The summary of high tech capital raising in Q2 is out, and the IVC Research Center confirm what we’ve already knew – capital raising in Israel is showing seeds of recovery (see VC Cafe’s post “Crisis Shmisis“) with $343 million raised in 104 deals, representing an increase of 47% from the previous quarter. Life sciences  continue to lead capital raising, attracting $109 million, and Israeli VC investments are a much smaller slice of the pie.

In the second quarter of 2010, Israeli VC funds invested $91 million in Israeli startups. While the figure is 17% higher than the amount invested in Q1, it is 19% below the $113 million invested in Q2 of 2009 and a 23% decline compared to the first half of last year. In total, Israeli VC funds were responsible for 26% of the total amount invested in Israeli high tech in Q2 2010, compared to 33% in the previous quarter and 40% in Q2 2009.  Is the well drying up for Israeli funds or are International investors becoming more active?

On the other hand, Israeli VC funds invested $12 million in foreign companies during Q2 of 2010, compared to $3 million in Q1 and $21 million in Q2 of 2009. Two out of seven of foreign transactions were first investments. This is an interesting stat, given that Israel prides itself by having the largest number of startups per capita in the world. What is driving Israeli investors to look outside of the country?  Is it the fear of boycott of Israeli companies, pure diversification of their portfolios or simply less attractive investments in Israel?

Venture Capital Raised by Israeli High-Tech Companies by Quarter

Venture Capital Raised by Israeli High-Tech Companies by Quarter (click to enlarge image)

In terms of sectors and stage of investments, life sciences and Internet companies remain the most attractive recipients of venture capital funding with 32% and 20% of all investments respectively. Seed investments represented only 5% of the total, similar to last quarter, but down from 9% in Q2 of 2009. Early stage companies in the R&D phase, raised 32% of the total capital raised and mid-stage companies with up to $10 million in revenues attracted 49% of the capital. The average first investment by an Israeli VC fund was $1.94 million and the average follow on round was $0.85 million in Q2 2010.

In summary, Koby Simana, CEO of IVC Research Center, said:

“We are seeing what may be the seeds of recovery in capital raising by Israeli high-tech companies. However, the share of Israeli VC fund activity continues to drop – declining in Q2 to its lowest level in ten years. In the meanwhile, some of the impetus can be explained by non-Israeli VC funds stepping up. It still remains to be seen if the increase in amounts raised is a one time event or a bona fide change in the trend.”

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Eze Vidra

Head of Google for Entrepreneurs Europe and Campus London at Google
Eze is the Head of Google for Entrepreneurs Europe and Campus London. In 2005, he started VC Cafe to shine a spotlight on startups and Venture Capital in Israel, and in 2012, Eze founded Techbikers, a non-for-profit that supports education through cycling challenges for techies.
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