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Israeli Venture Capital On the Decline

By Adam Gonn,The Media Line news agency

Israeli venture capital firms are finding it difficult to find investors for the country's high-tech sector, a recent report found.

According to a report by the Israeli Venture Capital Research Center (IVCRC), 2009 was the third worst year in the last decade for the country's venture capital funds as only $228 million was raised compared to $803 in 2008, a drop of 72 percent.

"Foreign institutional investors, who before the crisis had been the lead source of capital invested in Israeli funds, have suffered serious losses due to the credit crunch," said Koby Simana CEO of IVCRC. "These losses have reduced capital available for investments."

Marianna Shapira, Research Manager with IVCRC agreed, saying investment in high-tech had a knock on effect for other industries and that the findings pointed to wider "current trends in venture capital in Israel."

The report predicted that $500 million would be raised in 2010 by Israeli venture capital funds for investment in Israeli start-ups and high-tech companies.

Shapira said that the predicted venture capital investments were based on "data received from some of the leading venture capital funds," but pointed out that, "It's our estimation and not what will be."

The drop in capital invested in Israeli venture capital funds was also reflected in other statistics from the IVCRC that noted 77 first investments were made in technology companies during 2009 compared to 119 investments in 2008.

The findings come on the backdrop of a general global decline. In the United States venture capital funds suffered a 48 percent decrease in their fund raising figures in 2009, according to the report.

But Hillel Milo, Managing Partner of the AquAgroFund and a veteran of the Israeli venture capital community, told The Media Line that despite the bleak situation his fund was riding out the storm.

"We invested last year [in new companies] and also added capital to our fund," he said. "Those numbers do not reflect the situation of our fund."

According to the IVCRC, the two funds that were most active in 2009 were Terra Venture Partners and TriVentures. Both funds are relatively small firms with an estimated $25 million each in assets, mainly investing in clean technologies and medical devices - two areas that many branch experts believe is the future of the Israeli high-tech industry.

The IVCRC's numbers showed that the sectors that attracted the largest number of initial investments during 2009 were companies active in software, Internet development and life sciences, with each sector recording 17 deals or 22 percent of the total number of investments for that year.

In 2008, software ranked first at 22 percent, followed by life sciences with 21 percent and Internet at 20 percent, according to data from the IVCRC.

Venture capital funds function as a bridge between investors and start-up companies requiring initial investments to develop new products and services.

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