fascinating entrepreneurial spirit
Waddington says, "We think that Israel has favorable conditions for developing wonderful medical devices and biotechnology industries. Israel has many globally renowned places for conducting clinical trials in biotechnology, including Hadassah Medical Organization and the Weizmann Institute for Science. We're now looking at three medical devices and biotechnology companies, and we'd be happy to look at more."
"Globes": What advantage do you provide biotechnology entrepreneurs?
Waddington: "Many PolyTechnos partners worked for years in the biotechnology, pharmaceutical and medical devices industries in Germany and around the world. Our people have close relations with these industries. It's enough to mention our very close relations with Siemens (NYSE:SI; XETRA:SIE), a world leader in medical devices, and with Bayer (NYSE:BAY; LSE:BYR: XETRA:BAYG). Some of our partners have also served in senior positions in these companies."
Why are you looking to invest in Israel? What about the European start-up industry? Is there such a thing?
"Certainly, there are start-ups in Europe. Europe has industrial centers that raise young high-tech companies. In Germany, we mostly see biotechnology companies, especially in the Munich area, and in the UK, we see concentrations of high-tech companies around Cambridge, which also has a large science park.
" Ireland, for example, is very strong in software, while we see in the Oxford area in Britain a great many medical devices and biotechnology companies. So of course Europe has a high-tech industry, but Israel has a fascinating entrepreneurial spirit. Therefore, as part of our European activities, we visit to get the latest news and meet with Israeli companies."
Arranging exits
What's happening now in Europe's venture capital industry? Is it emerging from the crisis of the past few years?
"Europe's venture capital industry was frozen in 2000-03, due to the global crisis, the US economic crisis, and the closing of the window of opportunity on Nasdaq. Now, however, we feel that high-tech has been recovering since mid-2003. We judge this recovery according to two main criteria.
"The first is the reopening of the window of opportunity on Nasdaq. The US economy is recovering, and we're seeing an increasing number of companies holding IPOs on Nasdaq.
"The possibility of issues gives our investors, i.e. the groups that invested in venture capital funds, a chance to get their money back. This brings me to the second criteria for the venture capital recovery, which is the new money investors are injecting into new funds. Therefore, funds are prepared to again invest in start-ups, and the wheels of the venture capital industry are starting to move again."
Who are the main investors in Europe's venture capital industry? Are they mainly large European concerns?
"Although there are European industrial investors, most of the money comes from American investors. Americans drive the venture capital industry. There are funds that invest in European funds, but European institutional investors make greater investments in private equity funds.
"But now that we're sensing some recovery, and American investors are seeking places to invest, there are many more options than previously, especially after the great crash of recent years.
"I believe that investors will mainly invest in Europe's 20 largest venture capital funds and in funds that can show good exits. Therefore, now that there is a window of opportunity to issue on Nasdaq, we'll see a growing number of companies going public backed by European venture funds.
"The financing will be to raise money and so that their venture capital backers can make exits."
Networked across Europe
When there's a recovery and the money starts flowing again, interest in Israel resumes.
"I visited Israel just two weeks ago and saw many interesting companies for investment. I must note that I was amazed by the high level of Israeli entrepreneurs."
What kind of companies and entrepreneurs do you look for in Israel?
"We're mainly interested in serial entrepreneurs. In other words, in entrepreneurs who've previously founded one start-up. We believe it's easier to work with these entrepreneurs, because they're experienced and already know all the stages for establishing a company. There are quite a few serial entrepreneurs in Israel and we're always happy to hear about them and meet them."
At what stage do you prefer to invest in a company?
"We prefer to invest in a company when it's still small, but not at the seed stage. When it has 20-30 employees, for example. Since we're based in Germany, we can't be physically close to our portfolio companies, so it's hard for us to invest in seed-stage companies.
"Nevertheless, we work closely with Israeli venture capital funds, so we're happy to invest in early-stage companies, if and when we have local partners that can accompany the company from the start."
What's your investment strategy?
"We're in contact with virtually all Israeli venture capital funds, and we're happy to make joint investments with them. In all our investments to date, we've been joined by Israeli investors that accompany the companies as they mature. We've made joint investments with MMT, Clal Industries, Eurofund, and Walden Israel. We hope to make more investments together with Israeli venture capital funds."
Do you have a specific allocation for Israeli industry from the $200 million fund you manage?
"No, we don’t have specific allocations for any geographical region. We invest in companies that we think are worthwhile, regardless of whether they're based in Europe, Silicon Valley, or Israel."
What added value does PolyTechnos provide?
"All PolyTechnos partners have a rich and varied background in different high-tech sectors. Everyone has served in executive positions in large companies, and know the market well. They also have widespread connections in the industries from which they came, including biotechnology, medical devices, and electronics.
"We well networked with all the companies in Germany, as well as major European firms, such as Siemens, Bertelsmann, and BMW. We work very closely with out portfolio companies to help them become large and successful."
Published by Globes [online] - www.globes.co.il - on April 15, 2004