ISRAEL 
HIGH-TECH & INVESTMENT REPORT

from the December 2005 issue


Israel venture capital survey Q3/2005

In Q3 2005, 90 Israeli high-tech companies raised $336 million from Israeli and foreign venture investors. The figure was 13 percent lower from the $387 million raised by 98 companies in the previous quarter and 23 percent lower than the $438 million raised by 113 companies in the third quarter of 2004. In the first nine months of 2005, capital raised slipped only slightly to $1.07 billion from $1.10 billion in the same period of 2004. "For the full-year 2005 we foresee stability in investments, leading to approximately $1.4 billion in venture capital raised annually," reported the Israel Venture Capital Survey

In Q3, Israeli VCs invested $188 million in Israeli companies, compared with $163 million invested in the previous quarter and $194 million in Q3 2004. The Israeli venture capital share of the total amount invested in Israeli high-tech companies rose to 56 percent, from an average of 42 percent over the past five years.

First investments made by Israeli VCs were 41 percent of total VC investments. This compares with 40 percent in the previous quarter and 54 percent in the third quarter of 2004. The average first investment made by Israeli VCs in Q3 2005 was $2.75 million, and the average follow-on investment was $0.92 million.

Israeli VCs invested $20 million in eight foreign companies during Q3 2005, down sharply from the $30 million invested in foreign companies in the previous quarter and $23 million invested in the third quarter of 2004. Two of the 8 investments were first time investments. The Communication sector, led capital raising in both the third quarter and the first three quarters of 2005. 31 Communication companies attracted $112 million, 33 percent of the total amount raised. The amount compares with $136 million (35 percent) in the previous quarter and $121 million (28 percent) in Q3 2004.

The Software sector followed with 16 companies raising $55 million 16.5 percent of total capital raised. While the Software sector accounted for 18 percent of capital raised in the first three quarters, the sector was outpaced by the Life Sciences for that nine-month period.

Life science capital raising slowed in the third quarter to $53 million, accounting for 16 percent of total capital raised, compared to 24 percent in the second quarter and 21 percent in Q3 2004. The sector succeeded, however, in keeping its position as the second most attractive Israeli sector in the Q1-Q3 2005 period, attracting 22 percent of the capital raised.

Thirteen Seed companies attracted $34 million, 10 percent of the total amount raised in Q3. The amount was a significant advance from the $22 million or six percent raised in Q2, and a slight drop from $36 million in Q3 04. Within Seed companies, three communication firms attracted 30 percent of the investments, and two life science firms captured 27 percent. During the first three quarters of the year, Seed companies attracted eight percent of the total funds, compared with six percent in Q1-Q3 2004.



Reprinted from the Israel High-Tech & Investment Report December 2005

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