A weak fourth quarter led to a 9 percent drop in venture capital backed investments in Israeli companies in 2005, Kesselman and Kesselman PriceWaterhouseCoopers said Sunday in its quarterly MoneyTree survey.
The final three months of 2005 saw 73 companies raise $221 million, a decrease of 29% from the third quarter, when 85 companies raised $311m., and down 24% from the parallel quarter in 2004, when 78 companies raised $292m. That brought the annual figure down to $1.1 billion from $1.2b. in 2004.
The fourth quarter also saw a drop in the average investment per company to $3m., from $3.7m. in both the previous quarter and the 2004 quarter.
Joseph Fellus, senior partner and hi-tech practice leader at Kesselman & Kesselman PricewaterhouseCoopers said it was too soon to know if this was the start of a downward trend that would continue into 2006 but expressed optimism for the market this year.
"We know there is enough money in the market, a lot of interest from foreign investors and good opportunities for investment," Fellus said. "We don't expect that the levels of investment will go down, and that they will average between $200m. and $300m. per quarter."
He added that more exits are expected in 2006, with more VC companies going public in the US, London and Tel Aviv.
While declining to predict possible merger and acquisition candidates, Fellus said the VCs have a list of companies that are tipped for purchase in the latter half of the year.
Bucking the downward trend, investments by Israeli funds in local companies reached a four year high last year, despite also showing a sharp drop in investments in the final three months of the year. Local VCs made up for 56% of total investments with an amount of $618m., representing 56% of total investments, compared to $559m., or 46% of total investments, in 2004.
Fellus said the decrease in the volume of investments in the fourth quarter was spread across all sectors, led by a significant downturn in the software sector which had its worst quarter in six years.