JVP Ranked among Top 10 Funds in the World
Five venture capital funds, 19 years of activity, $900 million under management, Returns of over 6 times the money and dozens of successful exits
By Meir Orbach
Israel's most successful venture capital fund and one of the world's most successful ones is JVP, based here in Jerusalem. This is according to PeHub, a blog focusing on the venture capital industry, and according to the Fund's financial statements, which are published for the first time in Calcalist.
The venture capital industry – both in Israel and abroad – does not like to expose its results, probably for fear of the media's criticism regarding management fees VC funds collect from their investors. For the first time, Calcalist is publishing the results of Jerusalem-based JVP, founded by Erel Margalit. Margalit is currently running in the Labor party primary elections. Besides him, JVP is run by two additional managing partners – Gadi Tirosh and Kobi Rozengarten.
JVP has $900 million under management across six funds, five of which are venture capital funds, while the sixth – a recently raised opportunity fund - is intended for follow-on investments in JVP's portfolio companies. In addition, JVP manages a technological incubator in its Media Quarter in Jerusalem, where seven young companies in the fields of media and mobile technologies are currently operating. The incubator is managed by Haim Kopans, Uri Adoni, and Yoav Tzruya. In recent days, JVP won the Ministry of Industry, Trade and Infrastructure's tender to establish – along with the Ben Gurion University and its technological transfer company – a technological incubator, in Be'er Sheba, which will focus on cyber-security and enterprise software. The Media Quarter is also home to JVP Community (JVP's social profit organization) and the Zappa music club.
Last week, PeHub published an analysis of the world's leading VC funds, based on a survey by venture capital research company Preqin. The survey ranked the world's ten leading VC funds presenting consistent high performance based on net multiple and IRR. The survey evaluated 143 firms and 716 VC funds meeting these criteria, eventually ranking ten funds as the world's best. JVP is the only Israel-based venture capital fund to make the list. Other funds include US-based Benchmark Capital, GGV, and Sequoia Capital.
Since 1993, JVP's portfolio companies have generated exits – IPOs or M&As – accumulating to $17 billion (total transactional value – FD). A large part of this sum is due to the Fund's first two investments: Netro, which was sold for $ 5.5 billion, and Chromatis Networks - sold for $4.5 billion. Other prominent exits include: Precise Software Solutions, QlikTech, Cogent, and XtremIO – JVP's latest exit.
Crisis-Year Funds Do Well
The positive annual returns by most of JVP's funds during its 19 years of activity mainly prove that venture capital funds can make good money for their investors. JVP's funds are a mirror image of the Israeli hi-tech industry, beginning with the Yozma program, in which the Israeli government helped establish ten new VC funds between 1992 and 1993, one of which was JVP's first fund. The latter raised $20 million, as did the other Yozma funds – and made a 6 times return on investment, $125 million, reflecting an annual net return of 54%.
JVP's second fund, which made its first investments in 1997, raised $75 million, returning $199 million to its investors, an average annual net return of 56%.
For the VC industry, 2000 began as a bubble year and ended as one of the worst years in its history – both in Israel and abroad. During this year, most Israeli funds raised huge sums, e.g., Pitango, which raised $500 million. During this time, JVP raised two additional funds – JVP III, which has $161 million under management, and JVP IV, with $404 million under management. JVP III is considered less of a success, having suffered a blow as a result of the crisis in the telecommunications industry. In 2000, the median annual return of venture capital funds worldwide was a negative 2.34% - according to research firm Cambridge Associates. Currently, JVP III has holdings in CyOptics and Celltick.
JVP IV, the largest of all JVP funds and one of the largest in Israel, raised $404 million. Calcalist has learned that the fund has thus far returned to its investors $400 million, and according to JVP's accountants, the fund has holdings in additional companies valued at $100 million. The Fund 's two most prominent portfolio companies are CyOptics, which was lately valued at $250 million, and Cyber Ark.
JVP waited another eight years before raising another fund, an unusual amount of time for a VC fund, which usually raises a new fund every three years. Most of this period was dedicated to making adjustments to the investment portfolios of the two funds raised during the bubble years. In 2008, JVP raised $116 million for a fifth fund. The amount was smaller than in the previous fund, since JVP understood it needed smaller amounts to produce respectable exits.
In venture capital terms, JVP V is considered young, and therefore its net return as of the second quarter of 2012 – 17% - is highly surprising. This figure is mainly due to the sale of XtremIO to storage giant EMC for $450 million and the sale of Navajo Systems to Salesforce for $20million. It is estimated that the fund recorded on these two exits roughly $90 million.
Where is Erel Margalit Investing these Days
In response to Calcalist's findings JVP's founder and managing partner Erel Margalit, commented: "We build companies for the long term. When I first started out, I preferred investing in seed companies because I didn't have enough money [to invest in older ones] and I enjoyed it. Building a company helps you create a long-term business culture."
"Another important criteria for success in venture capital is focus. In the first fund, I invested in four medical equipment companies, which I wrote off. Very quickly, I turned to communications and semiconductors, and later to new media. I understood that without focus, a fund loses its abilities."
"I believe you need a lot of patience in order to build quality companies. We don't make our money from good companies, but rather good companies that we helped turn into excellent ones. A fund which invests in a company needs to nurture it and help it become a large company, even by turning down tempting acquisition offers. We had offers to acquire QlikTech but turned them all down, because we knew we could turn it into a large company. Many entrepreneurs find it hard to turn down such offers. We often help them by purchasing some of their holdings," says Margalit.
"We have also had some tough years, and the 2000 and 2008 crises did not help funds build a portfolio of successes. There are many good investors and good funds in Israel who can identify new trends and hungry entrepreneurs in Israel as well. We turned to look for hungry new entrepreneurs in Beer Sheba, which I recommend to all investors. When I think of where to invest today, I cannot look back. I need to look forward and search for those new fields in our changing world – fields which bring together life sciences, education and technology."