from the April 2012 issue

Lichtman, Shani to raise $100-150m VC fund

The former Microsoft Israel R&D president and former NICE CEO want to invest in late-stage start ups seeking growth rather than a quick exit. Relia sources inform that former NICE Systems Ltd. (Nasdaq: NICE; TASE: NICE) CEO Haim Shani, who served a stint as Ministry of Finance director general, and former Microsoft Israel R&D president Moshe Lichtman will try to raise $100-150 million for a venture capital fund. The fund will make investments of a few million dollars into late-stage start ups.

The fund is one of several venture capital funds that are planned to launch in the coming year amid rising reports about the difficulties facing Israeli high-tech start-ups face in raising capital.

Lichtman and Shani are two of Israel's most prominent high tech executives of the past decade, and switching to venture capital is a natural move. They operate in the same milieu, have seniority in the industry, and diversified and rich track records in technology and business that suits them to lead a large venture capital fund that will focus on Israel. In addition, one of Shani's legacies from his brief spell at the Ministry of Finance (from which he quit in July 2011), is the Relative Advantage Plan, which includes government incentives for Israeli financial institutions to invest in Israeli start-ups.

Statistics about the establishment of large Israeli high tech companies are not encouraging. No large company has emerged in the past 15 years, with the exception of Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX), despite the surfeit of start-ups sold to global giants. One of the reasons for the dearth is the shortage of capital for late-stage investment, which is fundamentally different from standard venture capital, and characterized by greater conservatism and consequently has lower rates of return.

Figures indicate that Israel has several hundred late-stage companies with more than $20 million in annual sales. These companies often hit the glass ceiling at this size. To reach the next order of magnitude in terms of sales requires an effort that is unfamiliar in local high tech, which specializes in the sale of companies in the earlier stages of their development.

Shani and Lichtman are two Israeli executives who, in theory at least, have this skill. Before his appointment as the Ministry of Finance Director General in mid-2009, Shani was the CEO of NICE Systems, one high-tech company that succeeded in growing here. He has experience in managing large workforces, mergers and acquisitions, global sales, and company turnaround. These are all skills that are needed when thinking about companies in the long term.

Lichtman has more than 20 years experience at Microsoft, including in top executive positions, during which he has accumulated critical skills in managing large companies. He has also been an investor for years, both through Microsoft and privately. In the past, he has spoken out against the culture of exits in Israeli high tech, saying, "Entrepreneurship is a wonderful thing, but it isn't astonishing, at least not among people for whom this is already they're second or third venture. It's also the incentive obtained from the environment, from all Israeli companies, which see a fast exit as a success."

In an interview a year ago, Lichtman said that Israeli high tech did not lack managerial experience to grow companies here, but that that this was simply not on the agenda of entrepreneurs and investors. "People in Israel aren't challenged in thinking to found a great company," he said. "There are 120,000 people in Israeli high tech, and it's not possible that we lack the people who can grow great companies."

Lichtman now plans to play an active role in changing this culture.

Lichtman said in response today, "Haim Shani and I have known each other for a very long time, and we both have many years in high tech. The future of the industry in Israel is close to our hearts, especially the ability of the industry to create large companies. We're in the very advanced stages of figuring out ways to help create large Israeli high tech companies."

Reprinted from the Israel High-Tech & Investment Report April 2012

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