The Israeli Secondary Foundation ISF (Israel Secondary Fund) Announced today (Monday) that it has raised $ 312 million for a third fund. The veteran ISF fund, established in 2008, specializes in acquiring holdings of investors, entrepreneurs and employees in start-ups andOf restricted investors (LPs) in venture capital funds.
The ISF Fund is one of the main Israeli players in the Israeli second-hand market. The scope of the first ISF fund was $ 50 million and the second fund $ 100 million. In the field of second-hand transactions, there is also a vintage fund of Alan Peled, which raised $ 812 million last year to acquire holdings in venture capital funds and start-ups in Israel and abroad.
While funds like Stepstone execute large trades of at least tens of millions of dollars, the ISF fund specializes in smaller trades of $ 5-6 million on average. Investors in ISF’s new fund include large Israeli institutional entities such as Migdal, Altshuler Shaham, Bank Hapoalim, as well as foreign investors, including pension funds from Europe and the United States and family equity management companies.
“No doubt we have more inquiries but it is still unclear whether this will lead to more deals”
According to Nir Lynchevsky, managing partner at ISF, “Our principle is that we only work in collaboration with the company and receive information from it to offer the best price. Some players are willing to buy holdings based on the company’s reputation and public information from the Internet but we insist on receiving Full information. Many times the deal starts with an angel investor who wants to sell his holdings and then the company decides to expand the sale and also provide liquidity to employees or entrepreneurs. The deal. “
Not surprisingly, Lynchevsky says that against the backdrop of what appears to be a closure of the Wall Street IPO market, which flourished last year, there is more interest from companies today in making scandalous deals. “There are angels and entrepreneurs who see the change in the market and want to reduce risk and realize holdings. Even companies that have planned to issue in the next year or two understand that there is a probability that this target will be postponed and therefore want to offer employees a partial million dollars without having to wait until 2028. We have more inquiries, but it is still unclear whether this will lead to more deals. “
A possible obstacle to closing scandalous deals these days could be the price. Last year start-ups were recruited at dream value, but after the collapse in technology stocks on Wall Street it is clear that this is no longer relevant for 2022. According to Lynchevsky, the selling side, the company and the investors, are also internalizing the change that has taken place.
“There is a disillusionment that what was in terms of irrational prices in 2021 will no longer return and we have returned to the ground of reality. Companies that raised by 50 multiplier on revenues, understand that it will not be possible to find a buyer at this value and two of the five second transactions Last year”.
Ordinary venture capital funds strive at least in theory to end any investment with a tenfold return on the money invested, but in a scandalous fund like ISF, which enters the investment at a late stage when the company has revenues of at least $ 5 million a year, the calculation is different. “We work at a lower risk level and spread the investments over a lot of assets, so our goal is a 2.5x return on the money,” says Lynchevsky.
Apart from Lynchevsky, the ISF partner team currently includes Dror Glass (one of the founders of the foundation with Shmuel Shilo) and Eva Hovshman. To date, ISF has executed more than 80 scandalous transactions in companies, 50 of which have made various exits. Among other things, it has acquired holdings in funds such as Glilot and Vortex and in companies such as Arnix, Wise, MayHeritage and Yotpo.