Investment in Israeli hi-tech companies by local venture-capital funds plunged to a six-year low in the third quarter, but total investment rose thanks to foreign funds, according to a report by Kesselman & Kesselman PricewaterhouseCoopers MoneyTree published Tuesday.

A hi-tech worker in Israel. [Illustrative]
Photo: Ariel Jerozolimski

"From the current survey we can draw the conclusion that the present crisis in the hi-tech sector is far from being behind us," Roby Suleiman said in the report. "The level of investment during the quarter was one of the lowest for the decade.

"In addition, a profound analysis of the data found that investment by Israeli venture-capital funds dropped to $70 million in the third quarter - the lowest amount since the low point in the first quarter of 2003."

Israeli hi-tech companies raised more money in the third quarter compared with the second quarter, but compared with the same quarter last year, investment levels were down by more than half, the report said.

VC-backed hi-tech companies raised $178 million during the third quarter, up 10% compared with the previous quarter ($162m.) and down 55% compared with the same quarter last year ($393m.).

"The increase in investment in the third quarter was entirely due to investment by foreign funds," Suleiman said.

Domestic VC funds invested $70m., or 39%, of total investment for the third quarter, compared with $77m., or 48%, of total investment in the previous quarter and $181m., or 46%, in the same quarter last year.

In the third quarter, 55 Israeli hi-tech companies raised capital, down from 61 in the second quarter and 78 in the same quarter last year. The average investment per company in the third quarter was $3.2m., down from $2.7m. in the second quarter and $5m. in the same quarter last year.

"Another interesting figure is the immunity of the life-sciences sector in general, and of medical devices in particular, which raised the most capital during the quarter," Suleiman said. "This figure, combined with the fact that this sector had the largest exits over the past year, demonstrates the great strength and importance of the sector in Israel and the industry even in hard times."

Investment in companies in the software sector plunged to a 10-year low in the third quarter. Nine companies raised a total of $5m., compared with $47m. invested in 19 companies in the second quarter and $123m. invested in 28 companies in the same quarter last year.

Investment in life-sciences start-ups reached its second-highest level in the past four years. Eight companies raised a total of $65m., compared with $32m. invested in 13 companies in the second quarter and $28m. invested in 11 companies in the same quarter last year.

Clean-tech start-ups raised $27m., the report said.