PRINT THIS PAGE Institutional Investor Profile: Alan Feld, Partner, Vintage Venture Partners26/03/2008. Source: AltAssets. 
Alan Feld on the rise of Israeli private equity, on the advantages of having a regional focus, on the importance of early stage financing and on the escalating size of venture capital funds.  Vintage Venture Partners is a fund of funds and secondary fund manager focused exclusively on Israel. It manages a combined $375m across three investment vehicles and a managed account.
The firm closed its latest fund, the $125m secondary fund Vintage Ventures III, in March 2007.
Alan Feld founded Vintage in 2002 and is one of its three full time general partners. Originally from Canada, he moved to Israel 14 years ago. Prior to Vintage, Feld was a partner at Israel Seed Partners and at the Israeli venture arm of corporate venture group Vertex Group of Singapore Technologies. He also was the managing director of an affiliate of Robertson, Stephens in Israel.
What is your investment focus?
'We have three core businesses at Vintage. We manage an $85m fund of funds, which closed in 2006 and is focused on Israeli venture capital. We also manage two secondary funds which focus on buying limited partnership interests in Israeli venture capital and private equity funds and portfolios directly from fund managers and corporate strategic investors. These funds were raised in 2003 and 2007. Finally, in partnership with a US-based gatekeeper, we also advise Israeli financial institutions on investing in private equity and venture capital funds outside Israel.
Our activities in secondaries directly support our fund of funds investments. Our fairly large team spends considerable time meeting, monitoring and conducting due diligence on the underlying companies of the funds in Israel. We have built prospective return models on the vast majority of funds in Israel from a secondary perspective. This enables us to accurately price secondary opportunities on the spot and, on the fund of funds side, to gain a real insight into who is performing well and who is likely to continue to perform well. Effectively, we have created a proprietary benchmark for the industry that allows us to judge and measure funds against not only international benchmarks, but against all their Israeli peers.'
What is the focus of your fund investments?
'We are the only active private equity fund of funds and secondary fund group in Israel. We are regionally focused, so we are well known in the community, both as individuals and as an organisation. We have also become increasingly known to LPs outside Israel, many of whom contact us to share ideas on investment opportunities in Israel.'
What is your bite size for the fund of funds programme?
'Typically, we invest between $5m and $10m per commitment.'
How many fund investments have you made over the past 12 months?
'We have made four commitments and we will probably look to do the same in the year ahead.'
Can you tell me a little more about the Israeli venture capital scene?
'The venture capital industry in Israel is fairly substantial. In terms of dollars invested annually, it would rank as the third largest state in the US behind California and Massachusetts and as almost the size of France and Germany combined.
As an industry, Israeli venture capital and private equity is relatively young. It largely began in 1992/1993, with small funds in the first wave (1992-1995). The next two waves (1996-1998 and 1999-2001) saw significant investment in seed and early stage companies but had to face the 2001/2002 technology "nuclear winter". The 1996-1998 and 1999-2001 waves were both broadly affected by the technology market decline.
To really make an assessment of who is good and who is not, you cannot only rely on the cash on cash performance from those periods. You have to spend a lot of time with the fund management teams and meet the companies in which the funds invested, prior to and subsequent to the crash, in order to get a true sense of the fund managers' investment judgment and added value to their portfolio companies. We believe that doing this kind of deep, detailed due diligence is crucial to determining who is going to make superior returns going forward.'
Are there any industry sectors that you favour?
'There are four sectors in which VC-backed companies have done well in Israel: communications hardware and software (particularly wireless, enterprise software and solutions), software infrastructure for consumer-related internet services and medical devices. There are over 100 technology-related Israeli companies listed on NASDAQ today. The vast majority fall in these categories.'
What are the most interesting opportunities going forward?
'We believe that the four areas that I mentioned will continue to be the core areas where the vast majority of significant opportunities will arise.
An area which we are closely monitoring is cleantech. Israel has limited water resources and is one of the only countries in the region without oil. There is interesting research being conducted in the solar energy and water technologies space. The challenges will be building management teams and commercialising these technologies within a reasonable timeframe. Cleantech in Israel is still in its very early stages and as we see progress we will explore investing in the space in our future funds of funds.
An area where Israeli venture has to improve is in building and supporting large, sustainable companies and not selling too early companies with the capability to be category leaders. We are seeing some improvement in this area, but there are still some sectors, like biotech where the technology is largely being developed or commercialised by non-Israeli companies.'
