Venture capital investments in Israel down 43% in Q2

By MATI WAGNER
Jerusalem Post
July 24, 2002

In the second quarter of 2002 the amount of money raised by hi-tech companies from venture-capital funds and investors dropped 43 percent to $291 million from the same quarter in 2001, according to a report by Israel Venture Capital (IVC) published Wednesday.

The figures are based on a survey of 99 venture-capital funds and 68 individuals or groups, mostly foreign.

In contrast, a report recently released by the accounting and consulting firm Kesselman & Kesselman, showed a 48% decrease in VC investments to $217m. for the quarter. Its results were based on 73 funds and included only those fundings in which an Israeli fund was involved. It also did not include private investors or entities that are not VC funds.

In the first half of the year there was a fall of 42% in fundraising after 171 Israeli hi-tech companies raised $667m. from local and foreign investors compared to $1.1 billion raised by 289 companies in the first half of 2001.

IVC said large financing of over $20m. at once was down to five firms from 11.

Despite the general atmosphere of pessimism in the venture capital field, IVC quoted Zeev Holtzman, CEO and chairman of Giza Venture Capital and owner of IVC, as expressing optimism about the results of the survey. “It demonstrates that in the long run, the situation in Israel is encouraging considering the global crisis of the industry and the local political climate.” He also noted that annualized investments of $1.2 billion, based on the second quarter of 2002, are better than 1999 levels. Israeli VC funds invested 37% less during the quarter to $127m., while individuals and other groups not defined as VC funds lowered investments 57% to $121m. There was a 34% rise in fund-raising in which Israeli entities were not involved to $4 m.

Holtzman commented that Israeli economic policy makers should be aware that Israeli hi-tech remains attractive to foreigners. “They should take the steps necessary to make the Israeli avenue open to them. It can be a key to economic growth,” he said.

First investments made up 51% of the total for Israeli VC funds or $65m., back to last year’s levels after three quarters in which follow-up investments made up the majority. First investments are those made for the first time by the fund in a company, usually outside its portfolio. A rise in this figure shows that funds are willing to venture out of their portfolio in search of additional investments.