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Fund raising by hi-tech companies fell 8% in 2005 but was expected to recover in 2006, Israel Venture Capital said on Wednesday.
Last year, the amount of money invested in start-ups fell to $1.34 billion from $1.46b. in 2004, with the number of companies holding fundraising rounds falling to 378 from 428, which Efrat Zakai, the director of research at IVC, attributed to a slow fourth quarter when investment slumped 28% to $264m. year-on-year.
"The fourth quarter was the weakest quarter for fund raising in two years. We believe this is only a temporary decrease and project a return to earlier levels in the coming quarters," he said.
In a recent interview with The Jerusalem Post, Israel Venture Association chairman Yoram Oron said quarterly fluctuations were not important in measuring the long-term investment trend.
"You need to ignore quarterly changes, they are not indicative at all," he said.
He added that VC investment depended as much on the financial needs of the companies as it did on whether or not investors wanted to put money into Israeli technology. He stressed that an important indicator was the amount of seed funding, as this was a guide for future growth.
Seed funding, which is initial investment in new companies, edged up to $110m. in 2005 from $108m. in 2004, but almost halved to $22m. in the fourth quarter from $42m. in the same period a year earlier.
The average company financing round in the fourth quarter fell to $3m. from $3.2m. a year earlier, with 58 companies attracting more than $1m. each, of which eight raised more than $10m. each.
Investment by Israeli VC firms in 2005 slipped slightly to $655m. and accounted for 49% of the total, up from an average of 42% over the previous six years. However, IVC general manager Guy Holtzman expects the trend to change this year.
"[This is due to] an increase in foreign investment activity as the number of local players diminishes," he said.
As it has done for the previous six years, the communications sector attracted the most amount of money, with companies raising $469m., or 35% of the total, while life sciences firms raised $284m., or 21%.
IVC Research Center carried out the survey in conjunction with the Israel Venture Association and based the study on reports from 89 venture investors, of which 56 were Israeli management companies and 33 were other - mostly foreign - investment entities.