Israel is a great destination for investing in startups. Nowhere is that better demonstrated than in the case study of the enterprise software industry -- where many of Israel's fabled success stories of IPOs and large mergers and acquisitions. Included in the presentation are companies like Amdox (DOX), Comverse, and Mercury Interactive.

1. Israel’s Enterprise Software
Ecosystem – Big Results
Start-Up Nation’s Enterprise Software Impact
Jon Medved
January 2014
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2. 1) Israel
The Economic Success Story
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3. “Israel: the power to astonish”
Emerging Market Growth, Developed Market Stability
GDP Growth by Year
•
The Start-up Nation is not a
one-trick pony.
•
Early rumors of a VC bubble
have died out as Israel has
shown its economic vitality
through good times and
bad.
•
5.50%
Since 2004 Israel has
outpaced other advanced
economies’ growth by a
significant margin.
3.50%
1.50%
-0.50%
2005
2006
2007
-2.50%
OECD
2008
2009
2010
2011
2012
Israel
-4.50%
Sources: The World Bank Group. "World Development Indicators."
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4. Israel beats all comers in job creation
A combination of fast population growth, robust exports, and sound monetary policy
has allowed Israel to create jobs faster than the U.S., the EU, Poland, and even Brazil.
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5. The Israeli Economic Success Story
“For a country with so many wars, Israel still has an economy with the power to astonish”
- The Economist, April 2008
Until 2009, Israel had more US listed companies (currently 90+) than any
other country, when only China surpassed it
Per capita VC funds raised in 2000:
“Within the 6 years after the tech bubble
– Israel: $600 per capita
– Europe: $30 per capita
The world's highest per capita count of engineers
The highest density of high-tech startups
– Nearly 4,000 in a country of eight million people.
Exports represent nearly 40% of Israel’s economy:
burst in 2000, Israel suffered one of its
worst periods of terrorist attacks and
fought a 2nd Lebanon war; and yet, its
share of the global venture capital
market did not drop—it doubled from
15% to 31%”
Dan Senor and Saul Singer
The Start-up Nation
– $9B of annual life science exports
– Intel: “We accounted for 10% of Israel’s 2012 exports”
S&P raised Israel’s credit rating in September 2011, lifting the country to A+
Israel’s Unemployment down to 5.6% -- near 20 year low.
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6. Knowledge based, tech oriented
R&D capital of the world
The Israeli economy is defined by
its world-class capacity for
innovation and its focus on R&D.
Industry-geared research
institutions and military training
foster a highly educated and
motivated population.
“Israel does spectacularly well on those
indicators that capture technology
innovation, education, human capital and
this accounts for the very rapid movement of
the Israeli Economy.”
Augusto Lopez–Claros,Chief Economist,
World Economic Forum, December 2009
Civilian R&D Expenditure as % of GDP1
Israel
Japan
Taiwan
Germany
USA
OECD
0
1
2
Quality of Scientific Research
Institutions – ranking of 143
Countries2
Israel
Switzerland
United Kingdom
Sweden
Belgium
Qatar
1
2
3
4
5
6
3
4
5
Innovative Capacity Score,
Ranking of 53 Top Countries3
USA
1
8.24
Israel
2
8.00
Switzerland
3
7.88
Germany
4
7.60
Sweden
5
7.52
Taiwan
6
7.30
Sources: 1 Central Bureau of Statistics Press Release, Aug 2011, 2&5 World Economic Forum, Global, Competitiveness Report
2011-2012, 3 IMD, World Competitiveness Yearbook 2011, 4 OECD, Education at a Glance 2011
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7. Knowledge based, tech oriented
Competitive on the global arena
