Interview: Top Israeli Incubator TRENDLINES On A Roll

THE TRENDLINES GROUP LTD (SGX: TTGL), Israel's top incubator of innovative private enterprises, counts itself lucky to be based in one of the great cradles of civilization, and management believes it has a mature, well-thought-out strategy to replicate its recent successes.

In the nine years of running incubators (Trendlines was founded in 2007 and listed in November of last year) the northern Israel-based firm has already notched up 47 portfolio firms with six exits through trade sales in as many years, as well as two public listings.

More impressive were the returns that investors enjoyed, ranging from 3.2X to 8.8X, and in one extraordinary case -- 66.9X -with Trendlines in currently in talks for a few more potential exits.

In an exclusive interview, Trendlines Chairman & CEO Mr. Steve Rhodes told Asia Fund Space that several factors were behind the firm's nearly decade-long success, with its home country of operations playing a key role.

Asia Fund Space:  Can you give us a synopsis of the company incubator sector in Israel and talk a bit about what sort of competition you face in your home market?

Mr. Steve Rhodes: There are currently 18 government-franchised incubators in Israel. However, we are unique in the sector where usually an incubator provides not much more than office and lab space and a small support staff.

Rather, at Trendlines, we provide our incubator companies with intensive hands-on support in technology development, business development, R&D, marketing and commercialization strategy, funding strategy and marketing communications.

At Trendlines, we have a staff of 40 professionals whose role is to provide this support to our incubator companies to help ensure their success.

Being based in Israel allows us to greatly benefit from the perfect storm of 1) great technology; 2) a business culture which actively promotes innovation; 3) access to huge global markets; and 4) well developed expertise in the two core areas of our operation - medical and agricultural technologies.

In 1993, Todd Dollinger and I founded Trendlines International as a business development consultancy focused on assisting and guiding innovation-based Israeli companies in the complex US market, with an original focus on medical devices, and half our clients now hail from that sector.

We often get queried on why we only focus on two sectors -medical and agtech-and our reply is always the same -we believe in being focused and also want to live up to our charter of developing companies to improve the human condition.

By staying focused on these two high-growth sectors, we can come to intimately understand the firms in which we invest, as well as the markets in which they operate.

Soonafter we realized successes in medtech, we realized there was a dearth of private equity investment in agtech startups.In fact, though we are one of eight incubators focusing on medical devices in Israel, we are in fact the only government-franchised participant also focusing on agtech in the country.

Our mission of improving the human condition does not make us an impact investor, but it also doesn't mean we operate without competitors, and do occasionally see some overlap with angel investor players in our market.

We now have 47 portfolio firms, and expect to increase this number significantly in the future as we open additional incubators. We consider about 500 startups per year in Israel and only intend to take on eight each year, which translates into a 1.6% acceptance rate. We pride ourselves on our intense due diligence and attribute it to our success.  We expect a similar investment rate in the new incubator we are establishing in Singapore.

We've only had 19 write-offs to date which are typically due to poor execution on the business side, so we have a strong vested interest in seeing our investee companies succeed.

Sometimes it takes a few tries to outline our business model to newcomers to the incubator business because I have no products or traditional services to peddle, but only ideas.

That's why we let our successful case studies and thriving portfolio examples serve as our best salespersons.

In short, we have two types of clients -investee companies (which are added to our portfolio), and investors/entrepreneurs.

Ultimately, upon exits, we often see multinational medtech and agtech firms (MNCs) becoming our downstream customers, who can potentially become our final buyers.

Asia Fund Space:  With the complexities of having two types of clients, how do marketing and promotion campaigns typically work for an incubator like Trendlines?

Mr. Steve Rhodes:  We've found it to be a two way street with no set patterns.

Sometimes MNCs find us, or sometimes we promote our more mature portfolio firms to them directly.

In short, when a startup reaches a threshold size and level of success, it's hard to keep it quiet and unnoticed by those on the lookout for precisely these opportunities.

That being said, there are some differences between exactly when agtech and medtech startups can be effectively pitched to MNCs as the latter typically need longer and more rigid approval processes.


Asia Fund Space:  With 18 government-approved incubators in Israel -and eight focusing on medtech-why should startups and investors alike seek out your services?

Mr. Steve Rhodes:  Because, simply put, we think they have the best chance of success with us.

We have a great track record of taking initial investments to commercial success.

By way of anecdote, we originally consulted for many startups founded by physicians, scientists who unfortunately didn't know about fundraising business development or commercialization. That's where Trendlines can really add significant value, as we decided from the outset that we would support companies in a profound way.

Our portfolio companies have come to deeply respect our professional advice and practical support, and this track record spreads through the market by word of mouth.

Our criteria for taking on new medtech and agtech startups are that they need to address an unmet market need with good technology, and good people with whom we can work.

And we do focus on products over services because it's a lot harder to get a patent on services.

Asia Fund Space:  What is the best way that you can maximize potential returns for your investors?

And although Trendlines has only been listed for a little over half a year, what is your firm's dividend policy?

Mr. Steve Rhodes:  For our portfolio companies, acquisitions are still the most common and successful mode of exit, with IPOs occupying a distant second place.

As for dividends, we think they are further down the line as capex and R&D requirements for agtech and medtech are quite high.

The Trendlines Group Ltd is a commercialization company that creates and develops companies to improve the human condition. The Company invents, discovers, invests in, and incubates medical and agricultural technologies. Trendlines Group is involved in all aspects of its portfolio companies from technology development to business building. The Trendlines Group, established in 2007, specializes in the commercialization of innovation. It is headquartered in Israel --recognized worldwide as a "Start-Up Nation." As a mission-based company, Trendlines creates and develops companies to improve the human condition. Trendlines invents, discovers, invests in and incubates innovation-based medical and agricultural technologies. An intensely hands-on investor, Trendlines is involved in all aspects of its portfolio companies from technology development through business building, with a view towards exits in the market place.

Steve Rhodes is chairman and CEO and is responsible for the overall management of the Group's business operations (particularly, in the areas of finance and compliance reporting functions) and is primarily responsible for the establishment of strategic partnerships in Europe and the United States. Steve is also the chairman of Trendlines Agtech where he manages and provides leadership direction in regard to day-to-day operations. Steve began his career with the Chicago branch of Bank Leumi where he advanced through a number of financial marketing and lending positions, including director of marketing. He continued with Bank Leumi in Israel when he became deputy manager of Bank Leumi's International Division. In 1988, Rhodes joined SRD Medical. After serving as its CFO, he became VP sales and marketing. The longstanding partnership with Todd began in 1993, when they cofounded the predecessor to Trendlines. In 2004, Steve became the CEO of the Misgav Venture Accelerator (now Trendlines Medical), focusing the incubator's innovation efforts on the life sciences, particularly medical devices. Steve serves as director and chairman of the board on a number of our Group's portfolio companies.

(Note: This story is contributed by Andrew Vanburen. Mr. Vanburen has served as a
government official focused on international trade at the American Institute of Taiwan in
Taipei, and worked in financial journalism for nearly a decade in both Beijing and
Shenzhen. He holds a Master's Degree from New York University. He is currently Director at
Hong Kong-based Asia Fund Space. For more information, please visit:
www.asiafundspace.com)