VC funds drew a blank last year

Israeli venture-capital funds raised no capital in 2010, according to the Israel Venture Capital Association (IVC) and KPMG Somekh Chaikin.

March 9, 2011 00:02
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Israeli venture-capital funds raised no capital in 2010, according to the Israel Venture Capital Association (IVC) and KPMG Somekh Chaikin.

Last year joins 2009 and 2003 as the other dry years of the decade for the industry, they said.

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IVC is cautiously optimistic for 2011, based on the positive outlook for the Israeli economy and government incentives for investment, including the Finance Ministry’s program for Israeli institutions to invest in Israeli VC funds. The ministry expects the plan to boost investment by $220 million in 2011-2012.

IVC estimates that Israeli VC funds currently have $1.4 billion available for investment, of which $230m. will be allotted for first investments and the rest for follow-on investments. It predicts that Israeli funds will raise $800m. in 2011 for investment in Israel’s hi-tech industry.

IVC says the global financial crisis that erupted in late 2008, which severely affected institutional investors, was the main impediment to raising new funds. It noted that Israeli VC funds raised only $234m. in 2009, of which $200m. was raised by Sequoia Capital Israel. The improved macroeconomic conditions of 2010 did not help Israeli VC funds to attract new capital. Trends in the Israeli VC fund industry generally correlate with trends in the US, where funds raised only half the amount in 2010 compared with 2009, IVC said. IVC CEO Koby Simana said the situation is critical.

“Without improvement, it threatens the survival of numerous Israeli hitech companies that cannot raise needed capital,” he said. “Moreover, venture-capital funds will not be able to finance new companies or, in some cases, support their existing portfolio companies.

“The government’s program for encouraging investment by Israeli institutional investors in local venture- capital funds will likely result in an increase both in Israeli venturecapital fund raising and in technology investments.”

“Most of the impact of the government plan will be felt in 2012, since local venture-capital funds must first raise substantial amounts – 60 percent of the total capital of each fund – from foreign investors,” Simana said. “It’s a real challenge for Israeli venture-capital funds.”

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