Israeli VC Fundraising In 2012 Down 30% but Micro VC Funds on The Rise

We’ve been hearing that Israeli VC funds struggle to raise follow on funds, but the extent of their demise is now becoming clearer, and gloomier. A new report released by IVC Online, highlights that Israeli Venture Capital funds raised $607 million in 2012,  30%  down from the previous year.  There are a few survivors in the VC scene including Sequoia V, Pitango VI and Magma III who combined raised a sum of $450 million,  representing 74% of the total amount raised by all Israeli VCs in 2012. On the other hand, Mirco VC Funds are on the rise, with 12 Micro VC funds raising a total of $83 million – 14% of the total capital raised in 2012. It’s a 50% increase in the number of micro funds that were able to attract capital, compared to 8 funds only the year before. According to Ofer Sela, a partner in KPMG’s Technology group, the big question in Israeli VC is optimal fund size:

“Fund raising is mostly being carried out by the large VCs that are initiating follow-on funds and –  on the other end  – relatively small funds that are industry specific and/or early stage focused. There are VCs in-between that are no longer attracting new funds. These fund raising trends are similar to those in the US VC industry. There is a major debate in the industry regarding the optimal fund size that will result in the highest returns to limited partners. As a consequence, we are witnessing VCs reducing the size of their new follow-on funds in an attempt to maximize returns. Overall, during the last two years, the number of investment entities making investments in Israel has been on the rise, with most focused on the early stage. We believe that later stage funding will be available to the relevant portfolio companies either from corporate VCs or from foreign VCs operating in Israel.”

To put things in context, in the period between 2003 and 2012, Israeli venture capital funds attracted $6.77 billion in funding. At the beginning of 2013, Israeli Venture Capital funds have $2.1 billion to invest, with $484 (23% of total) dedicated for first investments and the rest for follow-on rounds. In comparison, the total VC investment in Europe in 2011 was €3.1 billion across member states. capital fund raised 2003-2012 IVC Koby Simana, CEO of IVC, thinks that the VC fundraising problem is not just local to Israel:

“VC funds are facing serious challenges today, not just in Israel but the world over. The allocation for venture capital investments continues to decline among institutional investors. On top of that, Israeli VC funds are being challenged by fund raising competition from Asian VC funds – mainly from China and India. There’s room for optimism, however.  While, on average, funds are raising less, the number of VC-backed companies is likely to rise over the next few years as more VC funds begin to raise capital.”

European Venture capital raised

EVCA Yearbook: The total VC investment for EU member countries was just under €3.4 billion in 2011

 

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Eze Vidra

General Partner, Google Ventures at Google
Eze is a General Partner at Google Ventures Europe. Before joining GV, Eze started Campus London, Google's first physical hub for startups, and led 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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Eze Vidra

Eze is a General Partner at Google Ventures Europe. Before joining GV, Eze started Campus London, Google's first physical hub for startups, and led 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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