Israeli VC decline to bottom out

Israeli technology companies in 2001 raised a lot less money than the year before, but a slight pick-up in the fourth quarter suggests a recovery may be underway.

Israel’s technology companies raised $2bn of venture capital in 2001, 36 per cent less than the $3.1bn raised in 2000. The number of deals done during the year showed a slight increase, from 513 in 2000 to 526 last year, reflecting a sharp decline in average transaction size, to $3.8m from $6m.
Early signs that the Israeli venture market might be set to rebound came in the fourth quarter of 2001, in which 120 high tech companies raised $464m from venture investors. In the previous quarter, 117 businesses raised a mere $376m.

The numbers are part of a quarterly review conducted by the IVC Research Centre and the Israel Venture Association, which polled a total of 168 venture capitalists, of which 105 were based in Israel.

The report shows that as 2001 progressed, Israeli VCs reduced investment while foreign firms invested more. In the fourth quarter, investments from Israeli funds totalled $168m, down 7 per cent from the previous period. By contrast, foreign firms injected $296m in the fourth quarter, up 51 per cent on Q3.

Life science companies doubled their share of investments secured, accounting for 16 per cent of the total capital raised. 103 companies raised $310m compared to the 75 that raised $238m in 2000.
Communications companies remained strong, taking 42 per cent of total funding compared to 39 per cent in 2000.

The Internet industry reached a low point in 2001, attracting just 9 per cent of the total amount raised, compared with 30 per cent in 2000 and 33 per cent in 1999. The sector raised $182m, a decline of 80 per cent from 2000.