Israel’s VC industry thrived because of Yozma. Now, it wants to do the same for Asia

Israel might be a tiny nation, but just like Singapore on the other side of the world, it is home to a disproportionately large number of successful startups. In fact, Israel has the largest number of startup companies in the world in proportion to its population, and is second only to the US in terms of the number of venture capital funds.

The credit for kickstarting an ecosystem that can punch far above its weight goes to a venture capital firm called Yozma. In the early 90s, its founder Yigal Erlich was the chief scientist of Israel’s ministry of industry and trade. Armed with a US$100 million investment courtesy of the government, Erlich formed its first venture fund Yozma I in 1993.

“Yozma was established with the goal to create a venture capital market in Israel. Pre-conditions were set to entice private sector and foreign investors to set up new VC funds, to participate as a partner in these new VC funds, and secure obligation of the new VC funds to invest in startup companies in Israel,” says Gina Heng, head of business development at Yozma Group Asia.

The fund went on to invest in 10 drop-down funds, as well as make 15 direct investments into companies in three industries: communications, IT, and life sciences. “Eight out of 15 of the direct investments achieved successful exit, while nine out of the 10 drop down funds have exercised their options and bought out the government,” adds Heng.

Since then, it has launched another two funds, Yozma II and Yozma III, raising a total of more than US$220 million, which was then plunged into roughly 50 portfolio companies. Of these, 14 firms such as X-Technologies and Conduit went on to achieve meaningful exits via acquisitions or IPOs. The latter was valued at US$1.3 billion in 2012, while the former was acquired for US$200 million.

By 2008, the total fund size in the market had risen to US$5.9 billion. Now, Yozma is looking towards the next exciting market to capture: Asia.

Based in South Korea

There are three key reasons why the Israeli VC firm is eyeing this part of the world: rapidly growing markets; an abundance of available resources in terms of talent, influx of foreign investment, and supportive governments; and the recent proliferation of merger and acquisition opportunities with the exponential increase in the number of startups here, including high-valuation companies like Alibaba and Line.

Yozma intends to base itself in South Korea to use it as a test market, citing its potential billion-dollar companies, highly competitive industries, and ever-growing appeal of Korean culture abroad as the reasons why.

It just might be what the doctor – or president Park Geun-hye, to be exact – ordered, especially with her focus on developing a creative economy locally. Not surprisingly, Heng says that the Korean government is “particularly interested in implementing the Yozma approach to investing and creating an ecosystem.”

A good thing, since Yozma tends to work closely with the government. “One approach we take is to engage governments at policy level to provide support to local startups,” Heng explains. “We promote local startups to foreign investors while working closely with governments to help companies to get support from their own government.”