Israeli start ups raised $2.14 billion in 2011, an 11-year high, and 70% more than the $1.26 billion raised in 2010, and 91% more than the $1.12 billion raised in 2009, according to the IVC Research Center and KPMG Somekh Chaikin Quarterly Survey. 546 start ups raised capital in 2011, up from 391 companies that raised capital in 2010.
The average financing round rose to $3.92 million in 2011 from $3.23 million in 2010 and $2.51 million in 2009.
Despite the good year, IVC is pessimistic about the future, "As predicted, 2011 numbers were impressive, but our forecast for 2012 is not as optimistic,” said IVC CEO Koby Simana. "As local venture capital funds have found it increasingly difficult to raise new capital and maintain a satisfactory level of first investments in early stage companies, foreign investors have been upping their investments, which more than doubled in the past year.
"However, with Israeli VCs continuing to downsize their investments and with the world economy still very much unsettled, foreign investors can no longer be counted on to fill in the gap. We believe annual investment can fall to as low as $1.5 billion if there is no dramatic recovery in the next few months."
124 start-ups raised $569 million from Israeli and foreign venture capital funds in the fourth quarter of 2011, 9% more than the $522 million raised by 137 start-ups in the third quarter, and 65% more than $344 million raised by 100 start-ups in the corresponding quarter of 2010.
77 start-ups raised more than $1 million each during the fourth quarter, including five start-ups that each raised more than $20 million, and thirteen start-ups that raised $10-20 million each.
Israeli venture capital funds invested $525 million in Israeli companies in 2011, 42% more than the amount invested in 2010 and 28% more than in 2009. However, Israeli venture capital funds accounted for just 25% of total investment in 2011 - the lowest level in the past decade, in which the average proportion was 40%. First investments accounted for 31% of total investment by Israeli venture capital funds in 2011, up from 29% in 2010 and 2009, and the average first investment was $2.21 million, and the average follow-on investment was $1.06 million.
In 2011, the internet sector attracted the largest share of investments for the first time in the last decade, with 115 internet start-ups raising $482 million, 23% of total investment, more than double the $222 million, 18% of total investment, raised in 2010, and $147 million, 13% of total investment, raised in 2009.
The communications sector was in 2nd place, with 88 start-ups raising $432 million, 20% of total investment in 2011, 82% more than in 2010. The software sector was in third place, with start ups raising $415 million, 19% of total investment, in 2011, nearly triple the amount raised in 2010.
Mid-stage start ups raised the most capital in 2011, raising $903 million, 42% of total investment. Early stage start-ups accounted for 26% of total investment, and seed-stage start-ups raised 5% of total capital. Mid and late-stage companies raised $1.48 billion altogether - 90% more than the $781 million raised in 2010.
KPMG Somekh Chaikin partner Technology Group, Ofer Sela said, "Mobile solutions and applications are the primary factor behind the significant increase in communication company investments in the past two years. Israeli companies have traditionally excelled in the communications sector, and the high quality of such companies is expected to attract foreign investors in the future."
He added, "The substantial increase in late stage investments indicates the strength of Israel's technology industry, as well as its attractiveness to foreign investors. An impressive number of mature Israeli companies have reached substantial sales. A decade ago, such companies would most likely have gone the IPO route, raising funds publicly. Today, due to changed conditions in IPO markets, these companies are relying principally on both existing and late-stage investors. As a result, we expect a large portion of these companies to be sold over the coming 24-month period."
Published by Globes [online], Israel business news - www.globes-online.com - on January 24, 2012
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