Catalonia-Israel Commerce Chamber

With 80 active funds and over $10 billion under management, in over 1000 Israeli start-ups, Israel’s venture capital industry thrives like no other country – except for Silicon Valley. In 2007, 462 Israeli hi-tech companies raised over $1.75 billion  – the highest amount in the past 6 years and a 8% increase over the previous year and 31.% above 2005 levels.  This growth prompted both the IMD and the WEF to rank Israel as 2nd in the world for the amount of funds raised by technology start-ups, following only the US.

Thriving VC Market in Israel

International VC companies accounted for approximately $1 billion  – 61% of the capital invested in Israeli high-tech companies in 2007.

International Venture Capital Firms: There are major U.S. and European VC funds with Israeli Branches, including Sequoia, Benchmark, Accel, Walden, Advent, Apax, Alta-Berkeley, and Partech. Additionally, many international funds, such as Lightspeed, Accel and Greylock, that do not have branches in Israel, actively invest in Israel through an in-house specialist. The VC divisions  of  leading multinationals, such as Intel, HP, TimeWarner Inc., Sony, Cisco and more, which have opened R&D centers and acquired companies in Israel , have also found that the country offers a profitable VC market.

Israeli Venture Capital Firms: The great interest shown by the International VC’s in Israel is due to the existence of a thriving local VC industry. In 2007, Israeli venture capital funds invested $678 million, accounting for 39% of the total amount invested in Israeli high-tech companies. First investments made by the local industry were 43% of the total amount it invested in 2007. The average first investment was $2.48 million. The average follow-on investment was $0.89 million.

Delivering Successful Exits

The Boom in Mergers & Acquisitions: In 2007, there were 75 mergers and acquisitions in the Israeli market worth a total of over $3.2 billion, compared to  79 deals which reached $10.75 billion in 2006.

In 2007, out of the 75 M&A’s, 32 of them were of VC backed companies and each deal averaged of $59 million per deal. In comparison, in 2006 there were 48 M&A’s averaging only $187 million per deal.

Increasing number of IPO’s:

·         In 2007, 27 Israeli high tech companies raised $701 million through initial public offerings in the US, Europe and Israeli stock exchanges.

·         VC-backed companies raised $538 million in 13 IPO’s in 2007, including BigBand, Mellanox and Veraz, which raised $160 million, $117 million and $72 million, respectively. All three were all listed on NASDAQ.

Investment Trends in the Israeli VC Market

The Communications Sector, which has a track record for producing successful start-ups and innovative technology, accounted for 21% of the VC market in 2007 and continued to be the most invested in field in Israel. Following close behind are the growing Life Sciences Sector, which accounted for 20%, and the Semiconductor, which accounted for 19% of the total VC funds and 31% of the VC funds in the forth quarter. The Internet Sector,with $257 million, has increased its share to 15%.

Investment by Stage

Being at the most crucial phase, 78 Seed Companies attracted the largest amount of funds since 2001, with $151 million in funds, accounting for 8% of the total capital raised in 2007.

156 Early Stage/R&D Companies accounted for 32% of the funds raised in 2007.

182 Mid-Stage Companies raised the largest sum of funding in 2007, accounting for 38% of the capital raised.

With start-up companies continually moving through the pipeline and reaching the revenue growth stage, there were 22 Late Stage Companies that raised 22% of the total funds in 2007.

Sources: IVC Research Center , IMD Competitiveness Report

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