Israeli venture capital back on track

Following a disappointing last two years, Israeli venture capitalists raised more than $700m in 2004, with the outlook for this year being more than double that amount.

A new wave of fundraising by Israeli venture capital firms kicked off last year, ending two dismal years in which more capital was returned than raised. According to a 2004 summary published by the IVC Research Center, Israeli venture funds raised a total of $724 million (€557 million), leaps and bounds above the $14 million (€11 million) reported for 2003, and the $174 million (€134 million) actually returned to investors in 2002.

The 2004 figure primarily reflects the $300 million (€231 million) raised for Pitango Venture Capital’s fourth fund; $200 million (€154 million) for Gemini Israel Funds’ fourth vehicle; and $120 million (€92 million) for a first close on Giza Venture Capital’s fourth fund.

According to IVC estimates, approximately $1 billion (€770 million) in capital is now available for investment by Israeli venture capitalists, with an addition $1.5 billion (€1.15 billion) expected to be raised by 2005.

Though the numbers are nowhere near the more than $3.1 billion (€2.4 billion) raised at the height of the tech boom in 2001, the numbers signal good things to come, as fundraising by startups has also been increasing steadily since the industry’s low of $205 million (€158 million) in the final quarter of 2002. In 2004, more than 428 high-tech Israeli companies raised $1.46 billion (€1.12 billion) from local and foreign venture investors, a 45 percent increase from the $1.01 billion (€777 million) raised in 2003.

Israeli VC’s share in these investments totaled $665 million (€511 million), an increase of 58 percent from the $421 million (€324 million) they disbursed in 2003. In addition, domestic venture funds invested $107 million (€82 million) in foreign companies in 2004.

According to the IVC, total capital sought by Israeli venture funds is still more than $4 billion (€3.08 billion). As a result, the IVC anticipates a shortage of capital for investments in technology companies – a contrast to the US’s capital overhang – and expects Israel to have attractive investment opportunities in the near future.