The VC/PE Interviews Blog

Gadi Toren has been with Partech International for about a year, after spending 2 years in private investment activities and 6 years with Apax Partners & Co in Israel and London. After completing his military service as a helicopter pilot, Gadi worked at Elbit Systems as head of the product management group for 6 years. He has a BA in economics and management at Tel Aviv University and an MBA from INSEAD. Gadi and his wife have a 4.5 years old son and live in Tel Aviv, Israel.

Partech International     Gadi’s Linkedin Profile

Yaron Bazaz: Hi Gadi, You were the Head of the Product Management Group at Elbit. How did you find yourself involved with Venture Capital activities?

Gadi Toren:
“One of the reasons for leaving my position at Elbit was to branch out of the defense electronics world that, in a sense, was an extension of my army career. I decided to go to an international business school in order to open a wider playing field of options, both in terms of geography and sector.”

“VC offered at the time (and still does) a diverse and dynamic area that combined my interests in technology, on the one hand, and in business. I find VC to combine analytical, personal, technical and business skills in a unique blend.”

Y.B: What lead Partech international to establish local branch in Israel at 2002?

Gadi Toren: “Partech started its ‘life’ as an international organization, acting as the technology investment arm of a French bank in the US. Soon after Partech was bought out by its management team and became a ‘typical’ venture fund, it branched out and started investing in Europe by opening an office in Paris. The partners at Partech have all had international experience and as such, Jean Marc Patouillaud, the partner who set up the Paris office has had a very successful track record with investments in Israel.

The first investment done by Partech in Israel was in 1995, in Breezecom. In 2001, with the raising of its 4th fund, Partech decided to open an office in Israel. Since then, Partech completed 5 investments in Israel. With the raising of our fifth fund, the intention is to increase the investment pace here.”

Y.B: As a VC with global orientation, Partech international operate on an “International Venture Model” under the Slogan - “think globally, act locally”. How does it work in day to day life?

Gadi Toren: “First, it’s probably worth while to elaborate a bit more about Partech’s philosophy. We believe that the market for technology is truly global, on the one hand, but human nature and diversity make local understanding key. We also believe in focusing our energy (financial and personal) in a relatively small number of opportunities. As a result, we tend to invest large sums of money in a small number of companies, invest only in areas where we are present, and work closely with the management teams to build and propel the business. We have a single fund that invests in the US, EU and Israel.”

“When we look at an opportunity or area of interest we are (often) able to see companies on different sides of the globe and invest in the one that we believe to have the best chances of success. In many cases, similar ‘issues’ are on the agenda simultaneously in Europe, US and Israel. On a more practical note, our decision making process is sector based (and not geography based). When I look at an internet or software investment opportunity, the decision to invest is taken by all the partners dealing with Software and Internet in San Francisco, Paris and Herzliya. The challenge is to communicate constantly and frequently. The advantage is that once an investment is made, our partners in Europe and the US support our portfolio companies in a truly global fashion in BD assistance, hiring, future fund raising and exits. We have an equalized incentive system so that the entire team is equally motivated to support each company in our portfolio, irrespective of it ‘origin’.”

Y.B: What is your explanation for the Israeli technology strength?

Gadi Toren: “I could quote many smart and experienced people who have associated Israel’s strength in technology to the history of military developments, the boost in intelligent and educated workforce which made Aliya in the 90s, the entrepreneurial spirit, or the quality and awareness to higher education. I think these are all true. I would add that Israelis (and Jews in general) have a tendency to improvise and adapt to their surrounding – I think that the rise of technology in the late 20th century as an area of substantial growth opportunity drew us in. I sometimes console myself (usually when driving in my car), that these are the positive manifestations of the same ‘Israeli’ nature that drives people here to constantly change lanes while driving, cut corners and find shortcuts.”

Y.B: in 2005 Partech Israel took part (along with other VCs) in an investment of 38M$ in Allot Communication. Why Allot?

Gadi Toren: “Allot was a relatively late stage company with a proven product and a leading market position. Allot developed a technology nicknamed DPI – Deep Packet Inspection, which enables ISPs and Carriers to literally look into the content of the data packet and, accordingly, prioritize certain internet data services over others. This is done at high data rates, without slowing that traffic down, and with a carrier-grade equipment. Thus, it is possible to offer higher priority to mission critical applications, over less important traffic such as file media file sharing, or block certain services if this is the preference of the service provider. The founder and management team of Allot were (and are) excellent. We saw it as an opportunity for a later stage investment, which at the time, fit the profile of the portfolio in our forth fund.”

Y.B: Any other significant investment you made during the last three years?

Gadi Toren: “Partech International was dominant investor in Jungo Software, sold to NDS in Q4’06. Jungo was also a market leader in its field, with a strong technology and great management. As anticipated, Jungo lived up to our expectations. We are also investors in Resolute Networks, a vendor of Circuit Emulation modules used to link TDM based switchboards to the IP network without the need to replace them, and Idesia - an inventor of a unique biometrics technology to identify people based on their heart signal.
Last month we closed an investment in PowerID, the world market leader in Battery Assisted Passive (BAP) RFID tags. PID was spun off from Power Paper. Partech led the round and was joined by the leading investors in Power Paper.”

Y.B: Partech international close its fifth fund early this year, managing to raise 300 M$. What part of that pool dedicated to investments in Israel and in which sectors?

Gadi Toren: “we do not have static allocations by geography. Our investment rate and team in Israel will probably lead us to invest between $30-40m from our fifth fund over the next three years.”

Insights

Y.B: The total venture investment in Israel currently compare to ~30% of the total venture investment in Europe and approximately 50% of all the venture investment in Asia Pacific. With the overcoming of the Japanese economy and the Chinese booming, what will happen to the venture capital industry in Israel?

Gadi Toren: “I’m not sure we will see a major change in the overall framework in terms of amount of money raised / invested or the number of players. On the other hand, I don’t see any expected surge in our technology sector or its VC derivative. The composition of the venture industry will keep on changing. The last 5 years saw a constant entrance of foreign (mostly US) funds into Israel with good investment teams and successful fund raises. I expect that this pressure on Israel pure-play funds will continue.”

Y.B: How come, with all the local technology successes, the Israeli institutional investors seem reluctant to invest in the local VC funds?

Gadi Toren: “Partech did not raise money from Israeli institutional investors, so I do not feel I’m in any position to judge them. However, overall, the venture industry has had a rough decade with lots of money lost. In the US, where venture investments have a longer history, this is taken in perspective. In Israel, where most of the institutional investors entered this arena only in the late 90s and got their fingers burnt, I can understand the hesitation.”

Y.B: Forecasting - In which technology area/s, if any, you predict that Israel will be a world leader in years to come?

Gadi Toren: “Israel has always a strong background in IT security. I believe this trend will continue. IC design is also an area where the human capital and talent base is ample, especially in communications applications. Software infrastructure for businesses and vertical applications. I am more skeptical on the direct-to-consumer side of things.”

Tips

Y.B: Recommendations/tips for international VC/PE firm considering opening a local branch?

Gadi Toren: “Now you expect me to reveal all the tricks of the trade… A good team, a strong culture of communication and information sharing, and a clear message to the market.”

Y.B: Out of office, what are your preferred leisure time activities?

Gadi Toren: “SCUBA diving, flying, reading, my family”

Y.B: Thanks a lot for your time and Shana Tova

Gadi Toren: “Thank You Yaron”

 

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