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The US and Israeli venture capital industries showed typically different trends in the first quarter of 2006, with investments in later stage companies dominating US activity, according to the quarterly MoneyTree survey released Tuesday by PriceWaterhouseCoopers and the National Venture Capital Association (NVCA).
"Israeli VCs focus on the seed stage companies because the country is so strong in technological innovation," said Yariv Azar, the MoneyTree manager in Israel. "The different focus [between Israel and the US] has always been there but was softened in the years following the hi-tech bubble burst. It has become much sharper over the last year with the resurgence of the hi-tech market."
Venture Capitalists invested $5.6 billion in US companies in 761 deals during the period, approximately the same as the previous quarter and 12% higher than the parallel first quarter in 2005.
"It doesn't get much more stable than this," said Mark Heesen, president of NVCA "In the last 16 quarters, venture capitalists have consistently placed $4b. to $6b. into a diverse set of emerging growth companies [in the US] with no single sector experiencing major surges or droughts."
Heesen added that while the US market is at its healthiest and most sound investment point since the mid-nineties, there still needs to be improvements in the IPO market and better evidence of early stage investing momentum in order to sustain the current pace of funding.
Investments in later stage companies remained relatively constant with 253 companies receiving $2.4b., while funding of startup and early stage companies dropped 14% to $931m. in 219 companies - a 10% decline in the number of deals. Investments in expansion stage companies rose 5% to $2.3b. through 289 deals.
Media and entertainment companies received $396m. of the funding, climbing 80% from the previous quarter to a four-year high. Investments in biotechnology companies dropped 24% from the fourth quarter to $808m., in line with historic trends for a slow first quarter in the life sciences sector in the US.
Earlier this month, MoneyTree said that Israeli hi-tech companies backed by venture capital firms raised approximately $318m. in the first quarter of 2006, representing a 44% rise from the previous quarter and 9% growth over the parallel period last year.
"We are witnessing an ongoing inherent change in trends of investments, with the funds' focus shifting to younger companies and earlier rounds," said Joseph Fellus, senior partner and hi-tech practice leader at Kesselman & Kesselman PricewaterhouseCoopers. "The beginning of 2006 shows promise for Israeli start-up companies."
Early stage funding in the Israeli market jumped 225% to $176m., representing 55% of the total investment. The survey noted that 14 Israeli start-up companies carried out a financing round in which Israeli venture capital funds participated for the first time, attracting an aggregate of $26m., a four-year record for initial investments in start-up companies.