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Groucho Marx could have been talking about the Israeli hi-tech sector when he said “I made a killing on Wall Street a few years ago…I shot my broker”. In 2012, as Israeli exits topped $5.5 billion, there was reason to celebrate but plenty of cause for concern.

M&A: First, the good news- we’re rich!! According to IVC, 2012 was Israel’s best year for hi-tech M&A in a decade, yielding $9.95 billion in exits. Years of aggressive cost cutting at US tech firms have decimated their R&D departments. One example is HP. Over the last decade, HP slashed R&D budgets from 9% of revenue to 2%. HP, which spent more than $40 billion on acquisitions over the last four years, represents a larger trend- a hot tech M&A market.

Investment by sector

IVC – Venture Capital Investment by sector in Israel

Outlier: Now the fine print- we’re not all rich. While there were 67 acquisitions, half that record total sprung from a single transaction, Cisco’s $5 billion acquisition of NDS. Founded in 1989 with more than 3500 employees worldwide (the largest contingent is in India), this colossus could hardly be called a start-up. Removing NDS from the results brings the 2012 total to less than 2011.

Hey Israel, Show Me Your Instagram: Three quarters of Israeli exits were concentrated in the communications, Life Sciences and IT & Enterprise sectors. That means even though there was an abundance of investments in consumer internet, Israel completely missed the consumer internet bubble of 2012 (I’m talking to you, Instagram, Facebook, Zynga, Kayak). Israel talked a mean game but in 2012 the internet sector accounted for a puny 3.75% of returns.

IPO is OOO: Now, the bad news- we’re poor!! There was not a single Israeli IPO in 2012. NASDAQ soared13.6% but the public markets were not interested in Israeli IPOs. Public and private markets are correlated. Without IPOs, the #2 tech ecosystem in the world (Start-up Genome) will find itself losing venture investment relative to other regions.
Welcome to the Party: While some R&D Centers (Medtronic, Oracle, etc) drastically retrenched, a number of prominent global companies initiated local R&D operations last year, including Nielsen, Citi, Young & Rubicam, Sony and others. Also, the number of funded Israeli seed-stage start-ups rose 55% to 157 companies. Many of these were internet related, with more than twice as many early stage Internet companies funded in 2012 than 2011.

Venture Investment Declined: VC-backed deals amounted to $1.37 billion last year, down 22% from 2011. Until there is an Israeli Instagram, expect to see this trend continue.

trended hi-tech capital raised

Venture Capital fundraising in Israel shows trend is in decline

Select Israeli Digital Media Start-ups That Raised VC Money in 2012:

  • Waze (Crowd-sourced mapping): $67 million
  • Tango (VoIP): $87 million
  • Mobli (Object recognition): $28 million
  • Fiverr (Online marketplace): $20 million
  • Quixey (Mobile search): $25 million
  • DragonPlay (Games publisher): $14 million in 2012
  • Perfecto Mobile (Remote applications testing): $29 million
  • Ginger Software (Speech recognition): $12 million
  • MoMinis (mobile game platform): $15.5 million
  • Innovid (Online video ad:tech): $17 million

Levi Shapiro  is a Professor in IDC’s Media Innovation Lab and organizer of the Ad:Tech Social Summit (www.adtechsocialsummit.com), February 12th in Tel Aviv. He works with media and technology companies from Tokyo to Tel Aviv and is a regular columnist at the Jerusalem Post.

 

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Levi Shapiro

Managing Partner at JIMMI Fund
Levi Shapiro is the Managing Partner at the JIMMI Fund, a corporate venture investment fund, and concurrently Partner at TMT Strategic Advisors. He is also the organizer of Marketing & Ad:Tech Israel (www.adtechsummit.com), Israel's largest conference for digital advertising.

During a 20 year career inmedia and technology, including 7 years in Asia, Levi launched new business units(IBM), new products (Toyota) and new startups (TwoMinute Television, Snack Mobile, etc).

He teaches Entrepreneurship and Mobile Marketing as an Adjunct Professor at IDC Herzliya, serves as Mentor in Residence for The Hive accelerator and writes a bi-weekly column about digital media and technology in the Jerusalem Post called "Unleavened Media ".

Mr. Shapiro is a graduate of Tulane (BA), Cornell (Asian Studies) and MIT (MBA)
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