AIG-Backed Israeli Internet Fund Nets $80 Million First Close –

TEL AVIV, Israel – Armed with a healthy injection of capital from a host of North American and international strategic investors, AIG Orion Fund in late April held an $80 million first close and began evaluating its first Israeli and European Internet deals.

Led by Managing Partners Eyal Levi and Gary Leibler, the vehicle inked AIG Capital Partners as a general and limited partner. AIG, the private equity subsidiary of United States-based insurance company American International Group Inc., invested $40 million in Orion in February, Mr. Levi said.

The inaugural vehicle, which was launched in early 1998 and expects to reach a $110 million wrap by the end of the year, has also signed an impressive roster of limited partners including software developer Microsoft Corp., network system provider 3Com Corp., cable television operator Comcast Corp. (VCJ, May, page 32), Bank Leumi Le-Israel Ltd. and fiber optic telecommunications provider Global Crossing Ltd.

“Before we struck the relationship with AIG, [fund raising] was tough,” Mr. Levi said. “It was like having 250 job interviews.” AIG will lend its considerable sales expertise to bring the fund down the home stretch, he added.

The fund’s managers concentrated their early fund-raising efforts on corporate investors to provide strategic insight to portfolio companies, Mr. Levi said.

3Com invested $5 million in Orion through its $50 million 3Com Ventures unit, which was formed about two years ago. Yair Sakov, a director of corporate business development for 3Com in Hertzlva, Israel, said the company became interested in the Israeli venture capital market several years ago. However, 3Com realized it would be difficult to have a hands-on approach with just one person stationed in the country, he added.

Mr. Levi noted that other limited partners held similar views. “L.P.s see the fund as a way to get exposure to Internet technology in Israel,” he said.

The Israeli technology market has spawned a number of venture funds with a host of international investors in recent years, including Apax Partners, Advent International Corp.’s Gemini Capital Fund, Yozma Venture Capital Ltd. (VCJ, December 1998, page 24) and Hambrecht & Quist’s Eucalyptus Ventures (VCJ, January, page 23).

AIG Orion Fund will invest an average of $3 million each in Israeli and European e-commerce, enabling technologies and services, transfer/security and business-to-business applications companies. Mr. Levi anticipates that the vehicle will make three or four investments by the end of July.