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Events & News

Israel’s VC industry thrived because of Yozma. Now, it wants to do the same for Asia
Name : yozma | Date : 2015.03.18 18:55 | Views : 1017

Israel might be a tiny nation, but just like Singapore on the other side of the world, it is home to a disproportionately large number of successful startups. In fact, Israel has the largest number of startup companies in the world in proportion to its population, and is second only to the US in terms of the number of venture capital funds.

The credit for kickstarting an ecosystem that can punch far above its weight goes to a venture capital firm called Yozma. In the early 90s, its founder Yigal Erlich was the chief scientist of Israel’s ministry of industry and trade. Armed with a US$100 million investment courtesy of the government, Erlich formed its first venture fund Yozma I in 1993.

“Yozma was established with the goal to create a venture capital market in Israel. Pre-conditions were set to entice private sector and foreign investors to set up new VC funds, to participate as a partner in these new VC funds, and secure obligation of the new VC funds to invest in startup companies in Israel,” says Gina Heng, head of business development at Yozma Group Asia.

The fund went on to invest in 10 drop-down funds, as well as make 15 direct investments into companies in three industries: communications, IT, and life sciences. “Eight out of 15 of the direct investments achieved successful exit, while nine out of the 10 drop down funds have exercised their options and bought out the government,” adds Heng.

Since then, it has launched another two funds, Yozma II and Yozma III, raising a total of more than US$220 million, which was then plunged into roughly 50 portfolio companies. Of these, 14 firms such as X-Technologies and Conduit went on to achieve meaningful exits via acquisitions or IPOs. The latter was valued at US$1.3 billion in 2012, while the former was acquired for US$200 million.

By 2008, the total fund size in the market had risen to US$5.9 billion. Now, Yozma is looking towards the next exciting market to capture: Asia.

Based in South Korea

There are three key reasons why the Israeli VC firm is eyeing this part of the world: rapidly growing markets; an abundance of available resources in terms of talent, influx of foreign investment, and supportive governments; and the recent proliferation of merger and acquisition opportunities with the exponential increase in the number of startups here, including high-valuation companies like Alibaba and Line.

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Yozma intends to base itself in South Korea to use it as a test market, citing its potential billion-dollar companies, highly competitive industries, and ever-growing appeal of Korean culture abroad as the reasons why.

It just might be what the doctor – or president Park Geun-hye, to be exact – ordered, especially with her focus on developing a creative economy locally. Not surprisingly, Heng says that the Korean government is “particularly interested in implementing the Yozma approach to investing and creating an ecosystem.”

A good thing, since Yozma tends to work closely with the government. “One approach we take is to engage governments at policy level to provide support to local startups,” Heng explains. “We promote local startups to foreign investors while working closely with governments to help companies to get support from their own government.”

Using South Korea as its regional headquarters, Yozma plans to expand into Singapore, Indonesia, and China, though Heng emphasizes that they will go wherever there are good opportunities. “We have a good grasp of what can be achieved through our experience and networks in the region […] We will only invest in companies that Yozma thinks we can value add as an investor,” she adds.

Building an Asia-wide ecosystem

Yozma’s grand plan to create a sustainable venture ecosystem in Asia is a three-pronged approach. Its first leg will be the creation of Yozma Campus, a startup-focused campus that will search for and support promising, global-minded startups with training and networking opportunities. These campuses will be established in Korea and other selected Asian countries in the second half of the year.

“We won’t be just a co-working space, but will have specific programs run by program providers and incubators,” Heng explains.

The second part of its strategy is to found an accelerator called Yozma Ventures. A six-month-long program, it will also help its resident startups secure seed investments. Seunghyun Cho, founder of One Asia Investment Partners and Leonie Hill Capital, will become the CEO of Yozma Ventures.

Lastly, there is the Yozma Fund that will focus on early-stage startups and pre-IPO companies in the region that want to go global. Under Yozma Fund, several funds will be launched this year, with each between US$20 million to US$100 million in size. In particular, it will be looking for startups in the financial technology and biomedical or healthcare industries.

First investment

Yozma Ventures today got its plan underway in earnest with the signing of a strategic investment agreement with 500V, a Korean holdings company that was launched just last month. Through equity-swap acquisitions, 500V categorizes its startups into groups such that they can maximize collaborative opportunities and help each other to succeed.

500v investment yozma

Yozma Ventures will be investing KRW 1 billion (US$888,600) into 500V, which is currently profitable as a group, according to Cho. “With 13 companies as of February 2015, monthly revenue stood at KRW 3.9 billion (US$3.4 million), with profits of KRW 600 million (US$531,400) – a profit margin of 15 percent,” he says. “As of March 2015, there are 15 companies and is expected to grow to 20 by the month’s end. Monthly revenue now stands at KRW 5.2 billion (US$4.6 million) with a profit of KRW 900 million (US$796,900) – that’s a 17 percent profit margin.”

Editing by Paul Bischoff and Steven Millward, images by israeltourism andRandomwire
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