Do you invest in first-time managers?
'We generally do not invest in first-time managers, but we will invest in first-time funds that are comprised of experienced managers. In first time funds, we look for managers who have worked together as investors in another context; it could be a spin-off of a fund team or it could be people who have repeatedly invested together, from multiple funds.'
How do you ascertain whether you will invest in a fund?
'Our due diligence is a fairly intense process. First of all, we try to understand the strategy of the fund and its competitive advantage. We meet the vast majority of the underlying portfolio companies to get a feel for the investment judgement and added value of both individual partners and the team as a whole. We also meet or speak with many of the co-investors and conduct very extensive reference checking on the management team.
But, given that we are "local", our process, while intense, is fairly quick. For the amount of money we manage we actually have a large team. We have 12 people, of which seven are investment professionals. Because of that and because of the size of our market and our geographic focus, we work as a team, or as a sub-team on each opportunity. As I mentioned previously, because of the geographic perspective we can get to places very quickly.
Typically, decision-making can be as short as 60 days. It depends on the circumstances. We are known for doing very intense due diligence and it is something that funds actually appreciate. People understand that, so they give us the time we need.'
What are the main issues facing the private equity industry at the moment?
'For the venture capital industry as a whole, one question relates to the trend that we are starting to see in the US, with firms raising significantly larger funds and whether this is going to create a shift in the venture industry. The best returns in venture capital have been generated by early stage investors. If funds get too large, questions will be raised as to whether they will be effective in early stage investing or whether the fund sizes will force them to change their model to more later stage investing or to far less capital-efficient investing. One would hope, maybe naively, that fund size will be determined by the size of the opportunity to generate the best returns and not by the size of the potential fee base.
In Israel, new company generation is at very high level, so early stage investing is the focus of the vast majority of the local Israeli funds. With foreign VCs becoming larger, many are looking for mid stage and late stage investments and Israel is becoming viewed as a very good source of deal flow. About 55 per cent of the money invested in Israeli tech companies is being invested by non-Israeli VCs, largely in later rounds.
As for the general private equity space, in the buy-out and growth equity areas, obviously an issue is the amount of money raised by funds, and the size of those funds relative to their core strategy. Has this resulted in a move away from their core model and from where they consistently have made money?'
How can you see the Israeli venture and private equity space developing in the future?
Investors generally know Israel for venture, but they are far less aware of Israel as a place for growth equity and buy-outs. About a year or so ago, Warren Buffet acquired Israeli company Iscar for about $4.5bn, which I think was the first large major acquisition that Berkshire Hathaway made outside the US. There are many very attractive Israeli companies which are not traditional investment targets of venture capital funds. The buy-out/growth equity area was largely neglected until the recent wave of funds that were raised. However, only $3bn was raised by the whole Israeli private equity industry over the last four years, essentially equivalent to one mid-size buy-out fund in the US or Europe. So, I think that this space represents an under-recognised opportunity, particularly given the size of Israel's GDP and growth rate.
Israel is a relatively young country, 60 years old this year, so we are now starting to see companies that are going through generational transitions where the founder's children or grandchildren do not necessarily want, or are not capable of managing, the business.. These businesses are classic cases for buy-out funds to acquire. Second, Israel has a population of only seven million people and, for reasons well known, its regional market is limited. There are a number of non-high tech Israeli companies that have adopted the business models applied in the venture capital space. Their managers have seen how successful Israeli companies have been internationally and are now adopting what I would describe as a global model from day one as they seek to build their businesses. These companies need growth capital to fund their international expansion.
Another factor that has enabled this growth is that Israel has free trade with both the US and the European community, and we are seeing growing trade relationships in the East with China and India, with whom we had limited trade relations in the past. Trade to Asia represents about 20 per cent of Israel's exports today. These relationships, old and new, are enabling the increased and continuing growth of Israeli companies.
An additional enabler to a successful buy-out and growth equity industry has been has been very positive changes in the regulation of the Israeli capital markets. The depth of the Israeli capital markets has dramatically increased as a result of the removal of restrictions on the types of investments permitted to Israeli institutional investors. This has created a depth of trading to the extent that you can take a company public on the Tel Aviv Stock Exchange and realise an exit through that market. All these factors have enabled the growth of the Israeli private equity industry, which I expect to continue.'
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