Venture-capital funding of local hi-tech companies nearly halved last year, dropping to the lowest point since 2003, according to the Kesselman and Kesselman PricewaterhouseCoopers Israel MoneyTree report published Wednesday.
“2009, as far as venture-capital investments are concerned, is one that we will soon want to forget,” Kesselman’s Rubi Suliman said in the report. “The level of venture-capital investments was even lower than the lowest point set in 2003, following the burst of the hi-tech bubble.
“In 2009... the funds invested less in ‘dreams’ and more in clear-cut and mature products with a real business plan. The funds focused more in the existing portfolio, and the natural-selection process caused the closure of many companies.”
“At the outset of 2010, we see the clouds of the financial crisis disperse,” Suliman said. “Israeli hi-tech matured and adjusted itself. Many companies worked in a bootstrap manner, self-funding or low-funding by angel investors, intensely focusing on revenue.
“In 2010, the number of mature companies applying for venture-capital funding is large, and although it is clear that the number of Israeli active funds decreased, foreign funds expanded their operations and involvement in the Israeli market, and overall, the projection for 2010 is better.”
VC-backed hi-tech companies raised $735 million in Israel during 2009, a 47 percent decrease compared with 2008, when $1.4 billion was raised, and a 39% drop compared to the corresponding amount raised in 2007, when $1.2b. was raised.
A VC-backed company is defined as a firm in which one of the investors in the investment round is a venture-capital fund. The average investment per company in 2009 was $3m., compared with $ 4.4 m. in 2008 and $3.9m. in 2007.
Signs of a start of a recovery were found in the fourth quarter of 2009, during which 77 companies raised $201m., the highest amount raised in a single quarter in 2009. That was up 13%, in monetary terms, compared with the previous quarter, in which 55 Israeli companies raised $178m., but down 30% compared with the corresponding quarter of 2008, in which 81 companies raised $287m.
The average investment per company in the last quarter under review was $2.6m., compared with $3.2m. in the preceding quarter and $3.5m. in the corresponding quarter of 2008.
Local VC funds invested $92m., or 46% of total investments, in the fourth quarter of 2009, compared with $70m., or 39% of total investments, in the previous quarter, and $142m., or 49%, in the corresponding quarter in 2008.
In addition to investments in hi-tech companies with operations in Israel, local VC funds also invested about $7m. in 11 overseas hi-tech companies that have no operations in Israel, compared with $2m. invested in five foreign companies in the previous quarter and $32m. invested in nine foreign companies in the corresponding quarter of 2008.
In 2009, venture-capital funds with representation in Israel invested approximately $333m., or 45% of the total investments, compared with $675m., or 48%, of the investments made in 2008 by the VC funds with an Israeli representation.
In 2009, local VC funds invested about $32m. in 32 overseas hi-tech companies that have no operations in Israel, compared with $95m. invested in 48 such companies in 2008.
The software sector was the leading sector in the fourth quarter of 2009 in terms of funds raised. Twenty-one companies operating in the software sector raised $72m., or 36% of total investments in this quarter, compared with nine companies, which raised $5m., or 3% of total investments in the previous quarter, and 19 companies, with $52m., or 18% of total investment in the corresponding quarter a year earlier.
Suliman said although the software sector was the leading sector in terms of the level of investments in the fourth quarter last year, total investment in 2009 in this sector fell to the lowest point in the last decade. In 2009, the total of funds raised was $143m. in 60 companies, or 20% of the investments.
This compared with 89 companies raising $349m. in 2008, or 25% of total investments. The average annual investment in this sector was $2.4m. in 2009, compared with $3.9m. in 2008.
In 2009, the communications and networking sector had the lowest level
of fund raising for the last decade, with $204m. invested in 63
companies, or 28% of total investments. That compares with $437m.
invested in 86 companies in 2008, or 31% of total investments. The
average annual investment per company in this sector was $3.2m.,
compared with $5.1m. in 2008.
During the fourth quarter last
year, 17 companies within the communications and networking sector
raised $36m., or 18% of the investments in the quarter. That compares
with 15 companies that raised $37m. in the third quarter, or 21% of
total investments, and with 26 companies that raised $93m., or 33% of
total investments in the corresponding quarter of 2008.