Investment in local start-ups slows

Local VC investment in Israeli companies declined 10% in the first three quarters of 2010 compared to corresponding period last year.

By SHARON WROBEL
October 14, 2010 06:46
3 minute read.
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Trader watches the stocks 311. (photo credit: AP)

 
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A slow recovery in the investment appetite of venture-capital funds in local hi-tech companies is causing difficulties for start-ups to raise capital, according to the IVC Research Center survey for the third quarter.

“The data suggest a slow recovery in the local hi-tech sector’s ability to raise capital,” IVC CEO Koby Simana said in the report released Wednesday. “The third quarter was similar to the previous quarter in terms of capital raised by hi-tech companies, and it was essentially better than what we have seen over the past two years.

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“However, capital raising for Israeli venture-capital funds has been frozen for quite a while, and therefore we expect further difficulties in future venture-capital raising by hi-tech companies.”

In the third quarter, 96 Israeli hitech companies raised $341 million from VC funds and other local and foreign investors, the report said. In the second quarter, 104 local hi-tech companies received a total of $343m.

On a year-on-year comparison, the amount raised by hi-tech companies was 13 percent above the $303m. raised by 108 companies in the third quarter of 2009. In the first three quarters of 2010, hi-tech companies raised a total of $918m., 8% above the $847m. raised during the corresponding period last year.

The average financing round in the third quarter was $3.55m., compared to $3.3m. in the previous quarter and $2.8m. in the third quarter of 2009.

Start-up companies barely succeeded in raising capital in the third quarter. Nine seed companies attracted $3m., representing 1% of the total amount raised in the third quarter, compared to $15m. raised by 17 seed companies in the previous quarter and $14m. raised by 16 companies in the third quarter of 2009.



Early-stage R&D companies received 32% of total capital raised, while mid-stage companies, with up to $10m. in revenues, attracted 4% of total capital raised.

During the first three quarters, seed companies attracted $29m., or 3% of the total, compared to $52m., or 6%, compared with the same period last year. Early-stage R&D companies accounted for 33%, mid-stage companies accounted for 48%, and latestage companies for 16%.

Local VC investment in Israeli companies increased 20% to $109m. in the third quarter, compared with $91m. in the second quarter, and by 22% compared with $89m. in the third quarter of 2009. It declined 10% in the first three quarters of 2010 to $278m., compared with $308m. in the corresponding period last year.

First investments by Israeli VC funds in the third quarter accounted for 28% of total investments, compared with 36% and 20% in the second quarter of this year and the third quarter of 2009, respectively. In the first three quarters of 2010, first investments accounted for 30%, equal to the 30% during the corresponding period last year. The average first investment by Israeli VC funds in the third quarter of 2010 was $1.94m., while the average follow-on investment was $1.04m.

In addition to investments in local hi-tech companies, Israeli VC funds invested $20m. in foreign companies during the third quarter, compared with $12m. in the second quarter and $18m. in the third quarter of 2009.

The communications sector led capital raising in the third quarter with $97m., or 28% of capital raised, followed by the software sector with $57m., or 17%, and life-sciences companies with $54m., or 16%.

In the first three quarters, life-science companies attracted $249m., or 27% of total capital raised, compared with $210m., or 25%, in the first three quarters of 2009. The communications sector was next with $189m., or 21%, followed by the Internet sector with $151m., or 16%.

This IVC quarterly survey is based on reports from 104 investors, of which 49 are Israeli management companies and 55 are other investment entities, including foreign.

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