Half of Israel’s VCs Believe We Are Near A Second Internet Bubble

The recent wave of Internet IPOs seems to remind the Israeli VCs of the previous tech bubble. 50% of them, believe that we’re about to enter a second bubble and 33% claim that Groupon, LinkedIn, Facebook, Twitter and Zynga are overvalued, according to the latest Israel VC Indicator Survey for Q2 2011, published by Deloitte.

Signs of gloom ahead
VCs in Israel are expressing growing pessimism with regards to the economic climate, as 40% predicted it will worsen in the next six months. This is a 10% decrease compared to the same quarter last year, and this magnitude of low expectations happened only prior to the 2008 credit crunch.

During the next six months, I expect the overall economic climate to: VC Cafe

The last time there was an increase of economic pessimism of this magnitude was prior to the latest global credit crunch.

Continue after the jump…

Israel VC Indicator survey VC Cafe

After Israel experienced one of its worst years in 2010 in terms of venture capital fund raising, surveyed participants project a continuation of cautious optimism regarding future fundraising activities.

But it’s not all so bad
That said, there’s also some cautious optimism. 15% of Israeli VCs believe that VC fundraising will become easier in the next six months, a 3% increase QoQ. There’s also a 30% in expectations for increased M&A activity, primarily in the Internet sector. Internet and new media are undoubtedly the hottest investment sector in Israeli high tech these days with 85% forecasting that this sector will drive the highest number of transactions in the next six months, but Medical Devices M&A expectation are also on the rise, with a 10% QoQ. Overall, 66% of VCs said that they believe an Israeli startup can become a major global Internet player in the next five years.

Graph of israel venture capital fundraising

6% QoQ drop in venture capitalist expectations for VC fundraising activity, but Internet sector is projected to lead the way in transactions and M&A

Other Highlights

  • Shift to later stage investments becomes a scare
  • Our survey shows that 31% of venture capitalists currently expect the majority of new investments to be made in Seed, reflecting a 16% QoQ drop
  • 69% of Israeli VCs want the government to provider additional incentives for high tech companies
  • 56% of VCs believe that Israeli fund sizes will increase

This is the 37th installment of the report, which identifies trends within the venture capital arena and tries understand the VC community’s sentiment for the next six to twelve months.

Follow this link to download the full PDF report.

Eze Vidra
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Eze Vidra

Chief Innovation Officer at Antidote
Eze is the Chief Innovation Officer at Antidote, a startup helping patients search and match to clinical trial, to accelerate medical breakthroughs. Previously, Ezewas a General Partner at Google Ventures Europe. Before GV, Eze founded and led Campus London, Google's first physical hub for startups, and was the Head Google for Entrepreneurs in Europe. He's an experienced product manager and startup mentor. In 2012 Eze founded Techbikers, a non-for profit supporting children education in developing countries.
Eze Vidra
Follow me

Eze Vidra

Eze is the Chief Innovation Officer at Antidote, a startup helping patients search and match to clinical trial, to accelerate medical breakthroughs. Previously, Eze was a General Partner at Google Ventures Europe. Before GV, Eze founded and led Campus London, Google's first physical hub for startups, and was the Head Google for Entrepreneurs in Europe. He's an experienced product manager and startup mentor. In 2012 Eze founded Techbikers, a non-for profit supporting children education in developing countries.

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