Two leading figures in Israeli high tech – former Finance Ministry Director General and Nice Systems CEO Haim Shani and the former head of Microsoft’s research and development operations in Israel, Moshe Lichtman – are close to raising $250 million for a new venture capital fund.
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Israel Growth Partners is unusual in that most of its capital comes from Israeli institutional investors rather than from investors overseas.
IGP’s anchor investor is Leumi Partners, the unit of Bank Leumi that holds stakes in non-financial businesses, which has committed to putting $70 million into the fund.
Leumi was critical in enlisting local institutional investors, which have generally avoided Israeli tech companies despite the sector’s global reputation. Until they brought Leumi on board, Shani and Lichtman spent months trying to recruit local investors.
IPG comes amid a resurgence of investing in high-tech startups. In the third quarter, fundraising by startups from venture capital and other investors reached $660 million, its highest since the tech bubble burst more than a decade ago.
Companies like Waze, which Google agreed to buy for more than $1 billion last June, and Wix, whose share price has skyrocketed since it went public last month, have encouraged investors to fund startups in the hopes of replicating those successes.
Among the other investors is the investment unit of Clal Insurance, which is also expected to invest about $70 million. Discount Capital Markets, a unit of Israel Discount Bank, is likely to put in $20 million. The Amitim Pension Fund as well as the teachers pension fund are also backing IPG.
An Italian bank, Milan-based Intesa Sanpaolo, is also expected to be among IPG’s investors. A large Israeli investment house, which for now declines to be identified, is also weighing investing.
All told, IPG has form commitments for $160 million of the $250 million it plans to raise and expects to close financing in the next several weeks.
The fund, which will invest in high-growth technology companies that are either close to an initial public offering or selling themselves in a mergers and acquisitions deal.
Unusual investment model
IPG is also unusual in the way its investment policy is being structured, a model that was devised by Shani and Lichtman together with Yaron Bloch, CEO of Leumi Partners.
IPG’s investors will put their money into portfolio companies in two stages – one a “hard” tranche, accounting for about two-thirds of any capital the fund is putting into a company, that investors must commit to, and the other a “soft” tranche, in which an investor can opt to invest in a company or not.
IPG also plans to employ an unusual method of paying its managers. Instead of a management fee, the management company will have a budget of $1.6 million. Shani and Lichtman will receive 20% of all profits IPG earns for its backers.
Shami and LIchtman’s reputations are so strong that some investors were hesitant to back IPG out of concern that one or both of them would end up leaving during the fund’s lifetime for a position in the public sector or high tech. As an insurance policy, the two have signed contracts committing themselves to stay at the fund for at least five years.
Investing in IGP is part of the bank’s strategy is stepping up its investment in high tech, both by lending to companies and by investing in venture capital funds.
The bank has recruited Yifat Oron, a partner in Vertex Venture Capital, to manage the bank’s high-tech business. She will report to Danny Sidon, a deputy CEO and chairman of Leumi Partners, who devised the tech strategy for the bank together with Bloch and Leumi CEO Rakefet Russak-Aminoach.
Apart from backing IPG, Leumi has also put $50 million into Viola, a $2 billion private equity fund focused on high tech and managed by Shlomo Dovrat