Temasek launching new $150m ‘Red Dot’ fund for mature Israeli technology startups

Visual of Temasek Holdings portal. February 2016.

Temasek Holdings, Singapore’s state-owned investment firm, will soon close a a new $150-million fund to invest in mature Israeli high-tech companies. Temasek Holdings will serve as the anchor investor with other investors joining the fund, DEALSTREETASIA has learnt.

The new fund is called the Red Dot fund, a nickname for the Southeast Asian city-state, and it will invest between $10 million and $15 million in each company in its portfolio.

This fund is different from the vehicles used by Temasek Holdings‘ wholly owned investment arm – Vertex Venture Holdings.

Yoram Oron, who serves as founder and general parter of Vertex Venture Capital, set up in 1997 with Singaporean capital and as part of Israel’s Yozma initiative, will be chairman of the new Red Dot vehicle.

Oron has led investments in various ventures, with robust returns generated from their exits; three examples are the sale of Morecom to Liberate for $561 million, the sale of Tradeum to VerticalNet for $478 million and Vision Tech to Broadcom for $250 million. Currently, Oron sits on the boards of Vertex portfolio companies Correlsense and Heptagon. He was formerly a board member of CyberArk.

Other partners in the fund will be Tzvika Nagan, a former executive at Bank Hapoalim in charge of information systems, and Yaniv Stern, a former McKinsey & Company consultant.

When approached by email, a Temasek representative declined to comment, saying: “Vertex Ventures is an independently managed investment firm […]. Temasek does not speak for them.”

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Israel’s contemporary VC environment

Israeli startup ventures raised $1.2 billion in venture capital (VC), in Q4 2015, defying the general slowdown of VC investments, according to a survey by Israel Venture Capital Research and  KPMG Somekh Chaikin. This brought the total for 2015 to $4.43 billion, the largest annual amount to date, according to the IVC.

This links back to the technology boom that Israel has helped drive, which is seeing China and Japan forge closer links aimed at accessing and collaborating with organisations involved in the Israeli startup ecosystem.

In an interaction with TechCrunch, Jeremy Lustman, partner at globe law firm DLA Piper, explained: “The floodgates have opened in a significant way. Chinese investors will increase their allocation to Israeli VC funds and into a growing a number of tech companies.

Lustman added, “Japan has also opened up, as has Korea and Singapore – each with company reps on the ground in Israel. Australia is also making a major play this year into Israeli tech and I think that will add to the broader pan-Asian appeal.”

A 2008 article in The Economist noted: “The focus on innovation and technology, and a relative lack of interest in management and marketing, explain why Israeli entrepreneurs tend to sell out early, mostly to big foreign firms, rather than build up their companies. Israel has few sizeable technology firms. There is a huge pressure to exit…”

The Economist also noted that while its traditional strength as a startup exporter and research & development (R&D) centre for large technology firms has positioned it well, Israel is still a small market removed from major international markets, though close to the European Union.

Moreover, Israel’s geographic neighbourhood of the Middle East and North Africa (MENA) present markets that tend towards political and corresponding economic instability. The size of Israel’s domestic market also impacts valuations.

Also Read: New fund to take Israeli startups for Nasdaq listing

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Future prospects

China’s shift up the value chain to from manufacturing to engineering and its increasing capacity to develop technology and intellectual property, as well as drive high volumes of venture creation, coupled with more efficient costs of capital and deeper, broader talent pools could prove a challenge for Israel in the long run.

In 2015, Israel’s ecosystem saw 708 firms raise funds, with deals averaging $6.3 million, compared with 2014’s average deal size of $5 million average. Israel’s VC deal size for the past 10 years has averaged $4 million. January 2016 is seeing funding approaching $500 million.

In an interaction with The Haaretz, Ofer Sela, partner at KPMG Somekh Chaikin’s technology group, observed: “In the last quarter of 2015, the trend in Israel ran contrary to that of the rest of the world.”

Sela elaborated: “While global markets were affected by the slowdown in the Chinese stock market, an unstable global economy and the interest rate hike in the U.S., Israel remained untouched by this global wariness. We expect the Israeli market to slow down if the bear market persists. The general current sentiment in the Israeli market is that ‘winter is coming.”

With the Asian venture capital market seeing a slump, Israel’s startup ecosystem is likely to see a short to medium term decline in venture creation and exits, with companies consolidating and funds less likely to deploy capital. This is also occurring amidst growing global competition for talent, which has seen Israel introduce an innovation visa to facilitate startup ventures accessing talent.

This decline in the venture capital market is likely to reverse once markets stabilise and recover, though 2016 is expected to be a challenging year for many firms. With Temasek’s investment tending to be long term and strategic, as well as its focus on more mature firms, the combined with a highly experienced leadership team, the funds performance will only be negligibly impacted by the current market environment.

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.