As every month, VC Cafe is re-posting the “Invest in Israel” Newsletter, published by the investment promotion center of Israel’s Ministry of Industry, Trade and Labor, which offers many helpful tools for prospecting investors.  For the Invest in Israel archive, click here.  This month’s trend continues to be acquisitions of Israeli firms by large US corporates.

COVIDIEN ACQUIRES ORIDION FOR $346M

OridionSytems,Ltd. (SWX: ORIDN) an Israeli manufacturer of capnography respiratory monitors and modules was bought by Ireland’s Covidienplc.(NYSE: COV) for $346 million in cash. Following the acquisition, the company will become part of Covidien’s oximetry and monitoring product line. Oridion is Covidien’s second Israeli acquisition within less than a month, following the acquisition of pulmonary endoscope developer superDimension for $300 million in March. Oridion’s Microstream capnography systems measure carbon dioxide level in exhaled breath to provide an early indication of restricted airways, facilitating patient care.

ISRAELI INVENTS DIGITAL PRINTING SYSTEM BASED ON NANOTECHNOLOGY

Landa Corporation has announced a major breakthrough in digital printing based on nanotechnology. The process uses tiny pigment water-based particles that are only tens of nanometers in size (a human hair is about 100,000 nanometers wide), and can print on almost any material. The technology will be unveiled officially at the Drupa Print Media Fair in Dusseldorf in May. Inventor Benny Landa, who previously founded digital printing technology company Indigo, which was sold to HP in 2001 for $830 million said:“Each press can print in up to eight colors and operate at 600 dpi or 1200 dpi resolution, at speeds up to 11,000 sheets per hour.”

BG NEGEV LICENSES PARKINSON’S DRUG PLATFORM

BGN Technologies, Ben Gurion University’s technology transfer company, has signed a licensing agreement for its V-Smart drug delivery technology with New York’s Lauren Sciences LLC. Lauren will develop the technology as a platform for treating central nervous system diseases, including Parkinson’s, Alzheimer’s, Amyotrophic Lateral Sclerosis, and brain malignancies. The V-Smart technology pinpoints where the drug will be released in the brain, increasing effectiveness and reducing adverse effects. Lauren was recently awarded a grant from the Michael J. Fox Foundation to develop a V-Smart therapeutic for Parkinson’s disease.

ISRAELIS WORK LONGER HOURS THAN OECD AVERAGE

According to OECD figures, Israelis work 2,000 hours a year, which is 251 hours more than the OECD average. This compares with 1,650 hours by the British, 1,419 hours by Germans, and 1,414 hours by Norwegians. The Israeli work week is 43 hours, more than the 40 hours in the US and 37 in Denmark. Israelis are online 32.1 hours a month, on average, compared with 43.5 hours a month by Canadians, 35.3 hours by Americans, 24.1 hours by Germans, and 11.9 hours by the Japanese.

MICROSOFT TECHNOLOGY CENTER TO OPEN IN ISRAEL
Microsoft has recently announced that it intends to open its first Israel-based Technology Center in Ra’anana. The center will serve as a platform for the company’s engineers to set up complete IT ground works for their clients. In addition to the 11 such centers already operating in the US, the company also has such facilities in Paris, Munich, Beijing, Moscow and Dublin. Other openings now in the planning stage are Toronto and Sydney as well.

ORBIMED CLOSES $222M FUND FOR VC OPPORTUNITIES IN ISRAEL

US healthcare investment management firm OrbiMed has announced the closing of its first investment fund dedicated to life science venture capital opportunities in Israel. The $222 million fund, which will be called the OrbiMed Israel Partners Limited Partnership, includes an investment of approximately $40m provided by the Israeli government. The Israeli government also provided special economic terms through the initial tender process for the Fund.OrbiMed has had a longstanding investment interest in Israel, which has led to many investments here over the past decade, including early-stage investments in Given Imaging Ltd.and SuperDimension.

DIGITAL GENERATION INC. ACQUIRES PEER39 INC.

Advertising management and distribution platform company Digital Generation Inc. (DG) has acquired the Israeli advertising technology company Peer39 Inc. for $15.5 million in cash and shares. DG will integrate Peer39 into its MediaMindonline division. MediaMind is an Israeli company that was acquired by DG 10 months ago for $514m.

