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Israel’s venture capital industry has approximately 70 active venture capital funds, of which 14 are international VCs with offices in Israel. Though Israel's thriving venture capital industry has traditionally played an important role in the booming high-tech sector, global tightening of credit due to the financial crisis has had some affect on the availability of venture capital locally. In 2010, 391 Israeli high-tech companies raised $1.26 billion, 13% above the $1.12 billion raised in 2009, but 39% below 2008 levels which was then the highest amount raised in 7 years.
In the fourth quarter of 2010, 100 Israeli high-tech companies raised $344 million – 25% above the $275 million raised in the fourth quarter of 2009, and slightly up from the $341 million raised in the third quarter of 2010.
Chart 1: Capital Raised by Israeli High-Tech Companies by Year ($M)
Thriving VC Market in Israel
International Venture Capital Firms: Several leading U.S. and European VC funds have Israeli branches, namely Alta Berkeley Venture Partners, Battery Ventures, Bessemer Venture Partners (BVP), BlueRun Ventures (BRV; formerly Nokia Venture Partners), Blumberg Capital, Bridge Capital Fund (BCF) LP, Canaan Partners, Defta Partners, Lightspeed Venture Partners, Partech International Inc., Susquehanna Growth Equity (SGE) LLC, Venrock, YL Ventures, and Ziegler Meditech Equity Partners (ZMEP) LP. Additionally, there are some 220 international funds, including Polaris Venture Partners, Accel Partners and Greylock Partners, that do not have offices in Israel, but actively invest in Israel through an in-house specialist. The VC divisions of leading multinationals, among them Intel, HP, TimeWarner Inc., Sony, Cisco and others, which have opened R&D centers and acquired companies in Israel , have also found that the country offers a profitable VC market.
Israeli Venture Capital Firms continued to experience difficulty attracting new capital in 2010 similar to 2009 and 2003 – the decade's other relatively “dry” years. The financial crisis at the end of 2008, which severely impacted institutional investors, continued to be the main hindrance to raising new funds. Though macro economic factors improved in 2010, Israeli VC funds were not able to attract new capital during the year. Capital raising trends in Israel tend to be in line with trends in the US, where a 50% reduction was seen from 2009 levels.
Chart 2: Capital Raised by Israeli VC funds by Vintage Year* ($B) 2000-2010(E)
Delivering Successful Exits
Mergers & Acquisitions: In 2010, there were 63 mergers and acquisitions in the Israeli market worth a total of $2.04 billion; 20% below 2009 levels ($2.54 billion), when 63 Israeli companies were merged or acquired, and 23% lower than 2008 totals($2.64 billion) when 82 Israeli companies were merged or acquired. The average deal size in 2010 was $32 million, slightly lower than in2009.
M&As of Israeli VC-backed companies in 2010 totaled $1.25 billion, a 19% decrease from 2009. In numbers, VC-backed M&A deals in 2009 dropped to 26 from 28 in 2009.
Chart 3: Israeli High-Tech Companies: Capital Raised from Investors vs. Capital Received
from M&As & IPOs (2001-2010)
Global Financial crisis continues to weigh on IPO's:
Worldwide technology IPO markets continued to be weak in 2010, with only $127 million raised in 10 IPOs in Israel, though it was certainly an improvement from 2009 and 2008, when Israeli high-tech companies had no initial public offerings on international exchanges during the entire calendar year.
Investment Trends in the Israeli VC Market
In 2010, the Life Sciences Sector led the market with $350 million or 28% of total capital raised, followed by the Communications Sector with $238 million or 19% and the Internet sector with $222 million or 18% of total capital raised. The Semiconductor sector also attracted investor attention with 13% of capital raised in 2010, compared to 8% and 15% in 2009 and 2008 respectively.
Chart 4: Capital Raised by Israeli High-Tech Companies by Sectors by Year (%)
Investment by Stage
In 2010, 45 Seed Companies attracted $38 million or 3% of capital raised, compared to an average of 7% over the previous 7-year period. Mid-Stage companies led capital raising, attracting 46% of investment.
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