Growing Israeli tech market provides ample secondaries opportunity for ISF

The vast majority of deals from Israel Secondary Fund III, which is more than triple the size of its predecessor, are expected to be direct secondaries and GP-leds.

Tech secondaries firm Israel Secondary Fund is targeting top-quartile returns for its third fund, which closed on $312 million last month, managing partner and co-founder Dror Glass told Secondaries Investor.

Israel Secondary Fund III is more than triple the size of its predecessor. This falls roughly in line with a burgeoning tech secondary market in Israel, which has more than tripled in size in the last decade, Glass said.

ISF’s Dror Glass

And that could grow further still. A total of $25.6 billion was deployed into 773 Israeli high-tech start-ups in 2021 – a significant surge on the $10.4 billion raised across 604 deals in 2020, and the largest total investment seen across a seven-year period, according to Israel’s IVC Research Center’s and Meitar Law Offices’ Israeli Tech Review 2021.

ISF started as a “plain vanilla” secondaries fund more than a decade ago, buying LP positions only in mature funds. Its debut fund ISF I closed on $50 million in 2009, Secondaries Investor data shows.

Over the course of the firm’s history, it has been educating the market on the benefits of direct secondaries and GP-led deals – particularly around the alignment they can bring between different stakeholders and how they can support market growth.

With Israel Secondary Fund III, Glass expects the vast majority of the deals the firm does will be direct secondaries and GP-leds.

“Secondary is the most innovative space in private equity,” Glass said. “In the last decade, [secondaries funds] have built new, highly creative liquidity solutions. As a leading liquidity provider in the Israeli tech market, we [are] constantly adding new alternatives for liquidity in the LP, the GP and in the company levels.”

The firm has built out a proprietary database that allows it to monitor the Israeli tech ecosystem. ISF builds out its dealflow by approaching potential sellers. “Our strong reputation and being well rooted in the market makes us, for many sellers, a preferred choice for liquidity,” Glass said. 

ISF has invested directly and indirectly in approximately 220 companies across more than 80 transactions and has made 50 exits, according to a statement on the fundraise.