Israeli VC funds raised no capital in 2010

IVC CEO Koby Simana: The situation is critical. It threatens the survival of numerous Israeli high-tech companies.

Israeli venture capital funds raised no capital in 2010, according to the Israel Venture Capital Association (IVC) and KPMG Somekh Chaikin. They added that 2010 joins 2009 and 2003, the other dry years of the decade for the industry.

IVC is cautiously optimistic for 2011, based on the positive outlook for the Israeli economy, and government incentives for investment: the Ministry of Finance's program for Israeli institutions to invest in Israeli venture capital funds. The ministry expects the plan to boost investment by $220 million in 2011-12.

IVC estimates that Israeli venture capital funds currently have $1.4 billion available for investment, of which $230 million will be allotted for first investments, and the rest for follow-on investments. It predicts that Israeli funds will raise $800 in 2011 for investment in Israel's high-tech industry.

IVC says that the global financial crisis that erupted in late 2008, which severely affected institutional investors, was the main impediment to raising new funds. It noted that Israeli venture capital funds raised only $234 million in 2009, of which $200 million was raised by Sequoia Capital Israel. The improved macroeconomic conditions of 2010 did not help Israeli venture capital funds to attract new capital. IVC added that trends in Israeli venture capital fund industry generally correlate with trends in the US, where funds raised only half the amount in 2010 compared with 2009.

IVC CEO Koby Simana said that the situation is critical. "Without improvement, it threatens the survival of numerous Israeli high-tech companies that cannot raise needed capital. Moreover, venture capital funds will not be able to finance new companies or, in some cases, support their existing portfolio companies.

"The government’s program for encouraging investment by Israeli institutional investors in local venture capital funds will likely result in an increase both in Israeli venture capital fund raising and in technology investments." Simana cautions, however, "Most of the impact of the government plan will be felt in 2012, since local venture capital funds must first raise substantial amounts - 60% of the total capital of each fund - from foreign investors. It's a real challenge for Israeli venture capital funds."

IVC says that the ability of Israeli venture capital companies to raise follow-on funds in 2011 and 2012 will have a strong impact on the overall performance and future of Israel's high-tech sector, especially start-ups. At least one new biotechnology fund, part of the government program to promote the industry, should be able to secure capital this year, and one or two new follow-on venture capital funds and new seed or angel-focused funds may also be able to successfully raise capital.

Historically, Israel’s venture capital industry, which began in 1992, peaked in 2000, when more than $2.8 billion was raised. Since 2000, Israeli venture capital funds attracted $9.5 billion, 71% of the $13.3 billion that was exclusively allocated to investments in Israeli high technology by Israeli venture capital funds between 1992 and 2010.

Published by Globes [online], Israel business news - www.globes-online.com - on March 8, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

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