MORFLORA FINALIST FOR 2012 RED HERRING TOP 100 EUROPE

Morflora, focused on innovative non-transgenic trait delivery technology for plant protection and enhancement, has been selected as a finalist for Red Herring’s Top 100 Europe Award, a prestigious list honoring the year’s most promising private technology ventures from the European business region. The nominees are evaluated on both quantitative and qualitative criteria, such as financial performance, technology innovation, quality of management, execution of strategy, and integration into their respective industries.

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By Estelle Shumann*

Venture capital and other forms of seed funding have been crucial for the development of the best online colleges. Many third-party educational organizations exist to maintain online schooling ventures, and these organizations typically receive most of their funding from venture capital firms. The same is true of educational technology developers. Many smaller development firms receive seed funding to develop technologies used by public and private schools across America.

Venture capital for online schooling is so important because success usually hinges on the ability to make high-quality educational resources widely available for little money. One such service is Coursera, an online educational program developed by two computer science professors from Stanford University. Coursera makes college courses from elite universities, including Princeton University and the University of Michigan, available online for free. A Wall Street Journal piece from April 2012 reports on the impact of $16 million in venture capital awarded to Coursera to increase the scope of the program. “Elite education is too expensive, and it’s available to too few,” said John Doerr, one of the venture capitalist partners backing Coursera.

Online educational programs do best when they attract a large number of applicants. Many companies, such as Coursera, make their services available for free. They feel that gaining many thousands of regular users is more important than earning an immediate cash flow. Later, services could be marketed to members or favorable advertising rates might be negotiated. But the choice to make quality services available for free is part of the reason why startup funding is so crucial.

The use of venture capital for developing educational technologies is increasing rapidly. This includes technologies used to support online educational programs. A Bloomberg Business Week article reported that $177 million in venture capital funding was released to American educational technology companies in 2010. This figure was triple the total investment made in 2007. Venture capital can make an immediate impact on an online schooling company’s bottom line. A $125 million grant made in 2011 to K12, a company developing educational software for online schooling and testing, led that week to the company’s highest stock price in an entire year.

Still, venture capital used to be much more fond of educational technology and online educational programs. The largest total amount of venture capital released to educational technology companies within one year is $534 million, reached in the year 2000. Many of these companies started strong with venture capital backing, but failed to secure enough clients to make their products profitable. Now, with the Internet and wireless networking more available than ever, it has become much cheaper to build integrated technologies and easier to attract students or schools.

In the past few years, more online schooling program startups have been developing than ever before. There’s 2tor (aka tutor), a 2008 startup working to develop high-quality online courses with accredited universities. An SFGate article reports that the venture has raised more than $90 million in seed capital, as of April 2012. In the same month, educational video developer Craftsy reported raising $15 million in venture funding to help program operations, including the search for high-quality educators to develop video lessons. Lore (formerly Coursekit), a small startup trying to break into the online classroom market already dominated by Blackboard, raised $6 million.

Without venture capital funding, these educational startups wouldn’t have the ability to get started. Knowledge and expertise in an area is one thing, but developing the online tools to disseminate information to a wide audience takes time and money. When those services and products are being distributed for free, it makes paying the bills even harder. The rising trend in venture capital funding for online schooling is encouraging, but making sure that students find the services that are right for them is still a major concern.

* Estelle is a writer interested in a wide range of educational methods. Having played several instruments and been exposed to many art forms in her childhood, she finds that solving the education puzzle today requires more than simply a large budget. She currently writes and researches about online education.

According to the latest IVC-KMPG quarterly survey published today, in the first quarter of 2012, venture capital investments in Israel rached $483 million, up slightly from the amount invested in Q1/2011. 144 Israeli high-tech companies raised $483 million from Israeli and foreign venture investors, 15% below $569 million raised by 124 companies in the previous quarter, but almost equal to $479 million raised by 140 companies in Q1/2011.

Rounds becoming smaller, more first investments

The average company financing round was $3.40 million, compared to $4.59 million in Q4/2011 and up slightly from $3.42 million in Q1/2011.

First investments by Israeli VC funds accounted for 48% of their total dollar investments in the first quarter, the highest percentage in the last four years. Compared to 44 percent and 23 percent in Q4/2011 and Q1/2011, respectively. The average first investment by Israeli VC funds was $1.9 million, while the average follow-on investment was $1.05 million.

