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For the first time since the bubble burst in 2000, private Israeli technology companies raised a more than half a billion dollars in a quarter, raking in $526 million in the second quarter of 2006, representing an increase of nearly 60 percent over the $331m. pulled in during the first quarter of the year.
"This milestone comes, not surprisingly, as foreign VCs continue to increase their presence in the country," revealed the Israel Tech and Venture Capital Review 2006 for the second quarter compiled by Leap Capital, Israel's growth investment bank.
According to the review, the funds were raised in 55 transactions, of which 14 were led by foreign investors. Reversing the trend of investment into life sciences dominant in the first quarter, almost half of the money raised in the second quarter, or about 47%, was invested in communications technology.
Sector by sector analysis showed that biotech accounted for only 9% of venture capital financing activity in the second quarter, while medical devices accounted for 7% of VC financing. The software sector made up 14% of all VC financing activity, while semiconductors accounted for 3%.
The quarter saw an increase in the participation and activity of foreign venture capital firms. The most active lead investors during the second quarter were Sequoia Ventures with three lead investments and Apax with two led deals. The most active investors in terms of number of deals were Pitango with six investments, Evergreen and Gemini with five each followed Accel and Star with three each. Battery Ventures and Lightspeed Ventures each launched an office in Israel during the period.
IPO activity continued to be weak in the quarter with just three completed public offerings by Israeli tech companies: Omrix Biopharm on Nasdaq and Atelix and Axis-Mobile on London's AIM.
The anemic IPO activity, however, was offset by vivid M&A activity, with the value of M&A transactions nearly tripling year-over-year from $1.1 billion in the second quarter of 2005 to $3b. in the second quarter of this year and up from $705m. in the first quarter of 2006. In all, 20 transactions took place in the quarter highlighted by three acquisitions by EMC for a total of $233m.; Microsoft's $75m. buy of Whale Communications; Oracle's first buy of an Israeli company with its purchase of Demantra; Verifone's acquisition of Lipman; and IBM's procurement of Unicorn Solutions.
Technology shares weren't immune to general market weakness during the quarter. The report indicated that Israeli tech shares fell 9.3%, on average, in line with their global tech peers, similar to the 7.2% decline on the Nasdaq Composite Index.