Tel Aviv, Israel, January 24, 2005 . The following are the findings of the Quarterly Survey conducted by the IVC Research Center, which for more than eight years has been at the forefront of venture capital and private equity research in Israel. This Survey, conducted with the cooperation of the Israel Venture Association (IVA), reviews capital raised by private Israeli high-tech companies from Israeli venture capital funds and from other investors. The Survey is based on reports from 115 venture investors of which 62 are Israeli management companies and 53 are other - mostly foreign - investment entities.
The Israeli venture market continued to develop favorably in 2004. Over the year, 428 high-tech Israeli companies raised $1.46 billion from local and foreign venture investors, a 45 percent increase from $1.01 billion raised in 2003.
Zeev Holtzman, Chairman of IVC Research Center and Giza Venture Capital, noted that "2004 was characterized by a return to full-scale activity in Israel's high-tech sector, from depressed 2001-2003 levels. Israel is a global technology and innovation center that keeps attracting international investors, foreign VCs and multinational corporations. We anticipate 2004's $1.5 billion investment pace to continue in 2005".
In the fourth quarter of 2004, 113 Israeli high-tech companies raised $366 million, a 16 percent decline from the $438 million raised by 113 companies in the third quarter. Although lower than the previous quarter, Q4 was the second highest quarter in capital raising, since Q1 2002 (Chart 1).
Seventy-three companies attracted more than $1 million each in Q4. Of these, 18 companies raised between $5 million and $10 million each, and 10 companies raised more than $10 million each. The average company financing round was $3.2 million, compared with $3.9 million in the previous quarter and $2.6 million in the fourth quarter of 2003.
Israeli VC Investment Activity
In 2004, Israeli VC investments were $665 million, an increase of 58 percent from the $421 million invested in 2003. The Israeli VCs' share of the total amount invested in Israeli high-tech companies was 45 percent, moderately above the 42 percent average of the previous five years.
First investments made by Israeli VCs were 46 percent of total dollars invested by Israeli VCs in 2004, slightly above the 43 percent of 2003. The average First and Follow-on investments were $2.2 million and $1.1 million, respectively, compared to $1.6 million and $0.7 million in 2003 (respectively).
In the fourth quarter, Israeli VCs invested $157 million, 43 percent of the total amount invested in Israeli high-tech companies. This amount reflects decrease of 19 percent from the capital invested by local VCs in the third quarter and 51 percent increase from Q4 2003 figures. Israeli VCs First investments accounted for 46 percent of their total dollar investments in Q4, compared with 54 percent in Q3 2004, and 42 percent in the fourth quarter of 2003.
Israeli VC Activity in Foreign Companies
Israeli VCs invested $107 million in foreign companies in 2004 in addition to their investments in Israeli high-tech companies, compared to $101 million in 2003 and $62 million in 2002. First investments accounted for 46 percent of the Israeli VCs' foreign investments in 2004.
Capital Raised by Sector
The Communications sector attracted the highest sums in 2004 capital raising. 117 Communications companies attracted $430 million, 29 percent of the total amount raised, compared to $332 million (33 percent) in 2003 and $418 million (37 percent) in 2002. The Software and Life Sciences sectors followed Communications companies, each with a 22 percent share of the total (chart 2).
"Investments in Life Sciences companies are at a steady 4-year-rise. Up from 8 percent in 2000, to 22 percent in 2004", said IVC's Research Director, Efrat Zakai. "The life sciences sector was particularly strong in Q4, with $130 million raised by 35 companies. This is the most raised by this sector in any quarter since IVC began its survey in 1999." Within Life Sciences, 19 Medical Device companies attracted $76 million - 58 percent of the amount raised for the entire sector.
