Seed investment in start-ups at lowest level since 2004

“While there has been a steady recovery in the amounts raised by local hi-tech companies since the end of 2008, a major boost won’t occur until new funds are raised by Israeli VCs,” says IVC Research Center CEO.

By SHARON WROBEL
January 17, 2011 22:33
2 minute read.
Seed investment in start-ups at lowest level since 2004

stack of dollars 248 88. (photo credit: Channel 10 [file])

Funds raised for seed-stage start-up companies last year were at the lowest level since 2004 as the venture-capital market continued to lag, the Israel Venture Capital Research Center reported Monday.

“While there has been a steady recovery in the amounts raised by local hi-tech companies since the end of 2008, a major boost won’t occur until new funds are raised by Israeli VCs,” IVC Research Center CEO Koby Simana said in the report. “Unfortunately, VC fundraising is unlikely to pick up the pace before 2012.”

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In the fourth quarter of last year, 100 Israeli hi-tech companies raised $344 million from VC funds and other investors, both local and foreign. The amount was up from the $341m. raised in the third quarter and 25 percent above the $275m. raised in the fourth quarter of 2009.

Last year, 391 Israeli hi-tech companies raised $1.26 billion from local and foreign VC investors, up 13% from the $1.12b. raised in 2009 and down 39% from the $2.08b. raised in 2008.

Last year, 45 start-up companies raised $38m., the smallest amount since 2004. The seed share of total capital raised was 3%, down from an average of 7% over the previous seven-year period. Midstage companies led capital raising, attracting 46% of investment during the same period. In the fourth quarter, seed companies attracted 2% of total capital raised, compared with 1% in the previous quarter and 4% in the fourth quarter of 2009.

Early-stage companies raised $143m., or 42%, of the total capital raised.

Last year, investment activity continued to show a decline in the percentage from Israeli VC funds. Local VC funds provided $371m., or 30%, of the total amount invested in Israeli hi-tech companies, down from $410m., or 37%, in 2009 and $780m., or 38%, in 2008.

In the fourth quarter, Israeli VC funds invested $93m., or 27%, of the total capital invested in local hi-tech companies, down from $109m. in the previous quarter and $102m. in last quarter of 2009.

Local VC funds invested $43m. in foreign companies last year, down from $80m. in 2009 and $57m. in 2008.

The life-sciences sector led fund-raising in the fourth quarter with $101m., or 29%, of capital, followed by the semiconductors sector with $75m., or 22%. The life-sciences sector led fund-raising last year with $350m., or 28%, of total capital, followed by communications with $238m., or 19%, and Internet with $222m., or 18%. The semiconductors sector had 13% of capital raised, compared with 8% and 15% in 2009 and 2008, respectively.

“Israel continues to be a center for excellence in life sciences, in general, and in the medical-devices subsector, in particular,” Ofer Sela, a partner at KPMG Somekh Chaikin Israel, said in the report. “Medical devices was the most active area in 2010, both in terms of capital invested and the number of companies that raised capital. The ongoing increase in life expectancy and health-care costs will continue to give impetus to medical devices over the foreseeable future.

“The changes we are all experiencing as consumers of media and services are dominant factors in higher investments directed to communications and semiconductors, particularly in mobile application-related subsectors. Industry analysts predict that by 2014 the number of mobile Internet users will have surpassed the number of PC Internet users today, leading to further investment in infrastructures that drive this market.”


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