ILSI Biomed 2012- Difficulty in finding startup funding not seen stifling Israeli innovationJun. 5, 2012 | By JONATHAN GOLDSTEIN, Medical Device Daily Israel Editor
Israel marked its major biomedical technology event last week, with the 11th Annual ILSI Biomed conference in Tel Aviv. The event was a truly international event, with participants from more than 35 countries and it did appear as though the organizer¡¦s claim of ¡§the largest conference of its kind outside the U.S.¡¨ was indeed justified.
The energy of the event was palpable, More than 2,500 one-on-one networking meetings pre-organized online, were matched by hundreds more of ad-hoc connections and reconnections, all profiting from the effects of top innovators and business players sitting in close proximity.
¡§While Israel is suffering from the same VC crisis as the U.S., with biomedical not faring any better as a sector¡¨, Benny Zeevi, Co-Chair of the Conference, and Managing General Partner at DFJ Tel Aviv Venture Partners (Tel Aviv), told Medical Device Daily, ¡§we are still seeing the constant growth and impressive energy of the startup in medical technology and biopharma. Never before we had so many medical device and biotech/pharmaceutical companies in advanced development stages as we have now.¡¨ And he added, ¡§The industry is here to stay, and while the Israeli VC environment certainly initiated the growth phase, the biomedical community is now surviving, even during the slower part of the VC cycle.¡¨
But another experienced Israeli VC expressed her views in a more caustic manner: given the limited number of finance sources at this conference ¡V and the presence of literally hundreds of great startups ¡V what is the euphoria here about? ¡§There is great technology here, but very few investor groups right now ¡V what is everyone buzzing about?¡¨
This concerned sentiment was matched ¡V albeit with a twist ¡V by an experienced biotech executive. ¡§Because of the state of the equity available currently in the Israeli private markets, I have little choice¡¨, he told MDD, ¡§but to consider bringing my company to the Israeli public markets soon.¡¨ Though it is initially a promising direction for the startup to access funding through this public markets channel, many feel that it is dangerous for the medium-term fundraising potential of the company ¡V markets are notably tough environments for companies during less positive company and market periods. Furthermore, such immature companies negatively affect the longer-term quality and prestige of the Tel Aviv Exchange. As an example, one of Israel¡¦s most senior financial analysts commented to MDD: ¡§Of the 50 public companies in the biomed sector in TA stock exchange, only about 15 should really be there. Companies reach the markets too early, and cannot maintain a suitable liquid and valuable share price.¡¨
But it seems that the ever-optimistic Israeli entrepreneur sees success around the corner, and trusts his company to succeed with fewer glitches than the more careful entrepreneur might expect. But it is, indeed, a promising sign when one of the U.S.¡¦ best-regarded VCs decides that, specifically, the Israeli medical device business deserves a fully-devoted partner on its investment the team.
Sequoia Capital (Menlo Park, California) has not traditionally been associated with the medical field, with its major exits including common names like Cisco, Google and Linkedin. Recently, Sequoia analyzed the current Israeli biomedical ecosystem, and the value that Sequoia could bring to the field. In September, the group recruited Yoav Shaked, a founder of two successful medical startups, to join their team in Israel, and focus solely on device investments from their Herzliyya offices. ¡§We see this as an optimal time to be focusing on medical devices in Israel,¡¨ Shaked shared with MDD, ¡§We think that the Israel is a hotbed for medical device innovations where the industry became more mature and experienced. We believe that with Sequoia Capital global network throughout U.S., China and India we can support and build large companies.¡¨
A swallow does not make a VC summer, even in Israel. But perhaps the fact that the Israeli biomedical industry shows elements of life, while the traditional VC ¡V across the world, not specifically in Israel ¡V is at a lower end of the cycle, is itself a positive sign. During the panel organized by Orbimed¡¦s General Partner, Jonathan Silverstein (New York), U.S. and Israeli VCs jointly discussed the sources of financing for some of their own startups. ¡§Two sources have recently ¡V as a necessity ¡V had to fill the gap in startup financing: non-dilutive financing and corporate VC funds¡¨, said Silverstein. Tomer Kariv, the Israeli VC on the panel, managing partner at Israel¡¦s Pontifax Fund (Herzliyya), explained that the standard of any Israeli company, venture-backed or other, is to have a ¡¥partnership¡¦ with the Office of the Chief Scientist, who contributes significant funds to technology companies across many stages. ¡§The Chief
Scientist Office has a professional team. We see them as offering positive value as risk taking partners, as we are, in exciting biomedical initiatives,¡¨ he told MDD.
As regards corporate funds, Silverstein noted the increased role of industry-related venture groups as part of a B or C round of financing, well before the issue of an exit becomes relevant. These companies see the value in interacting with the personnel, the clinic and the technology as it emerges, but ¡V due to strategic changes in direction at the corporate level - are often unsuitable as an exit route when the company comes of age. One of the speakers from a large U.S. VC referred to research that showed that within their own broad biomedical portfolio, 50% of the corporate venture groups that had initially invested in their portfolio companies, were (years later) unsuitable as follow-on investors or potential acquirers; this has, of course, both positive and negative elements. And another nugget shared by Silverstein: while getting a corporate VC as an investor often led on average to a higher exit figure, getting two different investor groups was a further boost to a company¡¦s exit potential and value. Robert Weisskoff of Fidelity Biosciences (Cambridge, Massachusetts), a member of this VC panel, added ¡§We were originally reticent about corporate VCs in our deals, but when I saw how well it went with one of my portfolio companies, I said to myself ¡¥if one is good, two must be better¡¦. And indeed that seems to be true.¡¨ ƒ?