Guest post by Aaron Dubin and Juriaan Bensoussan in a series. “Financing in Times of Uncertainty” Roundtable Session, HTIA 2012 Conference by IATI
On a macro level, VC funding for the most part hasn’t really changed. We’ve seen some pretty good years recently, with VC funding in Israel reaching an all-time high in 2011 at a record $2.2 billion in VC investment. While overall this is quite impressive, only 24% of VC investment in Israel actually came from Israeli VCs.
This is because historically, there’s been a breakdown in Israeli VCs. In 2000, there were 70 VCs in Israel – now there are a mere 10. Some argue that this was the “invisible hand” of the market at play; there was too much money in the system, and with it too many GPs. This led to more competition among VCs, which drove up the valuations, and lowered the returns.
In addition to the decline in Israeli VCs, funds earmarked for the Office of the Chief Scientist continue to decrease, and some people in the government think it is not worthy of the money. Also, big corporates are creating their own VCs in order to start getting involved in the development of technology today that will influence their respective industries tomorrow. Finally, VCs ultimately need to show returns on their investments, and this has not been the case in the recent wave of high profile tech IPOs from mega companies like Pandora, Groupon, Zynga, and Facebook, which in many cases have left investors high and dry.
As a direct consequence of all of this, the level of financing in Israel is drying up, which is becoming a problem for Israeli startups. In the first half of 2012, there was a 20% reduction in the amount of financing in Israel, and with it the emergence of some potentially risky trends. Currently, financing is only being allocated to mature companies that already have VC funding, and more and more early-stage startups are bootstrapped for cash. On top of that, most of the money is coming from foreign VCs who have no particular allegiance to Israel; they’re simply following the money.
Despite these trends, Israeli VCs are confident that innovation in Israel will only keep getting better. According to Yifat Oron, managing partner at Vertex Venture Capital, the following are some hot sectors to invest in in the coming years from an Israeli VC’s perspective: infrastructure and mobile technology; companies related to the trends of social, mobile, and local; cloud applications and big data; healthcare; and the exciting new world of “machine to machine” communication. Ms. Oron said, “Like we’re already seeing in Japan with car-to-car communication, we believe that soon everything will talk to everything”. She explained that while this field has already begun, it has not yet reached its potential, and could explode into something big.
* Aaron Dubin (Philadelphia, USA) and Juriaan Bensoussan (Netherlands) are the co-founders of www.ebrain.com, a new online English editing service for correcting English mistakes in your documents, presentations, CVs, and more. They are graduates of the Raphael Recanati International School at the IDC Herzliya, and have degrees in business management, finance, and entrepreneurship.
I'm a former general partner at google ventures, head of Google for Entrepreneurs in Europe and founding head of Campus London, Google's first physical hub for startups.
I'm also the founder of Techbikers, a non-profit bringing together the startup ecosystem on cycling challenges in support of Room to Read. Since inception in 2012 we've built 11 schools and 50 libraries in the developing world.
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