Israeli venture market grows 18%

Israeli companies drew $2.1bn in venture funding in 2008, the highest in eight years, although there was a marked slowdown in investment activity in the last quarter.

Investors committed $2.1 billion to 483 Israeli companies last year, as compared with $1.76 billion invested in the preceding year.

Although the amount invested in the country is the highest in the last eight years, there was a decline in fourth quarter investments as compared with the last quarter of 2007. The findings come from a  study conducted by IVC Research Centre, an Israel-focused venture capital and private equity research provider.

In the fourth quarter last year, Israeli companies received venture funding worth $394 million, a 22 percent drop from the $503 million raised by companies in the fourth quarter of 2007. In the third quarter of last year, venture firms had invested $600 million in the country.

While the last year was an “exceptional” one for investments, the global recession cannot be ignored, said Zeev Holtzman, chairman of IVC Research Centre and Giza Venture Capital, and Israeli venture capital firm. He added that investments in Israeli high-tech companies will undoubtedly be lower in 2009.

The average financing round in the fourth quarter last year was $3.6 million compared with the $4.37 million in the corresponding quarter of 2007.

Thirty-eight percent of the $2.1 billion was invested in the country by Israeli venture capital firms, with the remainder coming from foreign investors as well as non-venture capital investors from within the country, the study noted.

2008 was a good year in terms of the total value of investments partly because a number of companies sought funding to sustain themselves in the approaching recession, said Efrat Zakai, director of research at IVC. Less capital was directed at first-time investments and firms focused more on follow-on investments, Zakai added.

The communications sector was the most popular investment destination and drew 25 percent of the total amount invested. Software followed with 20 percent, semiconductors with 16 percent and internet with 14 percent.

In addition to the $780 million invested by Israeli venture firms in the country, they also invested $57 million overseas.

2009 has also started on a positive note for Israeli companies seeking funding. Only last week, a consortium of investors including Aurum Ventures, Canaan Partners, Evergreen Venture Partners and Microsoft invested $24 million in N-trig, a computing technology company.

Other venture firms which actively invest in Israel include Carmel Ventures, Battery Ventures, Canaan Partners, Draper Fisher Jurveston, DFJ Tamir Fishman Ventures, Norwest Venture Partners, Bessemer Venture Partners and Giza Venture Capital among others.