MENLO PARK – On the very day in late November that Egypt recalled its ambassador to Israel as a symbolic protest against escalating tensions, Benchmark Capital decided to ignore political strife and officially launch a $200 million venture capital fund dedicated to Israeli start-ups. The move is the latest in the Silicon Valley-based firm’s global expansion, which was officially kicked off earlier this year with the creation of a $750 million European offering.
“The rationale for launching this fund is that we want to localize by following a global strategy,” said Alex Balkanski, general partner with Benchmark Capital. “Like with the European fund, in Israel we want to have world class general partners in position to hit the ground running and be of immediate service to the high-tech companies we will fund.”
Indeed, the firm has opened an office in Tel Aviv, which will be staffed by new partners Arad Naveh and Nachman Shelef. Naveh previously handled Israeli investments and mergers and acquisitions activity for Cisco Systems Inc., while Shelef served as vice president of business development with 3Com Corp.
Rounding out the team will be Mark Kremer, former chief executive of onetime Benchmark portfolio company Broadbase Software Inc. Kremer will be based in Menlo Park, Calif.
The split staff structure is a tangible example of the importance the new Israeli fund is placing on cross-border relationships. “When we are looking at these companies, we’re really looking at their ability to operate well in global markets,” Balkanski said. “In Europe, there is a large enough local market upon which companies can at least base their initial growth. Israel doesn’t have that breadth so we need to turn to the U.S. and other markets.”
Who’s Buying It?
The fund is being marketed to potential investors with a target capitalization of $200 million and is expected to hold a final close by the end of March. What is still debatable, however, is if the firm will be able to maintain its string of oversubscribed offerings, considering the violent political unrest currently rocking Israel.
“It’s not something we thought about when establishing the fund,” Balkanski said. “There are high-tech opportunities in Israel and they’re going to be there for the long term. We’re investing over a period of 10 years, so we’re not very concerned with the vagaries of what happens quarter-to-quarter or month-to-month.”
Such an attitude seems typical of the private equity market as a whole, which has latched onto Israel and India as technology oases far removed from the public market desert currently hammering U.S. companies. In fact, Benchmark is already scouting out potential Israeli plays, and has the ability to make such investments prior to holding a first or final close on its new fund.
“Any investments we make between now and [a close] will be warehoused with Benchmark GP monies, like we did with the European fund,” Balkanski said.
The firm plans to specifically target companies in the communications infrastructure sector, with other attentions being paid to Internet infrastructure and software systems.
You’re Not Alone
In related news, Uniondale, N.Y.-based Hyperion Partners held a $73 million first close on a $100 million-targeted Israeli high-tech investment vehicle. The firm is expecting to close out the fund this month.
Like Benchmark, Hyperion is not terribly concerned with the rising tension in the Middle East.
“Technology companies in Israel generally do the research and development in Israel, but sell abroad and do the manufacturing abroad,” said Scott Shay, managing director with Hyperion Partners. “In that sense we don’t expect any serious disruptions.”
Also similar to Benchmark, Hyperion will have partners on the ground in Israel. It is also actively scouring for deal flow and Shay said an initial investment could be made shortly.