Distribution of first and follow-on Israeli VC fund investments (%)

Israeli VC participation keeps declining, foreign VC activity is up

In the first quarter of 2012, Israeli venture capital funds invested $119 million in Israeli companies, 10 percent below the amount invested in the previous quarter, and 13 less than in the first quarter of 2011.

The Israeli VC fund share of the total amount invested in Israeli high-tech companies was 25 percent, compared to 23 percent ($132 million) in Q4/2011 and 28 percent ($137 million) in Q1/2011. The remainder of capital came from foreign as well as other Israeli investors.

Foreign investors were especially keen on making “First Investments”, the data shows. In the first quarter of 2012, investment transactions excluding Israeli VC fund participation reached $236 million or 49 percent of all transactions, the highest share in a decade. This compares with $218 million (38 percent) and $157 million (33 percent) in Q4/2011 and Q1/2011, respectively.

Investments are trending towards early stage

In the first quarter of 2012, seed companies attracted 6 percent of total capital raised, compared with 4 percent in the previous quarter and 3 percent in the fourth quarter of 2011. Early Stage companies accounted for $174 million or 36 percent of the total capital raised, reaching the highest quarterly amount for early stage companies in the past two years.

Israeli venture capital investments

CISCO BUYS NDS FOR $5B
NDS, founded in 1988 by scientists from the Weizmann Institute, and which operates a large R&D center in Jerusalem, is being bought by information technology giant Cisco for $5b. NDS, with world headquarters in Stains, UK, specializes in the development of interactive systems for secure delivery of entertainment and information to digital TVs, digital set-top boxes, PCs and mobile devices. The company’s flagship product is its encryption and conditional access system, VideoGuard, which is installed on home TVs via smartcards integrated into set-top boxes.

BROADCOM BUYS BROADLIGHT FOR $230M
US chipmaker Broadcom recently announced the purchase of Israeli processors developer BroadLight for $230m. BroadLight produced semiconductors and software for fiber-to-the-premises broadband access networks. This is Broadcom’s tenth acquisition in Israel, including Provigent, which it bought last year for $313 million.

COVIDIEN BUYS SUPERDIMENSION FOR $300M
Covidien plc (NYSE: COV) will acquire Israel-based bronchial tubes endoscope maker superDimension Ltd. for about $300 million, the company announced in March. Ireland based-Covidien has annual sales of $30 million. SuperDimension’s i-Logic System uses Electromagnetic Navigation Bronchoscopy to provide minimally invasive access to lesions in the lungs and is mostly used to diagnose lung cancer.

ISRAELI WATER QUALITY MANAGEMENT TECHNOLOGY HITS SPAIN
Blue i Water Technologies, a Tel Aviv-based water-monitoring technology firm, is currently in the process of installing 140 of its quality-inspection devices in Barcelona and 40 more in other areas of Spain. The company’s newest device, called the Low Energy Analyzer (LEA), is a “smart box” that is installed in water pipes underneath Spanish streets and uses a water analyzer and data-logger to collect and transmit data about water quality to a control center, according to company CEO Jacob Azran. Throughout the next year and a half, Blue i Water Technologies will also install an additional 150 systems throughout other parts of Spain.

UK’s AVAYA PLC PURCHASES RADVISION LTD.
Video conferencing solutions developer Radvision Ltd. (Nasdaq: RVSN; TASE: RVSN) has been acquired by Avaya plc (NYSE: AV) for $230 million. Radvision will now become a wholly-owned subsidiary of Avaya. Avaya president and CEO Kevin Kennedy said, “With this acquisition we will seek to extend videoconferencing to any device, anytime, anywhere, making it as easy as a phone call, seizing the opportunity to deliver a fully-integrated solution and architecture that we believe sets us apart from the competition.”

NEW ISRAEL-KOREAN INVESTMENT FUND TO BOOST MED-TECH RESEARCH
A new joint Israeli-Korean investment fund established to promote advanced medical and biological technology was officially launched on March 15th by Minister of Science and Technology Professor Daniel Hershkowitz along with senior South Korean government officials. Together with several Israeli and foreign investment firms, the fund was launched with initial commitments of NIS 125 million (~ $34 million).

