Microsoft Kinect gamers 311.
(photo credit: Courtesy)
Israeli high technology may be on the cusp of a recovery and the industry can thank foreign investors for it, figures on venture capital investment released on Wednesday by the IVC Research Center showed.
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Israeli technology start-ups raised $479 million in fresh capital in the first quarter of 2011, the biggest three-month total in two years and double the amount they raised the same time in 2010, according to the IVA, which tracks the industry. Some 140 companies took in new investment, 49 more than the first-quarter 2010.
In fact, the figures probably understate the size of the increase in investment because some of the biggest deals of the quarter, including a $50 million fundraising by PrimeSense, whose technology is used in Microsoft’s Xbox, weren’t counted because they fall under the category of private equity rather than venture capital, said Koby Simana, chief executive officer for IVC.
The big increase came from foreign investors, with Israeli venture
capital funds accounting for less than 30 percent of all the money
invested in tech companies for the quarter. Nearly all the rest came
from foreign investors.
“I hope that this is the turnaround that we’ve all been waiting for, but
I can’t really say because it’s only the beginning,” Simana told The
Media Line. “There is a big opportunity in the Israeli industry. There
are good, mature companies in the revenue stage that need financing to
grow. Foreign venture capitalists notice that and they are coming.”
Venture capital is critical to Israel’s vaunted high technology sector.
New companies need money as much as they need innovative ideas and
entrepreneurs to develop new products and bring them to the market.
Venture funds are specialists in assessing infant companies that often
consist of little more than a prototype and a management team.
While Israeli technology has wracked up some important successes, with
technology exports showing a double-digit increase in 2010 and the
industry’s global stars trawling the country for companies to buy and do
deals with, the local venture capital industry has been ailing. That
has made it hard for start-ups to find capital.
Last year, Israeli venture funds raised no new money in 2010, according
to the IVC. It was the first year of nil new investment since 2003 when
the industry was pounded by the bursting high tech bubble and the
Palestinian intifada. At the end of last year, they had just $1.4
billion in reserve for future investments and many have been holding
tight to their cash.
But the prospects for raising cash are improving as Israeli funds can
show their investors a track record of profitable investments, Simana
Two funds – Israel’s Carmel Ventures and America’s Sequoia Capital –
profited from the sale of Snaptu, a developer of Internet applications
for mobile phones, last month to Facebook for a reported price of $60
million to $70 million. In February, MobileAccess, which makes wireless
telecommunications technology for inside buildings, was bought for a
price estimated at as much as $150 million by the U.S. glass-maker
Corning. The venture funds Genesis Partners, Pitango Venture Capital,
Poalim Ventures and Eurofund were all investors in the company.
I know there are many companies either going to a Nasdaq IPO [initial
public offering] or have a merger and acquisition deal in negotiation. I
hope this will help the Israeli VC funds to raise capital in 20011 and
2012,” said Simana “And there will be a new cycle of investments in
Another reason for optimism is new legislation approved by the Israeli
government to encourage domestic investors to invest in venture capital.
Until now, local investors generally didn’t back their own country’s VC
funds, but IVC estimates they will invest some $220 million over the
next two years, although most of that will occur in 2012.
Plenus Venture Lending Fund plans to raise $150 million, leveraging the
new government, the Globes financial daily reported on Wednesday. That
would mark a big increase in capital for Plenus, which provides loans to
technology companies in exchange for repayment and equity. It now
manages $320 million.
Plenus has had several successful exits, among them the $313 million
sale of Provigent, a maker of microwave radio technology, to Broadcom in