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Seed companies attracted a record total of $50 million, or 14 percent, of the capital raised by Israeli hi-tech companies in the first quarter of 2006 - the highest in five years - according to the quarterly survey of the IVC Research Center.
"The increase in seed investments indicates a positive sign for the future of the Israeli hi-tech sector," said Zeev Holtzman, chairman of IVC Research Center and Giza Venture Capital. "We can expect this trend to continue throughout 2006, which promises to be a peak year for seed investments in Israel."
Software companies attracted the largest share of capital from among the seed investments at 44%, followed by communications companies with 32%.
On the whole, 101 hi-tech raised $360m. from local and foreign venture investors in the first quarter, an increase of 36% from the $264m. raised by 88 companies in the previous quarter - the lowest in two years. On a year-on-year comparison, there was a rise of 3% against the $350m. raised by 102 companies in the first quarter of 2005.
"The last quarter of 2005 was the lowest in two years. Investments in the first quarter of 2006 simply rose back to average levels, as expected, after a one-off low quarter," said Efrat Zakai, director of research at IVC . "We expect no real surprises in 2006. IVC projections are for continued stability and an annual investment level of $1.4 billion, as in 2005."
The domestic venture capital share of the total amount invested in Israeli hi-tech was 49%, with the remainder of capital coming from foreign investors as well as non-VC Israeli investors. Israeli VCs invested $177m. in Israeli companies, an increase of 35% from the previous quarter and also above the $173m. invested a year earlier.
The average hi-tech financing round was $3.56m., up 17% from the previous quarter and 4% compared with the first quarter of 2005. Seventy companies attracted more than $1m., of which 23 raised $5m. to $10m. each, and four raised more than $10m. each.
The sector that attracted most funds was communications raising $86 million or 24% of the total capital raised. However investment slipped 28% from the $120m raised in the same period last year and 15% from the $101m raised in the previous quarter. Investment raised in the software sector followed closely with $82m raised by 25 companies, representing 23% of the total capital raised. Life Sciences companies captured 19%, raising $69m.
The quarterly survey conducted by the IVC Research Center and the Israel Venture Association is based on reports from 87 venture investors of which 45 are Israeli management companies and 42 are mostly foreign investment entities.