Nickels and Dimes in Israeli Venture Capital

“By working faithfully eight hours a day, you may eventually get to be a boss and work twelve hours a day“, Robert Frost, American poet and winner of four Pulitzer prizes.

Israeli venture capital funds have been struggling to raise their target sums in the past few months, and the Israeli venture capital lost a quarter of a billion dollars for potential start up investments. 

•  Tamir Fishman’s venture capital fundwill have to satisfy with a 100 million dollar fund rather than the $150 million it originally planned to raise. Tamir Fishman will also cease its fundraising efforts for a third fund
• Gemini Israel Funds had to settle for a $150 million fund, rather than the $200 million it originally planned for. It is the first time since 1997 that Gemini raises a fund smaller than $200 million.
• Giza Ventures has also dropped $50 million from its projected $150 million fund and has stopped its fundraising efforts on Giza 5.
• JVP and Genesis Partners are both currently working on raising additional funds, but are projected to fall 100 million dollar short as well by October.
• To add to the woes of the funds, partners are dropping right and left. According to YNET:
  • Yuval Baharav, one of Sequoia’s senior partners has left the fund, to start a new company.
  • Harel Beit-On has left Carmel Ventures.
  • Michael Elias, one of Tamir Fishman’s five senior partners has left the fund for ‘family matters’.
  • Gemini Ventures also shed one of its partners recently, Carmel Sofer, supposedly for his decision to start a doctoral program, but according to Israeli publications, due to disagreement on the fund’s investment strategy.

All together, it is a $250 million loss, out of an $800 million of total capital raised. The impact will likely be felt  primarily by Israeli start ups, who are currently ‘thirsty’ for capital.

According to D&B, Israeli venture capital funds manage a total of 36 billion NIS (equivalent of approximately 9 billion dollars, depending on the exchange). That said, the active capital which is available for investment is only estimated at $1.31 billion and it is meant to suffice for the next couple of years.  In comparison, in 2008 alone, investments in Israeli start ups reached $2.08 billion. Such a drastic decline in the available capital for start ups will seriously influence the growth of new technology companies, coming out of Israel.

The global economic crisis has hit the ‘sponsors’ of venture capital including large pension funds, endowment funds and high net worth individuals. Calpers, the US  largest pension fund with $183 billion under management, has already reported a 30% decline in the value of its assets since September, which represents an unprecedented loss of 70 billion dollar. Calpers was an investor in several Israeli venture capital funds such as Pitango, Carmel, Giza and Gemini.

Harvard’s endowment fund has lost 22% of its value, which came down to Eight billion dollars. The stock market and the collapse of the US real estate industry are the main causes for it loss. After these funds pulled out some of the money from those under performing asset classes, venture capital suddenly had a 3% to 10% share of their portfolio, which drove endowment funds to diversify more and eventually decrease their investments in risky ventures.

In the words of the New York Times:

Harvard, like other schools, is expected to be hurt by declines in other revenue streams, as well as the endowment. As families of students find themselves increasingly in need of financial aid, the revenue from tuition could fall. In addition, as the downturn puts strain on the government, federal grants and contracts for sponsored research are likely to encounter added stress.

There is not too much or a silver lining  in the state of the venture capital industry in Israel. As discussions on potential government VC bailoutsbegin to take place in the US, the Israeli VCs are following attentively. One thing that did not change is the amount of raw talent and innovation coming out of Israel. This are vulnerable times for Israeli VCs, but a great opportunity for international funds who want to increase their presence in Israel.

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