Please tell us about Xenia?
Anat Segal, CEO: Xenia is an investment firm founded in mid-2003 by a group of entrepreneurs with the vision of being an incubation powerhouse, engaged in the initiation and building of successful high-tech companies in the areas of IT and medical devices. I would say that there are two main similarities we share with traditional Venture Capital (VC) firms. We invest in startups in return for equity, and the terms of our deals are similar.
What are the differences?
AS: One of the differences is that our investments are in really, really early stage companies. What are typically referred to as seed and pre-seed stage deals. We establish the company alongside the entrepreneur. Our money is typically the first money in the firm. Sometimes there is friend-and-family round. We are first and foremost an investment firm. We base ourselves on the unique structure of the Israeli incubator model.
Our business model is to transform an idea into a business and provide these companies with all the services, mentoring, systems, etc. that they need. We provide all the layers that our companies need: the physical layer (office space, whatever they need to operate), basic services layer (financial, legal, bookkeeping/accounting), and the people layer (most important in transforming ideas into viable business). There are definitely advantages of scale in this model.
If you look at our website (www.xenia.co.il ) you will find that within our core team and board, most of them are successful entrepreneurs themselves. Thus, we can provide real experience and know-how to our portfolio companies. We have invested in 18 portfolio companies of which 9 have graduated from the incubator structure — of these, 8 have raised additional funds and the 9th is in deal mode.
Another unique difference is that we are a publicly-traded company on the Tel-Aviv Stock Exchange (TASE). We just recently completed a rights offering where most of our shareholders participated. The fact that we are publicly traded provides a model where we can raise additional funds and follow-on offerings.
Given the fact that you’re publicly traded, how do investors profit?
AS: Investors benefit from an increase in the value of our portfolio with upside for exits. For foreign investors, the fact that we are publicly traded means that they can access local Israeli hi-tech early stage companies via a public market investment.
You mentioned the Israeli incubator model. Can you explain how it works?
AS: From a financial model, 15 years ago, the State of Israel created an incubator model, which was ultimately privatized about 4 years ago. The franchise provided the ability for us to get monies in the form of loans from the Chief Scientist. Our obligation is to operate the incubator but the main benefit is that these funds are granted as loans with all the equity of the upside. Non-recourse loans mean that our upside is leveraged.
Which spaces are you looking to invest in?
AS: We are focused on traditional IT (ie. Internet, software, communications) as well as medical devices and related industries. I must stress that we are not focused on biotech, but instead look for the intersection between devices and drugs, like drug delivery platforms.
What about Cleantech which is so hot right now?
AS: We certainly have a lot of deal flow in the Cleantech space, but we don’t have special expertise in this space. Given that our investments are really opportunistic, we are looking at everything. There are other specific funds focused on Cleantech.
Can you tell us about some of your portfolio companies?
AS: We have a company called NeatStitch. Their medical device has FDA approval for internal suturing for laparoscopic procedures. They have developed a patented automated suturing technology primarily targeting the Port & Vessel Closure markets. The device is of small dimensions, easy to use and fast to deploy. NeatStitch has leading surgeons on its advisory board. Our holdings are worth more than 20x what we invested after only 4 years.
Another company we are invested in is BioProtect. They produce biodegradable balloons for tissue separation. It’s really a platform technology used for a couple of things: radiation treatment for prostate treatments and treatment of rotator cuffs (bringing immediate relief). The company has additional applications as well. With their balloons, radiation can be doubled and tripled without damaging adjacent tissue, as the balloon separates the healthy tissue from the unhealthy. Clinical trials have started in Israel, with US trials expected to begin shortly. They have submitted an application to the FDA, and expect approval by end of 2008.
Another example of a company we are incubating in Link-it. They are developing a visual search engine. Their technology can search using photos, enables identification of objects/faces, and is able to generate exact matches even among large databases. They are starting pilots with various ecommerce sites and raising funds in the U.S.
How is your portfolio valued as you are publicly traded?
AS: Especially since the market is depressed, the market may not accurately value our holdings. Our rights offering gives investors a way to participate when prices are depressed. Net Asset Value (NAV) is typically calculated on the last stage of financing while other investments are calculated at cost, tangible assets.
Since your model is different than traditional VC’s, where do you profit?
AS: The goal is for our stock holdings to appreciate. I am shareholder myself and we gain from exits and dividend distributions. Our goal is to grow a large investment portfolio.
Very interesting. Thanks.
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