A joint report by IVC Israel and KPMG, surveyed 95 venture investors (48 in Israel and 47 foreign investors who are active in the Israeli market) summarizes 2010 in Israeli venture capital. There’s good news and bad news in last year’s trends.
On the positive side, Israeli companies have continued to attract capital – both local and foreign. Israeli high tech companies raised a total of $1.26 billion in 2010, a 13% increase from 2009 ($1.12 billion) and 39% below the 2008 investments of $2.08 billion. In Q4 2010, 100 Israeli companies raised $344 million, a slight increase from the $341 million invested in Q3 this year and 25% above the grim last quarter of 2009, which brought only $275 million in investments.
On the other hand, the portion of seed investments amongst all deals was a merely 3% ($38 million in total), compared to 7% average in the last seven years. In Q4 of 2010, Seed represented 2% of total investments, compared to 4% in Q4 of 2009. The majority of the dollars went to Mid-stage companies, attracting 46% of investments. Early stage companies attracted in total $143 million, or 42% of total investments.
In addition, the share of the Israeli investors among the total capital raised, has continued to decline. Israeli VC funds invested $371 million, or 30% of the total amount invested in Israeli tech companies, compared to $410 million in 2009 (37% of total) and $780 million in 2008 (38% of total). That’s not necessarily a bad thing, as long as foreign investors keep being active in the Israeli market.
IVC Research Center’s CEO, Koby Siman, has little expectations for a 2011 recovery:
“While there has been a steady recovery in the amounts raised by local high-tech companies since the end of 2008, a major boost won’t occur until new funds are raised by Israeli VCs. Unfortunately,” projected Simana, “VC fund raising is unlikely to pick up the pace before 2012.”
Life sciences were the sector that attracted the most venture capital dollars, raising $350 million in 2010 (28% of total), followed by Communications with $238 million (19% of total) and Internet, with $222 million (18% of total).
Ofer Sela, a partner in KPMG Somekh Chaikin’s Technology group, explains the popularity of life sciences as a sector in Israel:
“Israel continues to be a center for excellence in life sciences in general, and in the medical devices sub-sector in particular. Medical devices was the most active area in 2010, both in terms of capital invested and the number of companies that raised capital. The ongoing increase in life expectancy and healthcare costs will continue to give impetus to medical devices over the foreseeable future.
The changes we are all experiencing as consumers of media and services are dominant factors in higher investments directed to communications and semiconductors, particularly in mobile application-related sub-sectors. Industry analysts predict that by 2014 the number of mobile Internet users will have surpassed the number of PC Internet users today, leading to further investment in infrastructures that drive this market.”
The chart below shows the breakdown of venture capital investments in Israel by sector in the last 10 years (click to enlarge):