Initial investments by venture capital funds reached a five-and-half-year high in the first quarter, according the latest MoneyTree Report released by Kesselman & Kesselman PricewaterhouseCoopers.
"The results of the first quarter of 2007 point to a stability in investments level in the Israeli market against a background of growth in the investments level in the United States, where investments surpassed $7 billion," said Joseph Fellus, senior partner, Advisory & Hi-Tech Practice Leader at Kesselman & Kesselman PricewaterhouseCoopers. "It may be assumed that the venture capital market in Israel, which is marked by a strong affinity with the US market, will continue to demonstrate stability, if not growth, during the course of 2007."
The report showed that 81 venture capital-backed hi-tech companies - companies in which one of the investors in the financing round is a venture capital fund - raised about $307 million in Israel during the first quarter of 2007, a decrease of 3 percent in comparison with the corresponding quarter last year in which approximately $318m. were raised by 90 companies and a decrease of 7% in comparison with the previous quarter in which $330m. were raised. Average investment in the third quarter stood at $3.8m. compared with $3.5m. during the same period last year and $4.1m. in the previous quarter.
At the same time, venture capital funds made initial investments of $89m. in 31 Israeli hi-tech companies, according to the report, the highest level of initial investments for five-and-a-half years. More than the majority or 56% of the initial investment funds were invested into 14 of these companies in the intermediary or later stages of their development.
The MoneyTree report, which evaluated only funds raised in Israel and the broader hi- tech arena rather than just information technology, found that local venture capital invested about $164m. in the first quarter compared with $161m. during the same period last year. About 58% of all the companies raising capital in the first quarter of this year were registered as Israeli, while the remained were registered as foreign companies, mainly US-listed.
Sector-by-sector analysis showed that the communications & networking sector continued to lead this quarter, with 26 companies raising $111m., or 36% of total investments for the quarter.
In the software sector, 19 companies raised only $39m. in the first quarter, down from the 21 companies raising $83m. in the same quarter last year.
"The decrease in the level of overall investment in this sector during the current quarter may be attributed to the multiplicity of bridge loan transactions or to early investment rounds, which are marked by relatively low levels of investment," the report stated.