from the March 2010 issue

VC funding slumped in 2009

The latest Kesselman and Kesselman PricewaterhouseCoopers Israel MoneyTree Report indicates that venture capital-backed high-tech companies raised $735 million in Israel during 2009, a 47% decrease compared with 2008.

The average investment per company in 2009 was $3 million, compared with $ 4.4 million in 2008 and $3.9 million in 2007.

The report does show some improvement in the fourth quarter of 2009, when 77 companies raised $201 million the highest amount raised in a single quarter last year. This represents an increase of 13% (in monetary terms) compared with the previous quarter, in which 55 Israeli companies raised $178 million.

"Year 2009, as far as venture capital investments are concerned, is one that we will soon want to forget. In this year, the level of venture capital investments was even lower than the lowest point set in 2003, following the burst of the high-tech bubble. In this year it was clear that the rules have changed; the funds invested less in "dreams" and more in clear-cut and mature products with a real business plan. The funds focused more on the existing portfolio, and the natural selection process caused the closure of many companies," said a Kesselman executive.

In 2009, in the investment funds segment, foreign funds with representatives in Israel invested $333 million, 45% of total investment for the year, similar to the 48% of total investment made in 2008.

In 2009, communications attracted the most investment, 28% of the total investment. However, in the fourth quarter, the software sector took the lead, attracting 36% of total investment. Investment in cleantech was a bit of a surprise. It was not counted as a separate sector, because of a shortage of investment in it - just $3 million in the fourth quarter. In comparison, cleantech accounted for 12% of total investment in the US in 2009, and the percentage invested in Israeli cleantech was particularly low.

Reprinted from the Israel High-Tech & Investment Report March 2010

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