2008 capital raising in Israel expected to reach an 8-year record high

IVC Online has recently released the Q3 quarterly survey on the state of the VC industry in Israel. Q3 2008 contributed $600 million to the capital raised by Israeli VCs, 45% above Q3/07 levels. These figures are not surprising, given that CalPERS, the $180 Billion sized California Public Employees’ Retirement System (), ranked Carmel Ventures in the 18th place out of 100. Despite the loads of layoffs in Israel, the economic crisis didn’t hit the country in the same way it hit the US.

According to the report, 124 Israeli high-tech companies raised $600 million in the third quarter from venture investors – both local and foreign. The average financing round was $4.84 million, compared to $3.83 million in the third quarter of 2007 and $4.04 million in the second quarter of 2008. This could be due to the fact that lower valuations are an incentive to the funds to put more money – after all, they’re getting it for cheap.

What about the seed rounds? Fifteen Seed companies attracted $16 million, 3% of the total amount raised in Q3. Only 28% of the investments made by Israeli funds were first time investments, compared to 51% in the same quarter last year. The average First investment by Israeli VCs was $2.76 million, while the average Follow-on investment was $1.22 million. In my view, this is just a sign that Israeli VCs are willing to take less risk in this uncertain economy. Portfolio companies that were hit by the loss of value of the dollar need follow on investments – but the VCs are ‘dripping’ the money.

Zeev Holtzman, Chairman of IVC Research Center and Giza Venture Capital said:

“Israeli high-tech companies, responding to early signs of market changes and the falling dollar-shekel rate, have been raising follow-on capital to help them navigate through the long-anticipated global crisis. Now that the crisis is here, a similar rate of investment won’t be maintained.”

Going back to the Calpers report -Carmel, Gemini and JVP all had positive rates of return. The most successful Israeli fund at present is Carmel Ventures, which was launched in 2000 with $170 million. The internal rate of return (IRR) on the fund totaled 11 percent. Some stats on the returns:

  • CalPERS has invested $6.7 million in the first Carmel Ventures fund, which is now worth $9.5 million, meaning an investment multiple of 1.4.
  • Gemini 3 fund, also launched in 2000 with $200 million, has generated a positive IRR of 3.6 percent on the money.
  • The JVP fund, launched in 2001 has just reached breakeven, and the return on it still isn’t positive

Does the return justify the risk or is the VC industry really on life support?

Related:

In Deloitte’s Global Trends in Venture Capital 2008 Survey.

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
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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.