MULTINATIONAL COMPANIES CONVENE IN TEL AVIV
The managers of large multinational companies based in Israel joined Israeli government officials for a day-long conference on March 29th in Tel Aviv. The event, entitled “Multinational R&D at the Heart of the Start-Up Nation,” was organized by Invest in Israel of the Ministry of Industry Trade and Labor together with Israel Advanced Technology Industries (IATI). Managers of international companies including Microsoft, Google, RSA: the security division of EMC, IBM, Dell and Alcatel Lucent shared their companies’ latest developments. A panel discussion with representatives of government bodies allowed participants to deepen their understanding about government incentives and assistance.

It’s been a while since I posted regularly. People have been asking me if VC Cafe is still going, so I thought it is about time I updated you on what has been keeping me busy. There’s been a surge in great blogs covering the Israeli startup scene, so I feel less guilty about taking a break from blogging this time around.

So, what has been keeping me busy? I’ve been fortunate to start a new role at Google as the Head of Campus, a unique co-working and event space, that Google set up in East London, in the heart of TechCity (worth repeating the ‘disclaimer’ that all opinions on this blog are my own).

The past few weeks have been very busy, but extremely rewarding. One of the things that I found particularly exhilarating is the diversity of the work. On a given week, I’d be dealing with real estate issues (yes, sometimes even fixing toilets!), product management of the Campus website, partnerships management/biz dev, mentoring, public speaking and much more…

I thought I’d share a few tips that have helped me adjust and keep clarity of mind. Of course it’s very personal, but I’d love to hear if you decide to try any of these:

1. don’t look at my phone/check email for at least the first hour in the morning, and make sure it’s not the last thing I see at night
2. go for a run in the park in the morning
3. meditate for 20 mins if time permits (I can highly recommend taking the ‘Art of living’ course to learn how)
4. take a “boris” bike to work (or a bus if i’m in a hurry, but avoid tube at any cost)
5. read my kindle instead of the newspaper if I’m commuting (the less clutter, the better)
6. apply labels and filters on gmail (you’ll be surprised how many emails don’t require your attention, but get it anyway)
7. food: I’ve been doing the ‘cavemen’ diet, so generally healthy food, no processed stuff, drink plenty of water
8. go to bed before midnight, wake up before 7 (easier said then done)
9. take short breaks (also applies for the weekend)
10. stay passionate about what I do, and remind myself of the big picture when s**t happens

On aggregate, putting a dollar into Israeli high-tech could yield you more than double the returns (if only these things worked on aggregate!). In the last decade, Israeli high-tech companies raised approximately $15 billion from investors, compared to more than $37 billion received in M&A and IPO exits, according to the latest IVC report.

Below are 10 interesting facts from the report:

1. Exits involving Israeli and Israel-related high-tech companies in 2011 totaled $5.23 billion.
2. M&A deals involving Israeli and Israel-related companies that were acquired or merged were valued at $5.1 billion, a 134 percent increase from $2.18 billion in 2010 and the second highest amount in a decade, after the $10 billion worth of deals in 2006
3. At the same time, only $126 million was raised in five IPOs, down five percent from $133 million raised in 11 IPOs in 2010.
4. Eighty-five Israeli companies were acquired or merged in 2011, 27 percent more than the 67 companies that were acquired or merged in 2010, and four percent more than the previous five-year average of 81.
5. The average deal size increased nearly 85 percent to $60 million from $32.5 million in 2010.
6. Five M&A deals exceeded $300 million and one deal – the acquisition of online advertising company MediaMind by DG – surpassed the $500 million mark.
7. VC-backed M&A deals (33) totaled $2.52 billion, a 102 percent increase from $1.25 billion (26) in 2010. Nine of the 15 deals above $100 million had been VC-backed.
8. Continuing the pattern of the previous year, four of five Israeli high-tech IPOs in 2011 were made on the Tel Aviv Stock Exchange. Three of the IPOs were by life science firms, and the fourth was completed by clean energy company Rosetta Green.
9. Imperva completed the only global technology IPO by an Israeli company in 2011, raising $90 million on the NYSE Amex exchange and accounting for 72 percent of total IPO proceeds by Israeli high-tech companies in 2011.
10. The financial needs of Israeli technology companies coupled with the shortage of investor capital indicate that more Israeli companies can be expected to go the M&A route in 2012

The charts below indicate the growth in M&A activity for Israeli companies, coupled with the decline in IPOs:

Israeli High-Tech Companies- Capital Raised from Investors vs. Proceeds from M&As & IPOs (2002-2011)

M&As and IPOs of Israeli High-Tech Companies $b (2002-2011)