Israel Secondary Fund raises $312m

ISF team: Nir Linchevski, Shmuel Shilo, Eva Hubsman, Dror Glass, and Josh Scher  credit: Shay Gavrieli
ISF team: Nir Linchevski, Shmuel Shilo, Eva Hubsman, Dror Glass, and Josh Scher credit: Shay Gavrieli

Managing partner Nir Linchevski: Companies that raised capital at sales multiples of 50 realize that we have returned to solid ground.

Israel Secondary Fund (ISF) has raised $312 million for its third fund. ISF, which was founded in 2008, specializes in buying holdings of investors, founders and employees in startups and of limited partners in venture capital funds.

ISF is one of the main Israeli players in the local secondary market. Its first fund was $50 million and its second $100 million. Other players in the Israeli secondary market are Alan Peled’s Vintage fund, which raised $812 million last year for investment in venture capital funds and startups in Israel and abroad, and overseas funds such as StepStone, which bought holdings in Vertex Israel Ventures’ fourth fund and in Group 11.

While funds such as StepStone do large deals, in the tens of millions of dollars at least, ISF specializes in smaller deals, of $5-6 million on average. Among the investors in ISF’s new fund are local companies Migdal Insurance, Altshuler Shaham, and Bank Hapoalim, and institutions, pension funds, endowments and family offices from Europe and the US.

"Our principle is that we work only in cooperation with the company and receive information from it in order to offer the best price," says ISF managing partner Nir Linchevski. "There are players that are prepared to buy holdings on the basis of the company’s reputation and information publicly available on the Internet, but we insist on obtaining full information. Often, the deal starts with an angel investor who wants to sell his holdings, and then the company decides to expand the sale and to provide liquidity to employees or founders as well. As far as the company is concerned, a secondary deal is generally a positive signal that validates its value, and up to now we have had few instances of companies rejecting the deal."

Unsurprising, Linchevski says that, against the background of what looks like a shutdown of the primary market on Wall Street, which was so flourishing last year, there is currently more interest on the part of companies in doing secondary deals. "There are angels and founders who see the change in the market and who want to reduce risk and realize holdings. Companies that had planned flotations in the next year or two also understand that this goal will probably be deferred, and they therefore want to offer their employees a partial realization in the millions of dollars, without them having to wait until 2028. So there are undoubtedly more approaches to us, but it is still not clear whether that will lead to more deals."

One possible obstacle to closing secondary deals at present could be price. Last year, startups raised capital at dream valuations, but after the collapse of the technology stocks on Wall Street it is clear that will no longer be the case in 2022. Linchevski says that the selling side, the company and investors, has also digested the change that has taken place.

"There’s a sober recognition that what happened with the irrational prices of 2021 will not be repeated, and we have returned to the solid ground of reality. Companies that raised money at sales multiples of 50 realize that it’s impossible to find a buyer at that valuation, and in two out of five secondary deals we have done this year there were adjustments in relation to the companies’ share prices in rounds they carried out last year."

Ordinary venture capital funds aspire, at least in theory, to end every investment with a return of ten times the money invested, but in a secondary fund such as ISF, which invests at a late stage when a company already has annual revenue of at least $5 million, the calculation is different. "We work at a lower level of risk, and diversify our investments over many assets, so our target is a return of 2.5 times on the money," Linchevski says.

Besides Linchevski, the partnership team at ISF currently consists of Dror Glass (one of the founders of the fund with Shmuel Shilo) and Eva Hubsman. So far, ISF has done more than 80 secondary deals in companies, 50 of which have made exits of different kinds. Among other things, ISF bought holdings in venture capital funds such as Glilot and Vertex, and in companies such as Earnix, Waze, MyHeritage, and Yotpo.

Published by Globes, Israel business news - - on June 13, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

ISF team: Nir Linchevski, Shmuel Shilo, Eva Hubsman, Dror Glass, and Josh Scher  credit: Shay Gavrieli
ISF team: Nir Linchevski, Shmuel Shilo, Eva Hubsman, Dror Glass, and Josh Scher credit: Shay Gavrieli
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