The following are the findings of the quarterly survey conducted by the IVC Research Center. This survey, conducted with the cooperation of the Israel Venture Association (IVA), reviews capital raised by private Israeli high-tech companies from Israeli venture capital funds and from other investors. The survey is based on reports from 117 venture investors of which 62 are Israeli management companies and 55 are other mostly foreign investment entities.
In the second quarter of 2004, 91 Israeli high-tech companies raised $338 million from venture investors both local and foreign (Chart 1). The amount was up 5 % from the $323 million raised by 111 companies in the previous quarter and 25 % higher than the $271 million raised by 86 companies in the second quarter of 2003.
Chart 1: Capital Raised by Israeli High-Tech Companies by Quarter ($M)
The average company financing round increased by 27 % from the previous quarter and 17 % from the second quarter of 2003 to $3.7 million. Sixty-four companies attracted more than $1 million. Of these, eight companies raised between $5 million and $10 million each and eight companies raised more than $10 million each.
In the first half of 2004, capital raising was up 37 % from H1 2003 levels. “These latest figures indicate the recovery of Israel’s high-tech sector continued in the first half of 2004,” said Efrat Zakai, Director of Research at IVC. “We are forecasting that full year capital raising by Israeli firms will reach $1.2 billion in 2004. That’s almost a 20 % increase from 2003 levels.”
Israeli VC investments
In the second quarter, Israeli VCs invested $156 million in Israeli companies compared with $158 million in the previous quarter and $94 million in Q2 2003. The Israeli VC share of the total amount invested in Israeli high-tech companies was 46 %, slightly below the 49 % share of the previous quarter.
First investments by Israeli VCs were 38 % of total VC investments, compared with 44 % in the previous quarter and 40 % in the second quarter of 2003.
The average first investment by Israeli VCs in Q2 2004 was $2.5 million, and the average follow-on investment was $1.1 million.
In the first half of 2004, the Israeli VC share of the total amount invested in Israeli high-tech companies was 48 %, substantially above the 39 % share in the same period in 2003. First investments by Israeli VCs were 40 % of total VC investments, compared with 37 % in the first half of 2003.
IVC Research chairman Zeev Holtzman said: “Currently, more than 15 Israeli VCs are in the process of raising new funds. Pitango, which finished raising its fourth fund, has already begun to make investments out of it. We project that another three or four Israeli management firms will complete their capital raising for new funds in the coming months and will start investing. The success of Israeli VCs in raising new funds will insure a rate of investment exceeding $1 billion over the next few years.”
Israeli VCs continue to invest in foreign companies
Israeli VCs invested $32 million in 17 foreign companies in Q2. This compares to $22 million invested in foreign companies in the previous quarter and $34 million in the second quarter of 2003. Five of the 17 investments were first investments.
Capital raised by stage
No major changes in the first two quarters’ breakdown of investments by stage. In the second quarter mid-stage companies continued to dominate capital raising as they have for the past two and a half years. Forty-six mid-stage companies raised $174 million, 51 % of total capital raised.
Eight seed companies raised $17 million, five % of the total raised, compared with $13 million, or four % of the total, in the previous quarter and $20 million, or seven % in Q2 2003. During the first half of 2004, Seed companies attracted 4.5 % of the total, compared with 5.6 % in H1 2003.
Capital raised by sector
The communications sector led the second quarter in fund raising. Thirty-two communications companies attracted $123 million, 36 % of the total amount raised, compared with 33 % in the previous quarter and 29 % in the second quarter of 2003. The communications sector led the first half of 2004 as well, attracting 35 % of the total, compared with 33 % in H1 2003.
The life sciences sector showed a decrease in fund raising in the second quarter with 15 companies raising only $40 million or 12 % of total capital raised. The amount was 33 % lower than the amount raised by life science companies in the previous quarter ($60 million, 19 % of the total) and 29 % lower Q2 2003 figures ($56 million, 21 % of the total). During the first half of 2004, life science companies attracted $100 million, 15 % of the total, compared to $95 million or 20 % of the total in H1 2003.
Chart 2: Capital Raised by Israeli High-Tech Companies by Sector (%)
Published by Globes [online] - www.globes.co.il - on Wednesday, July 14, 2004