Israeli venture capital funds raised $607 million in 2012, down 30% from the previous year, according to research released today by IVC Research Center and KPMG Somekh Chaikin Israel. Among the leading funds, Sequoia V, Pitango VI and Magma III raised a combined sum of $450 million, 74% of the total.
The research shows that micro-VC funds continued to attract investment, with six micro funds raising a total of $83 million, nearly 14 percent of total capital raised. Four of the 12 VC funds that raised capital during 2012 were new to the local VC management scene. This compares with eight new players in 2011.
Ofer Sela, a partner in KPMG Somekh Chaikin’s Technology group, explains that “Fund raising is mostly being carried out by the large VCs that are initiating follow-on funds and on the other end relatively small funds that are industry specific and/or early stage focused. There are VCs in-between that are no longer attracting new funds. These fund raising trends are similar to those in the US VC industry.”
"There is a major debate in the industry regarding the optimal fund size that will result in the highest returns to limited partners," Ofer added. "As a consequence, we are witnessing VCs reducing the size of their new follow-on funds in an attempt to maximize returns. Overall, during the last two years, the number of investment entities making investments in Israel has been on the rise, with most focused on the early stage. We believe that later stage funding will be available to the relevant portfolio companies either from corporate VCs or from foreign VCs operating in Israel," he said.
IVC CEO Koby Simana said, "VC funds are facing serious challenges today, not just in Israel but the world over. The allocation for venture capital investments continues to decline among institutional investors. On top of that, Israeli VC funds are being challenged by fund raising competition from Asian VC funds mainly from China and India. There's room for optimism, however. While, on average, funds are raising less, the number of VC-backed companies is likely to rise over the next few years as more VC funds begin to raise capital."
Between 2003 and 2012, Israel’s venture capital funds attracted $6.77 billion. The capital available for investment by Israeli venture capital funds at the beginning of 2013 was approximately $2.1 billion. Of this amount, $484 million (23%) is earmarked for first investments, with the remainder reserved for follow-on investments. According to IVC projections, Israeli VC funds will raise $600 million in 2013.
Additional details about venture capital fund raising will be available in the IVC 2013 Yearbook, to be published in April.
Published by Globes [online], Israel business news - www.globes-online.com - on January 28, 2013
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