The Investor's Guide to the Israel Enterprise Software Industry

Israeli Enterprise Software Impact January 2014

Israel’s Enterprise Software Ecosystem – Big Results

Start-Up Nation’s Enterprise Software Impact

Jon MedvedJanuary 2014

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1) IsraelThe Economic Success Story

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Israeli Enterprise Software Impact January 2014 3

“Israel: the power to astonish”Emerging Market Growth, Developed Market Stability

-4.50%

-2.50%

-0.50%

1.50%

3.50%

5.50%

2005 2006 2007 2008 2009 2010 2011 2012

Hu

nd

red

s GDP Growth by Year

OECD Israel

• 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.

• Since 2004 Israel has outpaced other advanced economies’ growth by a significant margin.

Sources: The World Bank Group. "World Development Indicators."


Israel beats all comers in job creationA 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.


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 itPer capita VC funds raised in 2000:

– Israel: $600 per capita– Europe: $30 per capita

The world's highest per capita count of engineersThe highest density of high-tech startups

– Nearly 4,000 in a country of eight million people.

Exports represent nearly 40% of Israel’s economy: – $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.

“Within the 6 years after the tech bubble 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 SingerThe Start-up Nation


Knowledge based, tech orientedR&D capital of the world

0 1 2 3 4 5

OECD

USA

Germany

Taiwan

Japan

Israel

Civilian R&D Expenditure as % of GDP1

Quality of Scientific Research Institutions – ranking of 143

Countries2

Israel 1

Switzerland 2

United Kingdom 3

Sweden 4

Belgium 5

Qatar 6

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

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.

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

“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


Knowledge based, tech orientedCompetitive on the global arena

Israel’s Competitive Edge1

Country Rank 1st 2nd 3rd 4th

Total Expenditure

on R&DFinland Sweden Japan

Flexibility & Adaptability Hong Kong Australia Brazil

Entrepreneurship of

ManagersMalaysia Colombia Taiwan

Availability of Scientists

and EngineersJapan USA India

Venture

Capital AvailabilityUSA Hong Kong Taiwan

Info Technology Skills Iceland Denmark Sweden

Israel is poised to remain the world’s start-up capital.

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


What has changed?

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

Quite a lot!


2) Serious ResultsStart-Up Nation’s impact

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Israeli High Tech InvestmentA great decade gets even better

Source: IVC Quarterly Survey, Q3 2013, IVC Research Surveys 2010-2012

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5

10

15

20

25

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013**

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of

$

Israeli high-tech capital raising

Israeli VC Share Other Investors

2013 figures only encompass Q1-3. Given quarterly

average, 2013 expected to top out at ~$2.2B


Israeli High Tech Investment

0

1

2

3

4

5

6

7

Q1/11 Q2/11 Q3/11 Q4/11 Q1/12 Q2/12 Q3/12 Q4/12 Q1/13 Q2/13 Q3/13

Hu

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f M

illio

ns

of

$

Israeli high-tech capital raising

Israeli VC Share Other Investors

Source: IVC Quarterly Survey, Q3 2013

Q3 of 2013 is the best quarter on record since 2000, and is a 35% increase from Q3 of 2012.


The Israeli Economic Success Story

Between 2005 and 2012, these

companies all bought at least one

Israeli start-up.

http://www.ca.com/

http://www.ca.com/

http://www.bmc.com/

http://www.bmc.com/

http://www.netapp.com/

http://www.netapp.com/

http://www.juniper.net/

http://www.juniper.net/

http://images.google.com/imgres?imgurl=http://www.cs.cf.ac.uk/ccgrid2005/hp-logo.gif&imgrefurl=http://www.cs.cf.ac.uk/ccgrid2005/&h=239&w=292&sz=18&tbnid=XV5whVrwpJTQvM:&tbnh=94&tbnw=115&prev=/images?q=hp+logo&start=3&sa=X&oi=images&ct=image&cd=3

http://images.google.com/imgres?imgurl=http://www.cs.cf.ac.uk/ccgrid2005/hp-logo.gif&imgrefurl=http://www.cs.cf.ac.uk/ccgrid2005/&h=239&w=292&sz=18&tbnid=XV5whVrwpJTQvM:&tbnh=94&tbnw=115&prev=/images?q=hp+logo&start=3&sa=X&oi=images&ct=image&cd=3

http://www.sandisk.com/Default.aspx

http://www.sandisk.com/Default.aspx

http://www.broadcom.com/index.php

http://www.broadcom.com/index.php

http://www.cisco.com/en/US/hmpgs/index.html

http://www.cisco.com/en/US/hmpgs/index.html

http://www.cadence.com/index.aspx?lid=home

http://www.cadence.com/index.aspx?lid=home

http://en.wikipedia.org/wiki/Image:JohnsonandJohnsonLogo.gif

http://en.wikipedia.org/wiki/Image:JohnsonandJohnsonLogo.gif


Trends: Israeli M&A

16.4

0.52

1.11.9

2.7

10

3.52.7 2.6

1.2

5 5.6

63

25

60

5862

79

93

8884

73

23

63

50

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100

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

# o

f D

eal

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$ B

illio

ns

M&A of Israeli firmsVolume # Deals

Source: IVC M&A Survey, 2012


Trends: Israeli M&AAverage M&A size increasing

“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 SulimanPwC High-Tech Partner

Source: PWC Israeli Exit Report 2012

“…the average deal size has grown nearly 3½ times, from $32 million in 2008.”

