Five Questions with Dror Glass, Founding Managing Partner, Israel Secondary Fund

1. Israel Secondary Fund is raising its second fund targeting $100 million. How is it going and what does your LP base look like?

The strategy for this fundraising was basically to approach, first, the Israeli institutions. Obviously, our existing investors were joining us also for the second fund. We developed, over the last six years, close relationships with many of the Israeli LPs.

The idea was to do the first closing with Israeli LPs or institutions and then, between the first closing and the second closing, raise money from outside [international] investors.

2. When you’re pitching this opportunity to non-Israeli LPs, what do you tell them?

Israel is the second largest technology hub, globally. All the money invested last year in Israel [makes us] second to Silicon Valley. There was more money invested here than Boston, New York, London, Mumbai.

In the last decade, $22 billion has been invested in Israeli technology. There’s a very clear path to [access] technology in Israel [through the secondary market].

3. What do you say to someone who might be unfamiliar with Israel’s secondary marketplace, which until recently was predominantly driven by VC activity?

We do three types of transactions. We do acquisitions, we do secondary directs and we do structured deals. On the LP side what we see is [Israel’s] private equity market — compared to VC — started relatively late, only in 2003 or 2004. What we’re starting to see now, more and more, is non-VC people coming into the market.

Many stakeholders have a need to liquidate all or part of their positions. And it can be led by founders, managers, investors — so we offer all of those people the opportunity to liquidate part of their transactions, their holdings, prior to the exits.

4. Some are estimating GP restructurings could account for as much as a quarter of the global secondary market moving forward. Does that trend extend to Israel as well?

In terms of percentage of deals, in our case, last year it was about 5 percent.

On the structured deal side … many of the Israeli VCs have a need for additional capital. What we basically offer them is that additional capital to support their existing portfolio. In doing so, we’re also [not only doing this] for funds, but also corporations, holding companies and angel investors. There are a number of very large angel investors in Israel that are actually investing in a substantial number of companies.

5. How has public market volatility affected your ability to do deals, and how do you expect it to impact your pipeline in the coming year?

The market volatility in the short term influences investors’ long-term decisions, as in the case of public equity and debt markets. The increase of instability as reflected in the increase in volatility encourages investors to make decisions. And as the gap between ask and bid prices of buyers and sellers is being reduced, we anticipate an increase in deal flow.

Interestingly, secondary funds continue to show preferred returns with lower standard deviation compared to PE and VC during high-volatility periods, such as those recorded during the crises of 2000 and 2008.

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Photo of Dror Glass courtesy of Israel Secondary Fund