Apax Israel II Fund Raising Underway –

TEL AVIV, Israel – An Israeli affiliate of Patricof & Co. expects a first close on its second vehicle in the near future, but the fund’s managing director, Allan Barkat, declined to provide details about a specific timetable.

Apax Israel II is seeking $100 million from investors in the United States, Europe and Israel. The vehicle will follow the balanced-portfolio strategy of its predecessor, the $40 million Apax Israel I raised in 1995, which made 16 investments by press time but was not quite fully committed. Fund II has received strong support from existing L.P.s, Mr. Barkat said, but declined to name them.

L.P.s from Fund I include Archer-Daniels-Midland, Bank Leumi le-Israel, Central Bottling Co. (Coca Cola Israel), Continental Casualty, Cowen & Co., Dagon Batey-Mamguroth, Massachusetts Institute of Technology (MIT), Tashluz and Zenith Insurance, according to the firm’s Web site.

Apax Israel II will back information technology, telecommunications and health-care companies, including medical device and biotechnology enterprises. The firm also considers service-based companies, which are outside the scope of most Israeli VC outfits. For example, Apax Israel I backed Tescom Ltd., a company that provides software quality-assurance testing as an outsourced service to large industries such as insurance companies and banks, Mr. Barkat said.

Apax Israel II, like its predecessor, will consider very-early-stage deals to buyouts, Mr. Barkat said. However, while Apax Israel I has invested about $2 million in each company, the new fund will put $4 million to $5 million into each enterprise.

Apax chose to boost the size of its second fund in part to invest larger sums into its portfolio companies. The modest size of first generation Israeli venture capital funds in the mid 1990s resulted in a lot of deal syndication. At that time, two to four VCs would participate in a round of financing, eventually leading to a cumbersome total of five to eight venture capitalists around a company table.

Five investment professionals will manage Apax Israel II: Mr. Barkat, who specializes in telecommunications; Oren Zeev, who handles information technology; Amos Goren, who leads the firm’s health-care and services activities; and two associates.

The group also has strong multinational ties to other Patricof executives worldwide, drawing on their expertise and connections to assist with due diligence and to help Israeli companies reach larger markets.

Patricof’s health-care specialists held their annual meeting in Israel last year, and some 20 Patricof professionals have traveled there to observe portfolio companies and their business culture, Mr. Barkat said.

The MIT endowment has decided to back the second Apax Israel fund, said Treasurer Allan Bufferd, noting that the university began investing in Israel after identifying the country as well suited for private-equity investing. MIT has backed several VC outfits, trying to diversify its Israeli holdings in terms of managers and market timing, Mr. Bufferd said.