Local hi-tech investment soars

In the third quarter of 2008, 124 Israeli hi-tech companies raised $600 million from local and foreign venture-capital investors.

hi tech 248.88 (photo credit: Ariel Jerozolimski)
hi tech 248.88
(photo credit: Ariel Jerozolimski)
Despite the global financial crisis, investments in Israeli hi-tech companies rose 45 percent in the third quarter this year over the same period last year, but a slowdown is expected. "Israeli hi-tech companies, responding to early signs of market changes and the falling dollar-shekel rate, have been raising follow-on capital to help them navigate through the long-anticipated global crisis. Now that the crisis is here, a similar rate of investment won't be maintained," Zeev Holtzman, chairman of Israel Venture Capital Research Center and Giza Venture Capital, said Monday. In the third quarter of 2008, 124 Israeli hi-tech companies raised $600 million from local and foreign venture-capital investors. The quarterly amount was the highest reported in the last eight years: 45 percent above the $414m. raised in the third quarter of 2007 and up 29% from the $465m. raised in the previous quarter. "Q3 capital-raising reached a record eight-year high, exceeding all projections for the quarter," said Efrat Zakai, director of research at IVC. "We don't expect the same rate of investment in the coming quarters. However, 2008 will be logged as a record year, even if the fourth quarter comes in considerably below average." In the first three quarters of 2008, Israeli hi-tech companies raised $1.68 billion, 34% above the $1.25b. raised in the corresponding period of 2007. At the same time, the Israeli VC fund share of investments in Israeli hi-tech companies in the first three months of the year decreased from 43% during the same period last year to 37%. Israeli VCs invested $206m. in Israeli companies in the third quarter, compared with $172m. in the same quarter last year and $161m. in the previous quarter. The Israeli VC share of the total amount invested in Israeli hi-tech was 34%, with the remainder of capital coming from foreign investors and non-VC Israeli investors. The communications sector led capital-raising in the third quarter of this year with $134m., or 22%, of capital raised, followed by the Internet sector with $126m., or 21%, the highest Internet share since the fourth quarter of 2000. The Kesselman and Kesselman PricewaterhouseCoopers Israel MoneyTree Report for the third quarter also showed an increase in the rate of investment in hi-tech companies. Hi-tech companies backed by venture capital raised about $393m. in Israel, up 35% from the second quarter, in which about $291m. was raised, and an increase of 12% compared to the corresponding quarter last year, in which about $350m. was raised. "In our view, this level of investment cannot be sustained in the coming quarters, and we expect to see a decline in the level of investment in the foreseeable future," the MoneyTree Report said.