Angels Without Borders

Trends and Policies Shaping Angel Investment Worldwide

John May, Manhong Mannie Liu

• Publisher: WSPC
• Year: 2015
• ISBN:
  9789814733823
• Topic: Negocios y empresa
• Subtopic: Finanzas corporativas

"Angel investors" provide small amounts of capital ($100k–$3m) to early stage, high-risk ventures. In recent years, they have not only grown in numbers and sophistication, they have garnered the attention of larger investors and governments throughout the world who are interested in the phenomenal power of startups to bring innovative products to consumers, create jobs and economic value, and sustain macroeconomic growth.

This comes as no surprise. Some of the world's most valuable and influential companies, such as Google, Facebook, and Uber were able to survive and thrive their make-or-break early years only through the backing of angels.

Angels Without Borders: Trends and Policies Shaping Angel Investment Worldwide, drawing on chapter contributors from more than two dozen nations, will be the only book on the market to examine this trend from a global perspective. It is a very useful reference for anyone who is interested in learning about the angel investment movement.

"Angel investors" provide small amounts of capital ($100k–$3m) to early stage, high-risk ventures. In recent years, they have not only grown in numbers and sophistication, they have garnered the attention of larger investors and governments throughout the world who are interested in the phenomenal power of startups to bring innovative products to consumers, create jobs and economic value, and sustain macroeconomic growth.

This comes as no surprise. Some of the world's most valuable and influential companies, such as Google, Facebook, and Uber were able to survive and thrive their make-or-break early years only through the backing of angels.

Angels Without Borders: Trends and Policies Shaping Angel Investment Worldwide, drawing on chapter contributors from more than two dozen nations, will be the only book on the market to examine this trend from a global perspective. It is a very useful reference for anyone who is interested in learning about the angel investment movement.

Readership: Government officials, economists and economic development officials interested in design and efficacy of the wide range of policies and programs being enacted around the world; Academics who are interested in studying the angel investing and its implications; Active or potential angel investors within more than two dozen countries; Angel investors who may be considering cross-border investment; and, Impact investors who are interested in deploying small amounts of risk capital toward potentially transformative solutions to social and environmental problems.
Key Features:

• Examine, for the first time, how angel investing is evolving and maturing in both advanced economies and the fast-growing developing nations, such as China and South Africa
• Canvas a broad landscape of practices and policies influencing the course of angel investing, ranging from large, government-sponsored angel funds to the informal approaches used by loosely networks of angel investors
• Provide knowledgeable "guided tours" of each nation written by seasoned angel investing practitioners rather than journalists
• Show how angel investing is combining with other investing movements, such as impact investing and investing to empower women
• Offer public sector leaders and economists alike a view into the astonishing array of policy and programmatic experiments now being attempted in the effort to support angel investors
• Serve as a resource not only for angel investors within each nation but for those now looking to pursue the next frontier — cross-border angel investing

Part II

Angel Investing

Profiles of Countries and Regions

Israel

D. Todd Dollinger and Steve Rhodes

START-UP NATION

Israel is a young country, a mere 67 years old. Just a few of the significant challenges facing Israel since its declaration of independence have included: absorbing waves of immigrants, most of whom arrived as penniless refugees; defending against hostile neighbors in a volatile region; and feeding a rapidly growing population despite harsh agricultural conditions. These same challenges have been Israel’s source of inspiration. Israel’s former president, Shimon Peres, wrote in his foreword to Dan Senor and Saul Singer’s best-selling book, Start-Up Nation, “Israel bred creativity proportionate not to the size of our country, but to the dangers we faced.”¹ With none of the oil that made many of its neighbors immensely wealthy, Israel built a strong, thriving economy from human capital. If there is one story reporters consistently fail to adequately cover (despite extensive coverage), it is that Israel has the “greatest concentration of innovation and entrepreneurship in the world today.”² With a population just over eight million, Israel ranks:³

• First in total expenditure on civilian R&D as a percent of GDP

• First in quality of scientific research

• Second in venture capital availability, with some 70 active venture capital funds, including 14 international funds with permanent offices, plus numerous foreign venture and private equity funds that have active representatives in Israel

• Third, after the US and China, in the number of companies listed on NASDAQ, as well as more than 60 Israeli companies traded on European exchanges)

• Fourth in utility patents per citizen

Yet another testimony to Israel’s world-class entrepreneurial stature comes from the 2012 report of the Startup Ecosystem Report 2012, in which Tel Aviv ranks second globally because it has the “second highest output index of start-ups with a healthy funnel of start-ups across the developmental life cycle, a highly developed funding ecosystem, a strong entrepreneurial culture, a vibrant support ecosystem and a plentiful supply of talent.”

