ISRAEL 
HIGH-TECH & INVESTMENT REPORT

from the December 2003 issue


High-Tech Firms in Positive Trend in Raising Funds


This survey, conducted with the cooperation of the Israel Venture Association (IVA), reviews capital raised by private Israeli high-tech companies from Israeli venture capital funds and from other investors. The Survey is based on reports from 125 venture investors, of which 62 are Israeli management companies and 63 are other - mostly foreign - investment entities.

The positive trend in the Israeli venture market continued in 2003's third quarter as 103 Israeli high-tech companies raised $283 million from venture investors - both local and foreign (Chart 1). The amount was up a moderate four percent from the $271 million raised in the previous quarter and thirty-four percent from the first quarter of the year. During the first three quarters of 2003, a total of $765 million was raised, which still reflects a decrease of 18 percent from the corresponding 2002 period.

"A review of capital raising trends in the first three quarters of the year shows a turnaround is underway," said Guy Holtzman, IVC's General Manager. "This indicates that capital raising by Israeli companies will top $1 billion in 2003, and we are projecting another $1 billion-plus year for 2004."

Holtzman also noted that "Capital raised by Israeli firms was 50 percent of that raised in all European countries. Furthermore, if one compares the Israeli VC industry to the US, we'll find a slower rate of decrease in investment during 2003." In the third quarter, Israeli VCs invested $129 million in Israeli companies, an increase of 37 percent from both first and second quarter levels and a nine percent rise from Q3 2002. First investments in Israeli companies accounted for 53 percent of total Israeli VC investments, compared to 40 percent in the previous quarter and 51 percent in the third quarter of 2002. The average First investment by Israeli VCs was $1.6 million, and the average Follow-on investment was $0.7 million. In addition, Israeli VC investments in foreign companies was $16 million, compared to $34 million in the second quarter of 2003 and $18 million in the first quarter of the year.

Capital Raised by Stage
Fifteen Seed companies raised $21 million, seven per cent of total capital raised. The amount was about the same as raised in the previous quarter, but 2.5 times the amount raised in Q3 2002. Capital Raised by Sector As in the previous two quarters, the communications sector attracted most of the funds raised. Thirty communications companies raised $118 million, 41 percent of the total amount raised, which compared with 29 percent 37 percent in the second and first quarters of the year, respectively. Life sciences capital raising declined with 24 companies raising $28 million or 10 percent of the total, compared with 21 companies raising $56 million or 21 percent of the total in the second quarter. Efrat Zakai, Director of Research at IVC, said "seed investments showed marked improvement, both in Q3 and Q2, an encouraging sign after six consecutive quarters in which seed companies averaged only $6 million in investment. We expect further increases in seed and early stage investments in future quarters." Most funding in this quarter was attracted by 47 Mid-Stage companies that raised $135 million, 48 percent of total capital raised. This percentage was similar to that of the second quarter of the year and under the 64 percent of the third quarter of 2002.


Reprinted from the Israel High-Tech & Investment Report December 2003

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