Wall Street JournalIsraeli 2012 Tech Exits Top $5.5B

Jan 7th, 2013

0

20

40

60

80

100

120

2008 2009 2010 2011 2012

Mill

ion

s o

f $

Average M&Aprice by year

$32M

$51M

$81M

$111M

$35M


Israeli Companies are Leaders in Profit Driving InnovationIsraeli companies developed many of the technologies we all use

Use a PC . . . .

Make some calls . . .

Leave Voicemail . . . .

Use a Disk On Key . . .

Try to Hack Into a Computer . . .

Call into a call Center . . . .

Get Wiretapped (huh?). . . .

Use a Cell-Phone. . . . .

Watch a Flat Panel TV . . . .

Get some help on the Internet . . .

Send an Instant Message

The Intel MMX, Pentium-4 & Centrino chips were designed, developed, and produced in Israel

IP telephony was invented by VocalTec and AudioCodes; Cordless phones powered by DSPG

Comverse Technology is the world leader in VoiceMail and SMS systems

Disk-on-Key was invented and first sold by M-Systems (now part of Sandisk)

CheckPoint is by far the world leader (and the inventor of) Firewall Software

Two companies (NICE and Verint) are world leaders in monitoring and Recording Systems

Verint is a global leader in digital audio and video surveillance analytic tools

Original cellphone technology was developd and continues to be produced in Israel

Orbotech sells critical inspection equipment which is used by virtually all TV manufacturers

LivePerson sells the software than enables live-chat for leading Internet retailers

ICQ (now AOL Instant Messanger) was invented in Israel

http://www.comverse.com/

http://www.comverse.com/


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


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


3) Enterprise Software ActivityAcquisitions in Israel

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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

• 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.


2006-10: Oracle’s activity

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Primavera Software – enterprise project management software using real-time dataOracle acquires and expands the Jerusalem R&D Center, its second in Israel.

2008 Oracle acquisition $45M

Convergin – brokering platform for telecom service providers

2010 Oracle acquisition for $90M

Demantra – demand forecasting services for sales planning

2006 Oracle acquisition for $41M


1998: SAP’s first Israel venture

Acquisition of OFEK-Tech birthed SAP’s “Labs Israel” – spawning a number of investments across the country.

SAP acquisition $200M

SAP’s new activity starting with their Labs opening in 1998 in Herzliya helped spawn a series of investments from SAP Ventures.

• 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

SAP labs employed 40 people in 2001 and is now operating across Israel with nearly 1000 researchers.

SAP Labs Israel

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2001: SAP/TopTier

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 acquisition $400M.

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 TopTierpresident and CEO Agassi. The subsidiary will operate in California, with development centers in Germany and Ra’anana.

– Globes April 2001

An acquisition that leads to more

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2006: EMC/nLayers and Kashya

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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

Database management software mapping the applications running on top of enterprise infrastructure for more efficient allocation

EMC acquisition $50M


2006-11: EMC Serial Activity

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2006: Proactive Solutions

EMC acquisition - $30M

2007: Illuminator

Illuminator


2011: Zettapoint

Database optimization


EMC’s serial activity is expected to stem from its new nerve center in Israel, the CoE in Herzliya. Focused on cloud-software development, the Center is also tasked with coordinating the recently acquired companies to work with EMC’s larger global strategy.

Inaugurating EMC’s Center of Excellence - 2011


2012-3: EMC/XtremIO … EMC/ScaleIO

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 $430MScaleIO 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

EMC’s growing presence in Israel

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2008: IBM/I-Logix and IMB/Guardium

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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


2008 also saw IBM acquire XIV Software, FileX, and Diligent Technologies…


2010-2012: IBM activity

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2010: StorWize

Real time compression to boost networked storage performance


2012: Worklight

Mobile application development platform – speeding time to market for complex enterprise applications for mobile


2012: Red Bend

Mobile business asset management software behind IBM’s PureFlex system

IBM acquisition reportedly $250M


2013: IBM/Trusteer and IBM/CSL

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Trusteer currently protecting millions of end users (PCs, smartphones, anyone using an ATM or accessing sensitive files on corporate networks)

IBM acquisition ~$1B.

CSL International provides virtualization management across enterprises, now integrated into IBM’s zEnterprise systems

IBM acquisition for undisclosed $$


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.

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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


Multinationals’ “boots on the ground” in Israel

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IBM Innovation Center TACenter of excellence & training facility for corporations looking for guidance implementing IBM Israel software in their business

IBM R&D Center HaifaSince 1927, cooperative research with top Israeli universities.

IBM Cyber-security Labs Ramat GanOpening 2014, leveraging the 200+ employees at Trusteer to develop the next generation of cyber-security software

SAP R&D Center HerzliyaSAP CEO Hagemann: This center is “a front line where new ideas are turned into technologies… and is succeeding well.”

SAP R&D Centers Herzliya & Karmiel


OurCrowd partnership – A new approach to accessing early stage technologies – co-investing agreement with Israel’s OurCrowd

Herzliya – Center of Excellence and coordination hub for EMC’s Israeli assetsTel Aviv – EMC Labs Israel, focusing on machine learning

Tel Aviv – Center of Excellence in cooperation with Matrix Israel

Multinationals’ “boots on the ground” in Israel

Beer Sheva – R&D Center working with Ben GurionUniversity on virtualization and cloud management


5) CausesWhy Israel?

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• 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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Why? The Key Ingredients Which Have Lead to Success



• 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

• 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

It’s the Culture



• Cutting edge technologies in software, communications, security, optics, video, networking, etc.

• Military technologies applied to unlikely areas…

• 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

Plus, it puts risk taking in perspective!

The IDF – Israel’s not-so-secret weapon

The Investor's Guide to the Israel Enterprise Software Industry

Economy & Finance

Transcript of The Investor's Guide to the Israel Enterprise Software Industry