As was the case in Europe, Israel’s economy in its first decades was largely socialist. It was only in the 1980s—and even more so in the 1990s—that privatization, decentralization and broad economic liberalization developed momentum and transformed Israel’s economy into one of the most open in the world. As a young country founded as a socialist state, Israel does not have a long history of personal wealth accumulation. Further, despite the fact that personal wealth is increasing in Israel (and the gap between wealthy and poor is growing), the number of high net-worth individuals that constitute the pool of potential angel investors is limited both by high taxes and a small population.

The angel investing scene in Israel today is difficult to characterize and quantify. It is highly fragmented with angel clubs forming and dissolving all the time. The Bible tells us that Jacob wrestled with an angel in order to receive God’s blessing. Today, Israel’s entrepreneurs are wrestling with the fact that organized angel investing is still very much in its formative period in Israel. More than one Israeli entrepreneur has felt that seeking funding directly from God was a better alternative than wrestling with angels. The historical difficulty of gaining access to angel investors in Israel and the painful funding gap that this has created for start-ups have been partly resolved in two ways. Israeli start-ups have been proactive in pursuing angel investment outside of Israel. In addition, the Israeli government has stepped up to the plate with public-private early stage funding initiatives.

INCUBATORS, ISRAELI-STYLE

One of the key drivers of Israel’s start-up ecosystem, the Technological Incubators Program (TIP), was launched in 1991 by the Office of the Chief Scientist (OCS) of the Ministry of the Economy (formerly, Ministry of Trade and Commerce). In its early years, the Technological Incubators Program had a largely social objective, namely capitalizing on the talents of scientists and engineers immigrating to Israel from the former Soviet Union. Technology incubators were established throughout the country in cooperation with local and regional economic development organizations. The incubators provided a framework within which the inventions of immigrant engineers and scientists and others could progress towards commercialization.

As a result of privatization, which took place from 2002 to 2007, all government-licensed incubators are now owned and operated by Israeli and foreign investment firms, and multinational corporations seeking to tap into Israeli innovation. Israeli government-licensed incubator owners compete for eight-year licenses that entitle them to apply for TIP grants when they form new companies. With access to a rich deal flow of innovative ideas, incubators’ investment committees select investment opportunities and seek approval for TIP funding. Each incubator portfolio company receives seed investment of up to $700,000 over a two-year period, of which 85 percent is a contingency grant provided by the OCS and repayable in the event of success, as a royalty on the company’s revenues or at exit. The 15 percent balance is from incubator owners. To some extent, Israeli incubators fill the angel investor void while also housing the companies in the incubators’ facilities and providing substantial additional support.

Each year, 75 to 85 new ventures are established within TIP. In addition to funds, incubator owners provide: offices; administrative, financial and legal services; business and professional guidance; and exposure to an extensive network of strategic partners and follow-on investors. (The authors’ company, The Trendlines Group, invests through two government-franchised incubators.) During our portfolio companies’ first two years, portfolio companies’ high-risk profiles are reduced by: achieving technology proof-of-concept or working prototypes, filing patents to protect intellectual property, preparing a well-considered business plan, mapping regulatory compliance pathways, and initiating discussions with potential strategic partners or customers.

Israeli incubator portfolio companies have proven attractive to angel investors. Considerable effort is expended in growing networks of investors in Israel and abroad. Angel investors are often the next-round investors, following the founding investment made by the incubators themselves. There are currently 19 government-licensed technology incubators. Some have multiple sectors of interest, eight are focused primarily on medical technologies, seven focus on information and communication technologies, including security and new media, and three on cleantech. Trendlines Agtech, owned by Trendlines, has a unique area of expertise in food and agriculture technologies, specifically those related to solving global food and water crises.