Israel is poised to remain the world’s startup capital.
Israel’s Competitive Edge1
Country Rank 
2nd
3rd
4th
Total Expenditure
on R&D
Finland
Sweden
Japan
Flexibility & Adaptability
Hong Kong
Australia
Brazil
Entrepreneurship of
Managers
Malaysia
Colombia
Taiwan
Availability of Scientists
and Engineers
Japan
USA
India
Hong Kong
Taiwan
Denmark
Sweden
Venture
Capital Availability
Info Technology Skills
1st
USA
Iceland
A highly educated workforce, smart
governance, and continued international
investment opportunities provides Israel
with a serious competitive edge in start-up
creation over other developed countries.
Israel Ranks:
• 1st in the world in Medical Device patents
per capita
• 1st in the world in quality of scientific
research institutions
• 3rd in the world for total patents per capita
• 3rd most scientific papers per capita in the
world
• 2nd in the world in public expenditure on
education
Sources: 1 IMF World Competitiveness Yearbook 2011, , WEF – Global
Competitiveness Report 2011
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8. What has changed?
Quite a lot!
Skyline
Capital availability – twenty years ago
it was difficult even for Teva or
Checkpoint to raise funds
The Perception: “Start-Up Nation” is a
Positive Brand . . .but we still have
work to do on this front . ..
Companies have grown up;
management teams have improved
with global experience; serial
entrepreneurs abound
And finally… natural resources
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9. 2) Serious Results
Start-Up Nation’s impact
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10. Israeli High Tech Investment
2013 figures only encompass
Q1-3. Given quarterly
average, 2013 expected to
top out at ~$2.2B
A great decade gets even better
25
Israeli high-tech capital raising
Hundreds of Millions of $
20
Israeli VC Share
Other Investors
15
10
5
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012 2013**
Source: IVC Quarterly Survey, Q3 2013, IVC Research Surveys 2010-2012
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11. Israeli High Tech Investment
7
Israeli high-tech capital raising
Israeli VC Share
Other Investors
Hundreds of Millions of $
6
5
4
3
Q3 of 2013 is the
best quarter on
record since 2000,
and is a 35%
increase from Q3 of
2012.
2
1
0
Q1/11 Q2/11 Q3/11 Q4/11 Q1/12 Q2/12 Q3/12 Q4/12 Q1/13 Q2/13 Q3/13
Source: IVC Quarterly Survey, Q3 2013
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12. The Israeli Economic Success Story
Between 2005 and
2012, these
companies all
bought at least one
Israeli start-up.
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13. Trends: Israeli M&A
16.4
Volume
93
16
$ Billions
14
12
88
79
63
60
10
# Deals
90
84
80
73
70
63
10
62
100
50
58
8
5
6
4
2
25
0.5
2
1.1
1.9
2.7
3.5
2.7
2.6
5.6
60
50
40
# of Deals
18
M&A of Israeli firms
30
23
1.2
20
10
0
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: IVC M&A Survey, 2012
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14. Trends: Israeli M&A
Average M&A size increasing
120
Millions of $
100
60
$51M
“Recently, we are seeing Israeli companies
grow, and become world leaders in their
areas. We are seeing companies with
revenues of over $100 million. We did not
see these in the past. They were being sold
much earlier, often pre-revenue.”
Rubi Suliman
PwC High-Tech Partner
$35M
$32M
20
0
2008
2009
2010
“…the average deal size has
grown nearly 3½ times, from
$32 million in 2008.”
Wall Street Journal
Israeli 2012 Tech Exits Top $5.5B
Jan 7th, 2013
$81M
80
40
$111M
Average M&A
price by year
2011
2012
Source: PWC Israeli Exit Report 2012
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15. Israeli Companies are Leaders in Profit Driving Innovation
Israeli companies developed many of the technologies we all use

