It’s a material world for Israeli VC firm

July 18, 2005 — An Israeli venture capital firm that has been active in funding nanotechnology companies since 1998 is raising a new fund. Although the group’s investing strategy will remain the same, it aims to establish a larger fund with a new set of backers who are more capable of seeing portfolio companies through successive rounds of funding.

The firm, Millennium Materials Technologies, or MMT Funds, has begun raising financing for the new fund, according to Nir Belzer, a senior partner and one of the founders of MMT. The company previously raised a $10 million first fund and a $40 million second one, each of which is fully invested.

“What was missing in the first two funds was that we were too small,” Belzer said. “We couldn’t support the portfolio companies (through later rounds of financing) and it took them too long to raise money from other investors.” This time around, Belzer said, he sees the fund reaching $150 million, which he said would give him ample money to make initial investments, participate in follow-on rounds and cover management fees and expenses.

That would make MMT Fund III a major player on the Israeli venture capital scene. Israeli venture capital funds raised a total of $724 million during 2004, according to data from the Israel Venture Capital Research Center. In 2005, the center predicts Israeli VCs will raise $1.5 billion in response to what the center’s chairman, Zeev Holtzman, called in a March statement “a shortage of capital for investments in technological companies.”

MMT funds materials science efforts with applications in the life sciences, semiconductor and microelectronics and clean technologies. Examples of current portfolio companies include Cima NanoTech Inc., a nanomaterials manufacturer, Nanolayers, a maker of organic thin films for electronics applications, and Power Paper, which makes printable batteries for use in paper products.

Although the new fund will be bigger, its core mission to invest in early stage enabling technologies “that will let you build better products” will remain pretty much the same. “Israel is very strong in these areas,” Belzer said. In addition to the Weizmann Institute of Science and Technion University, he said the country has recently benefited from an influx of talented Russian materials science researchers.

The only minor shift in the investment strategy is that there will be an emphasis on clean energy technologies. “We were pioneers in the materials sector,” Belzer said. “We believe there is a trend today in clean technologies.”

The size of the new fund also means a change in the makeup of MMT’s limited partners — that is, the organizations that invest in it. Belzer expects the new fund’s limited partners will be comprised of 20 percent strategic investors and 80 percent financial investors. By contrast, the firm’s first fund was backed 100 percent by strategic investors and its second was 50 percent strategic. Strategic investors such as large corporations are usually more interested in access to technology. As such, they generally invest less money than purely financial investors looking for a large monetary return.

“It’s easier to raise money from financial investors because they are investing much higher amounts than the strategic investors,” Belzer said, “and they will follow you if you are successful.”

He maintains that losing strategic participation in the new fund won’t undermine MMT’s ability to connect its portfolio companies with corporations interested in access to new technologies. Rather, he says, the relationships established in the first two funds can still bear fruit with the third.

“At the end of the day you will find few of the (limited partners) did some direct investment into one of our portfolio companies.” Rather, said Belzer, they became marketing or distribution partners.


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