A new $100 million slush fund for startup investments will make it a priority to locate the next big Israeli exit. It’s the second run of the so-called Israel Secondary Fund (ISF), whose first $50 million war chest invested in Waze before its acquisition by Google.
The idea of a secondary fund is to provide liquidity — cash — to companies as part of other venture capital and private equity deals. That means acquiring limited partner (LP) positions, getting minority direct holdings and entering structured deals to provide extra capital to other venture and private equity funds. The majority of the fund’s money has already been committed by institutional investors, private investors and family offices.
Founding Managing Partner Dror Glass is formerly of Orama Investments, a past investment manager at Israel Corporation and an Executive Director at the Wharton-Recanati business program at Tel Aviv University.
“The secondary market has been developing rapidly in the recent years in Israel and it continues to grow at an accelerated pace,” Glass said in a statement. “Today, companies are staying private for longer, and build very significant business activity before going public or being acquired. As a consequence, there has been a growing need by entrepreneurs and investors for liquidity in the years preceding an exit.”
The rise of secondary private equity markets
Secondary private equity is on the rise. There seems to be more trading of private equity shares than ever before, according to a recent survey by Evercore Partners (who surveyed 70 industry professionals about what trends they were seeing). Perhaps indicative of that trend on a global scale, India-based startup Altflo is actually incorporating secondary trading into its new online trading platform. They say there’s $65 billion committed to secondary capital in 2016, with an estimated $40 billion being added on to that by the end of the year. Evercore says the bulk of that activity is in North America with the plurality of all deals (39%) being for LP.
How those trends develop depends more on macroeconomic forces, according to about 50% of those asked. Only 15% would be evaluating companies’ actual market performance before executing secondary deals.
Linchevski joined the ISF team in 2014 and brings with him experience at VantagePoint Capital Partners and Israeli VC Formula Ventures. ISF calls Shilo one of the “founders” of the Israeli secondary market through his management of the country’s first “secondary fund,” the Harvest Secondary Fund 1998-2005.
The first fund (ISF I) was created by Nir Linchevski, Dror Glass and Shmuel Shilo in 2009. That first fund invested in Waze, recently acquired Altair (by Sony), SolarEdge Technologies which has since gone public (Nasdaq: SEDG), SuperDimension (acquired by Covidien), PrimeSense (acquired by Apple) and WorkLight (acquired by IBM).