Use a PC . . . .
The Intel MMX, Pentium-4 & Centrino chips were designed, developed, and produced in Israel

Make some calls . . .
IP telephony was invented by VocalTec and AudioCodes; Cordless phones powered by DSPG

Leave Voicemail . . . .
Comverse Technology is the world leader in VoiceMail and SMS systems

Use a Disk On Key . . .
Disk-on-Key was invented and first sold by M-Systems (now part of Sandisk)

Try to Hack Into a Computer . . .
CheckPoint is by far the world leader (and the inventor of) Firewall Software

Call into a call Center . . . .
Two companies (NICE and Verint) are world leaders in monitoring and Recording Systems

Get Wiretapped (huh?). . . .
Verint is a global leader in digital audio and video surveillance analytic tools

Use a Cell-Phone. . . . .
Original cellphone technology was developd and continues to be produced in Israel

Watch a Flat Panel TV . . . .
Orbotech sells critical inspection equipment which is used by virtually all TV manufacturers

Get some help on the Internet . . . LivePerson sells the software than enables live-chat for leading Internet retailers

Send an Instant Message
ICQ (now AOL Instant Messanger) was invented in Israel
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16. World class companies with a global footprint
Teva Pharmaceuticals (TEVA – Mkt. Cap. = $40bn; TASE & NASDAQ Listed)
•
•
Teva is the world’s largest generic drug manufacturer; 1 out of every 13
prescriptions filled in the US is for a TEVA product.
Has made numerous multi-billion $ acquisitions over the past few years
Perrigo (PRGO – Mkt. Cap. = $9bn; TASE and NASDAQ Listed)
•
•
Perrigo is the world’s largest over-the-counter generic drug manufacturer; the
largest supplier to OTC drug store branded mkt
Expanded into the prescription generic market through ‘05 acquisition of Agis
Check Point Software (CHKP – Mkt Cap = $12bn; Listed on Nasdaq)
•
•
Worldwide leader in internet and network data security; pioneered Firewall
technology in 1994
Serves 98% of the Fortune 500 and more than 100,000 customers worldwide;
subsidiaries in over 40 countries
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17. World class companies with a global footprint
Amdocs (DOX—Mkt Cap = $7bn; Listed on NASDAQ)
•
•
The worlds leading provider of billing and customer care software and services
to global telecom carriers
A very high % of global tier-1 carriers use Amdocs software
Israel Chemical (ICL – Mkt Cap = $13bn; Listed on TASE)
•
•
One of the largest producers of Potash, and other Agrochemical products in the
world
Unique production and distribution advantages given location and access to
Dead Sea
Given Imaging (GIVN – Mkt Cap = $700mm; Listed on TASE and NASDAQ)
•
•
Invented a “pill-camera” for diagnostic purposes in gastro-intestinal procedures;
technology emerged from missile imaging technology
Has developed from a “sci-fi” type start-up to a company selling around
$200mm; they have sold well over 1mm pills
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18. 3) Enterprise Software Activity
Acquisitions in Israel
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19. Enterprise software powerhouse
• Established in the ’80s, Comverse,
Mercury Interactive and Amdocs were
considered top-tier competition,
especially in niche markets, to
multinationals like SAP and Oracle.
• Seeded a whole ecosystem of
enterprise-focused software startups
that sprung up in the late 1990s
through today.
• These players set the tone across
Israeli high-tech and are a major
reason Israel is such a enterprise
software powerhouse.
Israeli enterprise SW giants
“CEOs of Israeli startups routinely name
Mercury as the Israeli company they
most admire... For the next generations
of Israeli software firms, these three
have written the rulebook”
Susanna Khavul in Silicon Wadi – The
Rise of the Software Industry in Israel
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20. 2006-10: Oracle’s activity
Convergin – brokering platform for
telecom service providers
2010 Oracle acquisition for $90M
Primavera Software – enterprise
project management software using
real-time data
Oracle acquires and expands the
Jerusalem R&D Center, its second in
Israel.
2008 Oracle acquisition $45M
Demantra – demand forecasting
services for sales planning
2006 Oracle acquisition for $41M
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21. 1998: SAP’s first Israel venture
SAP Labs Israel
SAP’s new activity starting with their Labs opening in
1998 in Herzliya helped spawn a series of
investments from SAP Ventures.
Acquisition of OFEK-Tech birthed
SAP’s “Labs Israel” – spawning a
number of investments across the
country.
•
•
•
SAP acquisition $200M
SAP labs employed 40 people in 2001 and is now
operating across Israel with nearly 1000 researchers.
•
•
•
Top Manage – 2002 acquisition (undisclosed $)
Virtual Locality – 2005 acquisition $500K
Interwise – 2000 series C $30M from GE and SAP
Ventures, later bought by AT&T for $121M
Zend Technologies – 2005 investment (undisclosed $)
A2i – 2004 acquisition for $20M
… and more
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22. 2001: SAP/TopTier
An acquisition that leads to more
TopTier was at the vanguard of
helping businesses entering the
information age deal with the
overflow of data.
An all-cash acquisition this size was
unheard of for SAP at the time – but
Oracle was also eyeing the deal.
SAP today announced its intention of setting up a
new subsidiary, named SAP Portals, to focus on the
management and development of portals and
business sector products, which will be based on
TopTier’s technology. The company is planning to
employ 700 people, who will be managed by TopTier
president and CEO Agassi. The subsidiary will operate
in California, with development centers in Germany
and Ra’anana.
– Globes April 2001
SAP acquisition $400M.
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23. 2006: EMC/nLayers and Kashya
Database management software
mapping the applications running
on top of enterprise infrastructure
for more efficient allocation
EMC acquisition $50M
Continuous data protection adapted to
heterogeneous networks for disaster
