Therefore, the recent report issued by IVC certainly can be interpreted somewhat more positively than some of the voices of gloom and doom being heard today. Our predictions and expectations of a contraction of Israel's incredibly bloated VC industry have come true in 2002. At the end of 2001 there were 91 venture capital management companies active in Israel. This figure has been confirmed by Israel's Venture Capital Association as well as by the IVC Research Center. Nine companies closed shop and ceased operations and we believe this process is not finished and expect more closures and perhaps mergers of these entities.
Several management companies are continuing to make investments in Israeli high-tech companies at a brisk pace, despite a difficult investment environment. IVC Research Center has compiled a list of the most active venture investors in Israeli high-tech firms for 2002, ranked by the number of First Time and Follow-On investments made during the year. The rankings are based on data from the IVC Online Database. Amounts invested were not used as a criterion.
During 2002, Pitango, Evergreen, Star and Giza were the funds that made the largest number of deals (First Time and Follow-On investments). Pitango Venture Capital invested in 21 companies, Evergreen in 17, Star in 16 and Giza in 14. The largest numbers of Follow-On investments were made by Pitango (17), Evergreen (14) and Star (14).
Topping the list of new (first time) investments is Giza Venture Capital with six new investments in 2002, three of which were in the life sciences sector and three were in Information Technology. Challenge (Etgar) and Ascend trailed Giza with five First Time investments each. Challenge had three of its first investments in telecommunications, and Ascend made three first investments in software companies. Doron Rosenbaum, Information Manager at IVC, observed, "the deflated valuations on high-tech companies this year stirred several venture capital funds to capitalize on the opportunity and make First Time investments."
Among the most active Israeli venture capital funds reviewed, two-thirds of total investments were Follow-On investments, indicating that VC activity was primarily focused on existing portfolios rather than on new investments.
This report is based on the IVC-Online Database and was confirmed by contacting all of the Israeli funds. It examines the level of activity each fund performed during the last 12 months and ranks the funds according to the number of deals the fund participated in. It details all portfolio companies for each management company.
VC Industry Expects in 2003 a Revival of Interest
No less than 77% are confident that investment in 2003 will be greater than in 2002, which was a grim one for startups seeking seed money.
The figures are surprising, based on the decreasing amount of capital managed by the firms and their difficulty in securing fresh money for investment.
Startups attracted only around $1 billion to $1.2 billion venture backing in 2002.
In a similar survey Deloitte Touche conducted in Silicon Valley, 45% of the respondents estimated that 2003 venture investing will be greater than in 2002.
In the Israeli survey, 63% of the respondents estimated that most of their investments would be in companies only expected to achieve profitability in two to five years.
Some 43% of the fund managers expect most of their money to be routed to first-stage companies, compared with 27% in the third quarter of 2002. Another 35% plan to route more money to mid-stage firms in second-round financing, compared with 50% in the third quarter of 2002.
22% of the respondents said the lion's share would go to seed-stage firms.
The venture capital managers generally predict more consolidation and contraction in 2003, and 54% expect more mergers between venture capital funds - compared with 63% in the last survey.
Deloitte Touche Brightman-Almagor carries out the survey every quarter. It relates to the two quarters to come. The survey targeted managers and partners in 50 venture capital funds in Israel, comprising 85% of the industry.
The US, which gave birth to the venture capital industry, experienced a low level of such investments in Q3/2002, when they totaled $3.9 billion. Compared to the same quarter a year ago, VC investments were sharply lower, down by a third according to the influential Venture 1 report. They were at the lowest level in four years, and nearly identical to sums invested in 1996-97.
In 2002, Israeli venture capital funds invested approximately $480 million in Israeli and Israel-related high-tech companies, a 40% decline from the $812 million invested in 2001, according to a recent report issued by the IVC Research Center. One can argue, that though the figures are not parallel to the American experience but they do not differ either in term of time frames or other factors.
A third of the venture capital fund managers who responded to the VC Indicator Survey conducted by the accounting firm Deloitte Touche Brightman-Almagor, predict an upswing in early-stage venture investment in 2003, as compared with 2002.