Israeli start-ups raised $2.14b. in 2011

Amount 11-year high, 70% more than raised in 2010.

workplace 311 (photo credit: Veronica Therese)
workplace 311
(photo credit: Veronica Therese)
Israeli start-ups raised $2.14 billion in 2011, an 11-year high, and 70 percent more than the $1.26b. raised in 2010 and 91% more than the $1.12b. raised in 2009, according to the IVC Research Center and KPMG Somekh Chaikin Quarterly Survey.
A total of 546 start-ups raised capital in 2011, up from 391 companies that raised capital in 2010. The average financing round rose to $3.92 million in 2011, from $3.23m. in 2010 and $2.51m. in 2009.
Despite the good year, IVC said it is pessimistic about the future.
“As predicted, 2011 numbers were impressive, but our forecast for 2012 is not as optimistic,” said IVC CEO Koby Simana. “As local venture capital funds have found it increasingly difficult to raise new capital and maintain a satisfactory level of first investments in early stage companies, foreign investors have been upping their investments, which more than doubled in the past year.
“However, with Israeli VCs continuing to downsize their investments, and with the world economy still very much unsettled, foreign investors can no longer be counted on to fill in the gap. We believe annual investment can fall to as low as $1.5 billion if there is no dramatic recovery in the next few months,” Simana cautioned.
A total of 124 start-ups raised $569m. from Israeli and foreign venture capital funds in the fourth quarter of 2011, 9% more than the $522m. raised by 137 start-ups in the third quarter, and 65% more than the $344m. raised by 100 start-ups in the corresponding quarter of 2010.
Seventy-seven start-ups raised more than $1m. each during the fourth quarter, including five start-ups that each raised more than $20m., and 13 start-ups that raised $10-20m. each.
Israeli venture capital funds invested $525m. in Israeli companies in 2011, 42% more than the amount invested in 2010 and 28% more than in 2009. However, Israeli venture capital funds accounted for just 25% of total investment in 2011 – the lowest level in the past decade, in which the average proportion was 40%.
First investments accounted for 31% of total investment by Israeli venture capital funds in 2011, up from 29% in 2010 and 2009, and the average first investment was $2.21m., and the average follow- on investment was $1.06m.
In 2011, the Internet sector attracted the largest share of investments for the first time in the last decade, with 115 Internet start-ups raising $482m., 23% of total investment – more than double the $222m., 18% of total investment raised in 2010.
The communications sector came in second place, with 88 start-ups raising $432m., 20% of total investment in 2011 and 82% more than in 2010. The software sector was in third place, with start ups raising $415m., 19% of total investment, in 2011, nearly triple the amount raised in 2010.
Mid-stage start-ups raised the most capital in 2011 at $903m., 42% of total investment.
Early stage start-ups accounted for 26% of total investment, and seed-stage startups raised 5% of total capital.
Mid- and late-stage companies raised $1.48b. – 90% more than the $781m. raised in 2010.
KPMG Somekh Chaikin partner Technology Group’s Ofer Sela said, “Mobile solutions and applications are the primary factor behind the significant increase in communication company investments in the past two years. Israeli companies have traditionally excelled in the communications sector, and the high quality of such companies is expected to attract foreign investors in the future.”
He added, “The substantial increase in late-stage investments indicates the strength of Israel’s technology industry, as well as its attractiveness to foreign investors.”