Israel Ingenuity: Interview with Meir Ukeles of Cleantech Israel Ventures
Written by: Zack Miller | December 6, 2007
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Tell me about the genesis of Israel Cleantech Ventures. Why did you focus on Cleantech given your team’s broad experience? Is there specific value you bring given the fact that you and Glen don’t have industrial backgrounds?
Meir Ukeles: It’s important to start with pointing out that our investment team is composed of seven professionals – three full time general partners: myself, Glen and Jack. [Ed. Glen Schwaber is a experienced venture capitalist with Jerusalem Venture Partners, one of Israel’s largest VCs. Jack Levy was previously General Counsel of Register.com where he played a central role in the company’s IPO]. Our four venture partners have an average of 20+ years each as business leaders of Israel’s standout energy, water and environmental technology companies (including Luz, Ormat, IDE, Netafim & AqWise).
Jack Levy and I launched this effort in the fall of 2005 having identified what we saw as promising initial signs of Israel’s potential to emerge as a leader in the cleantech market, coupled with a clear sense (via interactions with Glen and other friends and colleagues who were GPs at established funds) that this opportunity was not on the radar of Israel’s many generalist VC funds.
However after meeting a good number of the companies in the market two years ago, it became clear that this opportunity required a very focused approach which combines traditional early stage investment skills, substantial experience on the exit side of the equation, along with sector specific experience, networks and understanding. So, we put together this team which we believe brings a unique mix of these capabilities, track records and relationships to the cleantech opportunity.
What types of investors are investing in your fund?
MU: Our investor base began with investors who had had exposure to previous generations of Israeli venture funds, and saw cleantech as a differentiated play on Israeli innovation. Over time, as cleantech has emerged as a mainstream VC focus, our Limited Partners have shifted to fund of funds and other investors with a broad cleantech focus, who see Israel as a uniquely differentiated stream of cleantech dealflow. We also have some key investments from corporations (in chemicals, natural gas, recycling) which exposes us and our portfolio companies to those entities’ networks and experience.
What’s the growth model for your investments?
MU: The model for these companies is more of a function of the specific business dynamics in the market they serve than it is a function of ‘cleantech’ versus ‘high-tech’ – in other words, we will be investing in some companies that are very similar to established models of Israel technology companies in that they are developing software or semiconductor-based products, which are addressing customers or markets that are driven by demand for resource efficiency or clean energy/water etc. On the other hand, we are investing in companies which have a potentially longer development cycle, either because they are targeting ‘core’ opportunities in water, energy etc. in which the barrier to acceptance and implementation of new technologies is quite high.
What’s the exit for these types of companies, IPO or M&A?
MU: With respect to the M&A versus IPO path, the presence of major industrial companies in these markets is a positive in that they have very active M&A practices which target both scale (buying larger businesses) as well as innovation (buying R&D capability or IP). However many industrial M&A transactions carry lower multiples or purchase prices than technology investors expect, which means that a venture investor looking to these acquirers to provide an exit needs to be very disciplined about the valuations paid at inception and amounts of capital deployed along the way. We do expect that successful Israeli cleantech companies will emerge that have the option to seek liquidity for investors via public offerings, either via the NASDAQ, AIM or even TASE. The key in the end is to back strong teams targeting large growing markets – and there’s no question that we’re seeing some very strong teams, and cleantech clearly touches large growing markets.
Does Israel have an advantage in developing cleantech?
MU: In water, Israel’s experience with overcoming substantial resource constraints to meet the needs of a growing population has fueled both successful industrial entities (Netafim, IDE) and enormous depth in academic institutions’ focus on all aspects of the water market (Ben Gurion, Technion, Weizmann, etc).
In energy, Israel has spawned world leaders in large scale solar (Luz, Solel), geothermal (Ormat) and other niches. In the end, it is Israel’s pool of proven entrepreneurs, and those entrepreneurs’ ability to identify a market opportunity and rapidly develop & field an innovative solution that is working in Israel’s favor.
How does the regulatory environment in Israel affect your investments?
MU:The regulatory environment [in Israel] can be more or less supportive of innovation, but in the end is not what really drives company formation or entrepreneurial activity. In these critical categories Israel looks poised to emerge as a genuine cleantech leader, particularly in a number of niches.
And, it should be noted, that in a number of respects, Israel’s regulatory environment is getting increasingly friendly and supportive, whether via Mekorot’s WaTech programs, the Ministry of National Infrastructure’s Startergy grant program or a number of other regulatory and policy tools that are being rolled out.
Tell me about Shai Agassi’s Project Better Start. Why is the former Board Member at SAP’s project so compelling?
MU: First, the combination of entrepreneurial talent, industrial heft (via Renault and Israel Corp), and a substantial amount of capital is a unique story. Second, one of the key challenges in substantially impacting the energy, water or transportation markets is the scale of the markets. As distinct from a specific technology that a company is trying to get out into the risk-averse automotive end-market, Better is pursuing a visionary strategy designed to achieve large-scale deployments of electric vehicles.
This strategy is based on a capital deployment model which will enable consumers to overcome the greater up-front costs of existing battery systems by leveraging the lower life-cycle costs of EVs versus internal combustion engine vehicles – this can only be done in a big way, which is how Shai is doing it. We’re obviously a very small part, but we see Better as being at the nexus of an extraordinary number of technology niches, many of which have direct relevance to our focus on backing Israeli cleantech leaders.
It sounds like you’re segmenting the market with CleanStart, your JV with Greylock focused on seed-level investments. How does CleanStart fit into CleanTech Ventures’ model?
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