PwC Israel

PwC Israel

Building the Right Foundations

July 2012 Guy Preminger, Partner, Technology Leader, PwC Israel

PwC Israel 2

Investor Trends

Exit Strategies

› Cyber Security – Increased focus , in light of recent high

profile website attacks

› Cloud - More companies are using Cloud computing and

SaaS models

› Internet – Increase in number of early stage companies,

mainly as a result of investor trends & shorter time to money

› Semi and communication companies are straggling to raise

› High number of mature companies

› Content – original content brings value

Industry Trends

› A continuing decrease in local VC activity due to fund raising difficulties

› Smaller amount of investments, mainly in Internet, Cloud & Software companies

› More companies are being funded by Angels , Micro VC’s, Strategic Investment

› New Seed/Early stage players: Accelerators, new micro VCs

› More early stage acquisitions mainly Internet & Cloud companies › Average size of M&A in 2011 is $80M › IPO window of opportunity is opening at the end of 2011 and is expected to

increase during 2012 (Imperva on Nov. 9th, $400M) › Most Investors are less patient and are looking for quick exits

Current Trends in the Israeli Hi Tech Space

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The Market- Israeli VC Investments

Highlights:

Total amount of VC investments has decreased

After each economic crisis (2001/2008) there is a period of lower VC investments.

The amount of active VC’s in Israel has decreased significantly over the last 5 years

3

Investments in 2001-Q1/2012

37

22 19

17 20

17

2006 2007 2008 2009 2010 2011

Active VC in Israel 2006-2011

1600

982

768

1220 1110

1201 1197

1398

735

885

1228

165

0

200

400

600

800

1000

1200

1400

1600

1800

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Q1

PwC Israel

The Market- Israeli VC Investments

Highlights:

The Internet sector showed the highest growth among VC Investments, growing from 13% of all investments in 2010 to 23% in 2011

The Life Sciences, while growing in nominal value, showed a decrease in their share of all VC Investments from 23% in 2010, to 18% in 2011.

4

Internet

Communications

& Networki

ng

Lifesciences

Software Semiconductors

Other Cleantec

h

2009 83 204 126 143 31 148 76

2010 114 206 206 126 131 101 39

2011 279 256 223 151 150 170 106

-

50

100

150

200

250

300

Mil

lio

n U

S$

2009

2010

2011

Seed/Start-up Early/Expansion

Stage Later Stage

2009 40 570 125

2010 49 695 141

2011 79 844 304

- 100 200 300 400 500 600 700 800 900

Mil

lio

n U

S$

2009

2010

2011

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5 5 Time

COMPANY LIFE CYCLE

Com

pany S

tage o

f D

evelo

pm

ent

Venture Capital

Angels

Micro VC

Incubators Accelerators

Chief scientist

Growth

Maturity

Capital Markets

Private Equity

Mezzanine

Seed

Early Stage

Growth

Capital Markets

Mezzanine

Venture Landing

The Market- Investors by Stage

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The Market - IPOs

Highlights:

Since the crisis of 2008 the amount of IPO’s in the Hi-Tech sector has declined significantly

The Tel Aviv stock exchange has seen only 4 IPO’s, all of Life Sciences companies

We have yet to see an IPO of an Israeli company in the US in 2012 with only 2 IPO’s in 2011

6

13

19

0 1

4 4

0

2

4

6

8

10

12

14

16

18

20

2006 2007 2008 2009 2010 2011

IPOs – TLV Stock Market

0 0

1

2

0

0.5

1

1.5

2

2.5

2008 2009 2010 2011

IPOs – US Stock Market

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The Market- M&A Transactions

Highlights:

Avg. deal increases in 2011

Volatile Market conditions

2006 – 3 deals 6.7 Billion

Last 6 months – M&A burst

7

2011 M&A to date*:

• Total Million $ 5,078

• Number of deals 68

• Average deal size ($M) 80

*Source data – IVC Research Center

*Does not include deals in which the price was N/A

-

20

40

60

80

100

120

2005 2006 2007 2008 2009 2010 2011

35

108

40 32 35

51

80

Average deal size

2,740

10,000

3,522 2,681 2,572

1,176

5,078

3,084

28

68

23

73

84 88

93

79

0

10

20

30

40

50

60

70

80

90

100

-

2,000

4,000

6,000

8,000

10,000

12,000

2005 2006 2007 2008 2009 2010 2011 2012

Millions $ Number of deals

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The Market- M&A Transactions

2011

• Internet was the most active sector with 15 deals executed with an average deal size of $100M

2012

• Communication is the most active sector with $971.5M in M&A

• Life Sciences also saw growth with $779.1M in the first half of 2012 compare to $487.5M in 2011

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Internet, $1,479.6

Semiconductors, $1,045.9

IT & Enterprise Software,

$944.6

Communication, $767.4

Life Sciences, $487.5

Miscellaneous Tech., $327.9

CleanTech, $25.0

2011 Exits by Sector

Semiconductors, 621.7

Miscellaneous Technologies,

0.7

Life Sciences, 779.1

IT & Enterprise Software,

557.65

Internet, 393.6

Communication, 971.5

2012 Exits by Sector

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Exit Busters

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• Delays in the process – deals are built on

momentum, delays kill momentum

Investment lead might change, change in investment focus, a competitor that

become more sexy, investment budget finished, investment committee

• Disorder - may cause mistakes, delay the process and make a bad impression

clear option plan, founders agreement, fixed financial reports, license

agreement, fixed everything from the beginning don’t postpone.

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Be Prepared

10

Keep it Simple

Keep it Documented

Keep it Right

Use Top Advisors

PwC Israel 11

Inc.

Ltd.

Inc.

Ltd.

Ltd.

Inc.

IP

IP

Cost +

IP

Marketing

Legal Structures

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Approved enterprise

Financing subsidiaries

VAT (מ"מע)

US Federal & State Tax

PE (מוסד קבע)

Withholding Tax (ניכוי מס במקור)

Transfer Pricing

Rolling

Accounting instructions (הוראות ניהול ספרים)

Israel US

Europe

Tax Exposures

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Chief Scientist Grants

While Making the Decision - The implications of taking the grant

When Filling Out the Applications –taking into account the future implications

During Current Conduct – Taking out the IP, Production etc.

Licensing Transactions

During EXIT - Implications of taking out or leaving the IP in Israel

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Accounting

Order - accounting, customer portfolios, Accounts receivable, Accounts payable etc.

Revenue Recognition

How to treat Stock Option and other equity instruments

Inventory

Fixed Assets

14

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Don’t Forget

15

Keep it Simple

Keep it Documented

Keep it Right

Use Top Advisors

© 2012 Kesselman & Kesselman. All rights reserved. In this document, “PwC Israel” refers to Kesselman & Kesselman, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. Please see www.pwc.com/structure for further details.

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This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. It does not take into account any objectives, financial situation or needs of any recipient. Any recipient should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Kesselman & Kesselman, and any other member firm of PwC, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it, or for any direct and/or indirect and/or other damage caused as a result of using the publication and/or the information contained in it.

Guy Preminger, Partner, Technology Leader, PwC Israel