Capital Raised by Stage
Seed companies were relatively successful in 2004, as 54 Seed companies attracted $108 million - 8 percent of the total capital raised. The amount was almost twice the $58 million (6 percent) of 2003. In the fourth quarter, 15 Seed companies attracted $42 million, accounting for 12 percent of Q4 capital raising, compared to $36 million (8 percent) in Q3 and just $10 million (4 percent) in Q4 2003. "We are experiencing a significant raise in Seed investing," said Zeev Holtzman, Chairman of IVC Research Center and Giza Venture Capital. "The amount and relative share of investments directed to Seed companies reached their highest level of four years. As more serial entrepreneurs get back in the industry, Seed investments are predicted to grow, consequentially in 2005."
Mid-Stage companies (up to $10 million in revenues) attracted the most funding in 2004, as 196 companies raised $819 million - 56 percent of total capital raised, compared with 177 companies that raised $493 million (49 percent) in 2003. In Q4 2004, 53 Mid-Stage firms raised $210 million (57 percent), compared to $134 million (55 percent) in Q4 2003.
Chart 1: Capital Raised by Israeli High-Tech Companies by Quarter ($m)
Chart 2: Capital Raised by Israeli High-Tech Companies
by Sector - 2004
In 2004, a renewed wave of capital raising by Israeli venture capital funds began in earnest. Several successful fund raisings ended two years of severe drought among Israel's VC funds when more capital returned to the investors than raised.
Capital raised by Israeli venture capital funds in 2004 was $724 million, primarily reflecting $300 million raised by Pitango for a fourth fund, $200 million raised by Gemini for a fourth fund and Giza Venture Capital's first closing of $120 million for its fourth fund.
Capital Raised by Israeli VCs 1995-2004
|Venture Capital Funds Raised*||135||299||580||608||1,548||3,711||1,323||-174||14||724|
|*Net amount after returns|
$1 billion available for investments
According to IVC estimates, $1 billion in capital is currently available for investment by Israeli VCs, of which $500 million is intended for First high-tech company investments. The remainder is reserved for Follow-on investments.
Additional $1.5 billion is expected to be raised in 2005 by Israeli VCs for investments in the Israeli high-technology.
Zeev Holtzman, Chairman of IVC Research Center and Giza Venture Capital, said, "Total capital sought by Israeli funds is more than $4 billion. We estimate, however, that in 2005 only about $1.5 billion will be raised by VCs. As a result, a shortage of capital for investments in technological companies is expected. This situation is in contrast to the US where there is an overhang of capital. Israel, as a result, will continue to have attractive opportunities."
Top funds dominate capital raising
Between 1992 and 2004, Israeli venture capital funds raised approximately $9.1 billion that was exclusively allocated to investments in Israeli related technology companies. Approximately $5.6 billion (61 percent) was raised between 2000 and 2004.
The funds in the table below - ranked according to capital raised between 2000 and 2004 - accounted for $5.2 billion of the latter amount.
Top Israeli Venture Capital Funds by Capital Raised 2000-2004
|Rank||Management Company||Total Capital Raised
|6||Benchmark Israel||240 3|
|8||Vertex Israel||210 5|
|9||Star Venture||206 6|
|10||Israel Seed||204 7|
|Sequoia Israel||150 3|
|18||Challenge Funds||117 10|
|Formula Ventures||83 12|
IVC Research Center is Israel's leading research center providing business leaders with an unmatched wealth of data on Israeli venture capital, private equity and high-tech industries. IVC products and services are used regularly by venture capital funds, private investors, high-tech companies, financial investors and institutions, as well as public entities such as the Office of the Prime Minister, the Central Bureau of Statistics, the Bank of Israel and the Office of the Chief Scientist. IVC enjoys the full cooperation of the Israel Venture Association (IVA) in publishing the most comprehensive guide to Israeli venture capital and high technology companies - the IVA Yearbook . Among IVC products and publications are the Quarterly Survey , which examines capital raising trends by Israeli high-tech companies; the quarterly Israel Venture Capital Journal ( IVCJ ), which reviews developments in the venture capita & private equity and high-tech industries; and a comprehensive online database ( www.ivc-online.com ) containing over 5,000 Israeli high-tech companies, venture capital funds, investment companies and technology incubators, as well as news updates and lots more.