Money Shekels bills 521.
(photo credit: Courtesy)
2011 is setting record bad numbers for new high-tech companies, and in the
ongoing decline in new capital raised by venture capital funds and in foreign
patent applications by Israelis.
Luzzatto & Luzzatto senior partner
Esther Luzzatto, who handles the leveraging and commercialization of
technological intellectual property, says Israel is in trouble.
models for venture capital and incubators no longer provide answers, and there
is a need for new solutions. Israel’s economic locomotive is stuck, but it is
possible to help it get going,” she told Globes.
This is not a bleak
forecast, but the grim reality seen in the joint Luzzatto & Luzzatto and
Israel Venture Capital (IVC) report. Luzzatto will unveil the full report
tomorrow at its joint Sixth Annual High Tech Conference with BDO Ziv Haft and
the Yigal Arnon & Co. law firm.
The sharp decline in capital
raised by venture capital firms affects the number of companies they can invest
in and the number of new companies that are founded.
Only 161 new
companies were founded in the period January-September 2011, down from 500 a
year in previous years.
It seems entrepreneurs realize there is no money,
and they are in no rush to leave their jobs to strike out on their
Luzzatto said the drop in patent applications is another indication
of the severe crisis.
“In the past two years, there has been a rise in
the number of international patent applications, but Israel is struggling to
match the trend. In the past three years, the number of patent applications in
Israel has fallen by 25 percent, while the global trend is rising,” she
So what’s the problem in Israel? “A lack of money. Venture capital
funds raised $1.7 billion in 2005, but only $200m. in 2009, and they stopped
raising capital altogether in 2010,” Luzzatto said. “Although there has been a
recovery this year, with $800m. raised, the general trend does not seem to have
changed. For the sake of comparison, in the high-tech peak in 2000, venture
capital funds raised $2.8b." The problem does not end with the lack of money. It
continues with the decline in money invested in the early-stage companies, most
of the available money being channeled to late-stage companies.
Luzzatto-IVC study found that only $33m. was invested in new companies in
January-September 2011. In 2009 – a year of crisis – $61m. was invested in new
“In 2008, 41% of investment was channeled to new and
early-stage companies. By contrast, this year, the proportion has fallen 30%, to
29% of total investment,” said Luzzatto.
“On the other hand, in 2011,
investment in late-stage companies rose to 71% of total investment, from 59% in
2008. It seems that funds are making follow-on investments in companies in which
they invested in previous financing rounds.”
Luzzatto said that each
investment in a late-stage company means no investment in ten new
“A $1m. investment in a late-stage company prevents the
founding of several small companies because the money is usually spread among
many early-stage companies.”
The situation can be fixed,
“I believe that it will be possible to get through this crisis
with the right intervention. This is the time for the government to intervene to
encourage and stimulate the growth engine of the economy. In the 1990s, the
Yozma funds picked up the reins and encouraged many foreign investors to come
and invest here,” she said.
“I think that this is the time for the
government to thoroughly review its activity and announce good news. There are
wonderful entrepreneurs here, and one of the most advanced infrastructures in
the world. There is no reason that we can’t overcome this crisis.”