An industrial technology incubator has been established in Haifa in order to support the commercialization of lower-tech ventures. There are now also two government-licensed biotechnology incubators. Their portfolio companies are funded for three years instead of two. A competitive process for establishing the country’s second biotech incubator took place in 2013 and was won by FutuRx, a company owned jointly by Orbimed, Johnson & Johnson, and Takeda of Japan. Alliances of venture capital and strategic partners operating incubators are increasingly common in Israel.

MEASURING SUCCESS

As of 2008, approximately 38 percent of the 1,175 incubator companies formed since 1991 continued beyond their first two years. Since the establishment of the TIP in 1991, every $1 that the Israeli government provided has attracted more than $5 in private investment. This has driven growth in the high-tech sector, created high-quality jobs, and increased tax revenues while returning capital and interest to the government. A growing number of companies that began in incubators have matured into vibrant enterprises that employ dozens or, in some cases, hundreds of people, and have taken their place on the world stage. Some examples are: Protalix Biotherapeutics, which develops and commercializes recombinant therapeutic proteins expressed through its proprietary plant cell-based expression system, ProCellEx®; Mazor Robotics, which is a world leader in robotic solutions for spinal surgery; and Aeronautics, which produces cutting-edge unmanned aviation and surface vehicles. The TIP model has been so successful that it is now being adopted by private entities that provide seed-stage investments to their portfolio companies and seek an innovation pipeline. Some examples of private incubators are: KARAT, founded by the Israel Electric Corporation to support energy-related start-ups;⁴ Haifa-based NESTech; Microdel, which focuses on low-tech initiatives; and Rainbow Medical, which seeds medical start-up companies based on the inventions of its founder, Yossi Gross.

START-UP ACCELERATORS

Inspired by the American start-up accelerator programs Techstars and Y Combinator, there are a growing number of start-up accelerators in Israel that provide a place to work, mentoring by experienced business advisors, and access to investor networks. All of the accelerator programs in Israel, for example, culminate in a demo day, where leading angel and VC investors provide feedback, conduct follow-on meetings, and provide valuable connections to other investors. In contrast to Israeli government-licensed incubators that commit to their portfolio companies for a minimum of two to three years, accelerators offer short-lived programs of a few months. They tend to be focused on software, mobile, and new media ventures that have less-demanding development and go-to-market cycles than, for example, medical, agritech or other advanced technology ventures.

Some of the Israeli accelerators provide seed funding and take equity. For example, the Elevator is a program that runs for three months in Israel followed by one month in New York or Berlin. In exchange for workspace, mentoring, a package of services, and a seed investment of $20,000, the program takes up to 10 percent in founder shares. In their last two cycles, 90 percent of the portfolio companies raised follow-on investments. DreamIT Ventures Israel is an accelerator that focuses on software-related ventures that can be developed into products within three months. Five Israel-based teams are selected each year. They start with one month in Israel followed by three months in New York. In addition to a seed investment of up to $30,000, DreamIT Ventures provides extensive mentoring as well as access to angel and venture investors—for which they take 8 percent equity. Another example is Upwest Labs, which was founded in Silicon Valley by leading Silicon Valley-based Israeli entrepreneurs as a Y Combinator-like accelerator specifically for Israeli start-ups. In addition, multinational giants offering start-up acceleration in Israel include Microsoft, Google, and Samsung, among others. There also are a number of academia-based accelerators and programs that have an excellent reputation for generating good quality start-up deal flow. A leading example is the Zell Entrepreneurship Program. Sponsored by Chicago businessman Sam Zell, this program is in its 12th year at the Interdisciplinary College in Herzliya. It allows outstanding undergraduate students in their third year to do advanced entrepreneurial studies in anticipation of working in entrepreneurial companies or starting their own.

INVESTOR EVENTS AND COMPETITIONS

One of the important components of the Israeli entrepreneurial ecosystem is investor events where early-stage innovative ventures can pitch to and network with an audience of potential investors. A good example of such an event is AgriVest, an annual event organized by Trendlines Agtech, Israel’s only agritech-focused incubator. An independent committee of industry experts, government officials, agritech investors, and patent firms select leading Israeli agritech startu...

Table of contents

• Cover
• Halftitle
• Title Page
• Copyright
• Dedication
• Contents
• Preface
• About the Editors
• Angel Investing: Trends and Issues
• Angel Investing: Countries and Regions