recovery – EMC’s clients’ networks
largely fragmented and therefore
vulnerable. Evolved into
“RecoverPoint”
EMC acquisition $150M
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24. 2006-11: EMC Serial Activity
2006: Proactive Solutions
EMC acquisition - $30M
Inaugurating EMC’s Center of Excellence - 2011
2007: Illuminator
Illuminator
EMC acquisition - $10M
2011: Zettapoint
Database optimization
EMC acquisition - $10M
EMC’s serial activity is expected to stem from its new nerve
center in Israel, the CoE in Herzliya. Focused on cloudsoftware development, the Center is also tasked with
coordinating the recently acquired companies to work with
EMC’s larger global strategy.
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25. 2012-3: EMC/XtremIO … EMC/ScaleIO
EMC’s growing presence in Israel
Both ScaleIO and XtremIO offer solutions
for datacenters needing to scale both their
storage and computational capacities.
EMC’s “sister acquisitions” help maintain its
position as market leader as datacenters
begin to adopt both multi-medium and
flash-only storage products.
XtremIO 2012 acquisition for $430M
ScaleIO 2013 acquisition for $200$300M
“EMC has 1,000 employees in Israel, mostly at
its center of excellence, run by Dr. Orna Berry.
It seems that after the acquisition of five
Israeli companies, on top of organic growth,
EMC is now a serial buyer. "I am sure that we
will make more acquisitions in Israel, just as
I'm sure as I am sitting here," Tucci [EMC CEO]
says.”
- Globes, 2011
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26. 2008: IBM/I-Logix and IMB/Guardium
2008: I-Logix, model driven
development behind IBM’s “Rational
Rhapsody” product
IBM acquisition: $140M
2008: Guardium, real-time database
security and monitoring, plus
enterprise database regulatory
compliance management
IBM acquisition: $225M
2008 also saw IBM acquire XIV Software, FileX, and Diligent Technologies…
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27. 2010-2012: IBM activity
2010: StorWize
Real time compression to boost
networked storage performance
IBM acquisition: $140M
2012: Worklight
Mobile application development
platform – speeding time to
market for complex enterprise
applications for mobile
IBM acquisition: $60M
2012: Red Bend
Mobile business asset
management software behind
IBM’s PureFlex system
IBM acquisition
reportedly $250M
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28. 2013: IBM/Trusteer and IBM/CSL
Trusteer currently protecting millions
of end users (PCs, smartphones,
anyone using an ATM or accessing
sensitive files on corporate
networks)
CSL International provides
virtualization management across
enterprises, now integrated into
IBM’s zEnterprise systems
IBM acquisition for undisclosed $$
IBM acquisition ~$1B.
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29. Other transactions
Onavo helps solve the
impending cellular spectrum
crunch by reducing the
amount of data you need to
do what you want on your
smartphone.
Facebook acquisition
$120M.
Software for supply chain
analysis and optimization,
applied primarily to retail
and distributors of B2C
NCR Corp.
acquisition ~$800M
Protection for high-value
data; enterprise and
financial datacenter
management. A Shlomo
Kramer company.
IPO on Nasdaq 2011 ~$1B
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30. Multinationals’ “boots on the ground” in Israel
IBM R&D Center Haifa
SAP R&D Center Herzliya
Since 1927, cooperative research
with top Israeli universities.
SAP CEO Hagemann: This center is “a front
line where new ideas are turned into
technologies… and is succeeding well.”
IBM Innovation Center TA
SAP R&D Centers
Herzliya & Karmiel
Center of excellence & training
facility for corporations looking for
guidance implementing IBM Israel
software in their business
IBM Cyber-security Labs Ramat Gan
Opening 2014, leveraging the 200+ employees at
Trusteer to develop the next generation of cybersecurity software
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31. Multinationals’ “boots on the ground” in Israel
Tel Aviv – Center of
Excellence in cooperation
with Matrix Israel
Herzliya – Center of Excellence
and coordination hub for
EMC’s Israeli assets
Tel Aviv – EMC Labs Israel,
focusing on machine learning
OurCrowd partnership – A
new approach to accessing
early stage technologies – coinvesting agreement with
Israel’s OurCrowd
Beer Sheva – R&D Center
working with Ben Gurion
University on virtualization
and cloud management
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32. 5) Causes
Why Israel?
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33. Why? The Key Ingredients Which Have Lead to Success
• Culture
• Human resources . . . It’s all about the people
• Army training, development and experience
• Gov’t Support
• Required resources available: academia, brain power, funding
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34. Why? The Key Ingredients Which Have Lead to Success
It’s the Culture
•
•
•
•
•
•
•
•
•
Small geographical entity -- 2 hour drive to anywhere (like Silicon Valley?)
Risk taking is endemic; Its OK to fail (life and failure are in perspective)
Everyone questions authority
Informality is a way of life (Bibi, Dudu, Chemi, Bogi), flat social organization
Immigrants and immigration are accepted and
encouraged
International networks and experience
Going global from day 1
Pioneering ethos; the “whole country” was startup
New cultural icons – startups as the national sport
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35. Why? The Key Ingredients Which Have Lead to Success
The IDF – Israel’s not-so-secret weapon
•
•
•
•
•
•
•
Elite technical units are a key (and cost effective) training ground
Technology/intel units have the latest tech and “toys”
Best and brightest work as teams, take risks, and lead
Learn how to innovate and build products fast and cheap
Meet/bond with friends and partners for life
Cutting edge technologies in software,
communications, security, optics, video,
networking, etc.
Military technologies applied to unlikely areas…
Plus, it puts risk taking
in perspective!
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