Venture-capital fund-raising down 72%

Capital raised by local funds drops to lowest point in 5 years as foreign institutional investors hit by global credit crisis.

By SHARON WROBEL
March 9, 2010 06:52
2 minute read.
Venture-capital fund-raising down 72%

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Capital raised by local venture-capital funds plunged 72 percent last year to the lowest point in five years as foreign institutional investors were hit by the global credit crisis, the IVC Research Center reported Monday.

Following the global capital-market downturn, capital raising last year was extremely difficult for Israeli venture-capital funds. As a result, only $229 million was raised, down 72% from the $803m. raised in 2008 and the third-lowest annual amount raised in the past decade.

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Foreign institutional investors, who before the crisis had been the lead source of capital invested in Israeli funds, have suffered serious losses due to the credit crunch, IVC CEO Koby Simana said in the report.

“These losses have reduced capital available for investments,” he said. “The decrease in capital raised by Israeli venture-capital funds reflects a global trend. In 2009, for example, US venture-capital funds suffered a 48% decrease in their fund-raising efforts, compared with capital raised in 2008.”

The report found that only three Israeli venture-capital funds completed their fund-raising efforts in 2009. Sequoia Capital Israel, an Israel-dedicated US fund, announced final closing of Sequoia IV, a $200m. vintage 2009 fund. Other 2009 vintage funds were TriVentures II, a $25m. medical-device fund, with American medical technology company Medtronic Inc. as its main investor, and Startvest 09, the Targetech Innovation Center’s new fund, which raised $3.7m.

The IVC Research Center expects capital raising by Israeli venture-capital funds to nearly double this year. It anticipates that $500m. will be raised in 2010 by Israeli VC funds for investment in local startup and hi-tech companies. According to the IVC, at the beginning of 2010 capital available for first and follow-on investments by Israeli venture-capital funds was about $1.2 billion (net of management fees and operational expenses). Of this amount, IVC estimates that $400m. is earmarked for first investments, with the remainder reserved for follow-on investments.

Between 1992 and 2009 Israeli venture-capital funds raised approximately $13.3b. allocated exclusively to investments in Israeli startup and hi-tech companies. Of this amount, $9.4b., or 70%, was raised between 2000 and 2009.



An IVC report published last month showed that Israeli VC funds made 77 first investments in technology companies in 2009, compared to 119 the previous year. The authors of the report pointed to a sharp decline in the dollar amount of first investments, which tumbled 50% from that of the previous year.

“The availability of Israeli venture capital for investment is shrinking, and local venture funds are not expected to raise significant new capital in the coming year,” the report said. “As a result, we expect allocations to first investments in 2010 to continue to be reduced.”


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