ISRAEL 
HIGH-TECH & INVESTMENT REPORT

from the February 2006 issue


Capital raised by Israeli high-tech companies reached $1.34b

8 percent year-to year decline due to slow fourth quarter Capital raised by private Israeli high-tech companies from Israeli venture capital funds and from other investors. The Survey is based on reports from 89 venture investors of which 56 are Israeli management companies and 33 are other - mostly foreign - investment entities.

In 2005, 378 high-tech Israeli companies raised $1.34 billion from local and foreign venture investors, an 8% decrease from the $1.46 billion raised in 2004, but 32% above 2003 levels. "The 8% decline in 2005 reflected a slow fourth quarter," said Efrat Zakai, Director of Research at IVC. "Q4 was the weakest quarter for fund raising in two years. We believe this is only a temporary decrease and project a return to earlier levels in the coming quarters."

In Q4, 88 Israeli high-tech companies raised $264 million, a 21% decline from the $336 million raised by 90 companies in the third quarter and a 28% from the $366 million raised by 113 companies in the fourth quarter of 2004.

Fifty-eight companies attracted more than $1 million each in Q4. Of these, six companies raised between $5 million and $10 million each, and eight companies raised more than $10 million each. The average company financing round was $3.0 million, compared with $3.7 million in the previous quarter and $3.2 million in the fourth quarter of 2004.

Capital raised by private Israeli high-tech companies is from Israeli venture capital funds and from other investors. The Survey is based on reports from 89 venture investors of which 56 are Israeli management companies and 33 are other - mostly foreign - investment entities.

Israeli VC investment activity
In 2005, Israeli VCs invested $655 million in Israeli high-tech companies, about equal to investments made in 2004 ($665 million). The Israeli VC share of the total amount invested in Israeli high-tech companies was 49%, up sharply from the 42% average of the previous six years.

First investments made by Israeli VCs were 43% of total dollars invested by Israeli VCs in 2005, slightly below the 46% of 2004 and equal to 2003 levels. The average First and Follow-on investments were $2.42 million and $0.78 million, respectively, compared to $2.16 million and $1.07 million in 2004.

In the fourth quarter, Israeli VCs invested $131 million, 50% of the total amount invested in Israeli high-tech companies. This amount was 30% below capital invested by local VCs in the third quarter and 17% less than in Q4 2004.

Israeli VC First investments accounted for 40 percent of their total dollar investments in Q4, compared with 41% in Q3 2005, and 46% in the fourth quarter of 2004. According to IVC General Manager, Guy Holtzman "The composition of venture capital investments in Israel is expected to change over 2006, with an increase in foreign investment activity as the number of local players diminishes."

Israeli VC Activity in Foreign Companies
Israeli VCs invested $95 million in foreign companies during 2005 (in addition to their investments in Israeli high-tech companies), compared to $107 million in 2004 and $101 million in 2003.

Capital Raised by Sector
The distribution in capital raised among sectors has not changed markedly in the last four years. 33%was raised by the Communications sector, 20 percent by the Life Sciences, 19 percent by Software, 11% by Semiconductors, four percent by the Internet and 13% by other sectors.

The Communications sector attracted the highest sums in 2005 as in the past six years. One hundred and twelve Communications companies attracted $469 million, 35 percent of the total amount raised, compared to $430 million (29 percent) raised in 2004 and $332 million (33 percent) raised in 2003. In Q4, 26 Communications companies attracted $101 million (38 percent) with four companies attracting over $10 million.

Capital Raised by Israeli High-Tech Companies ($m)

Capital Raised by Israeli High-Tech Companies

The Life Sciences followed with $284 million, accounting for 21% of total capital raised, compared to 22 % in 2004 and 18% in 2003. In the fourth quarter, 27 Life Sciences companies attracted $50 million, 19% of the total capital raised. Within the Life Sciences, Medical Device companies attracted 65% of the capital raised in 2005, versus 73% in Q4 2005.

Capital Raised by Stage
In 2005, 52 Seed companies attracted $110 million. Seed companies captured eight percent of the total capital raised, same as in 2004. In the fourth quarter, 12 Seed companies attracted $22 million, accounting for 9% of Q4 capital raising, compared to $34 million (10 percent) in Q3 and $42 million (12 percent) in Q4 2004.

Mid-Stage companies (up to $10 million in revenues) attracted the most funding in 2005, as 177 companies raised $702 million, 53 percent of total capital raised. This compares with $819 million (56 percent) in 2004. In Q4 2005, 44 Mid-Stage firms raised $164 million (62 percent), a similar amount to the previous quarter but just 49 percent of the total. The amount was 22 percent below the $210 million (57 percent) raised in Q4 2004.



Reprinted from the Israel High-Tech & Investment Report February 2006

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