The following are the findings of the quarterly survey conducted by the Zinook Research and
Data Center - IVC-Online - Israel Venture Capital Online, covering capital raised by private
Israeli high tech companies and investments by Israeli venture capital funds. This survey,
which received full cooperation from all of the Israeli venture capital funds (72 funds),
accompanied a comprehensive research report conducted by the Zinook research department -
IVC-Online.
During the second quarter of 2000, 120 private Israeli high tech companies raised $609.9
million. This figure is 10% lower than the amount raised by companies in the previous
quarter which totaled $676.7 million, but 175% higher than the second quarter of 1999 which
totalled $222 million.
This decline in the amount raised by high tech companies is a new phenomenon in the Israeli
high tech sector which, until now, was characterized by sharp quarterly increases. For
example, the average quarterly increase in capital raised in 1999 was 27%, and the increase in
the first quarter of 2000 over Q4/99 was 97%.
The decline in total capital raised in Q2/2000 us due to a in investments by other than Israeli
VCs. These investors decreased their investment in Israeli high tech companies by 24%
reducing the total sum raised by the Israeli companies.
Fewer number of companies raisedcapital, in the most recent quarter. 120 private Israeli high
tech companies raised capital in Q2 in comparison to 134 companies, which raised capital in
Q1. The average amount raised per company this quarter was $5.1 million. This is nearly
unchanged from the the previous quarter.
The local Venture Capital Industry
Local VCs invested a record $260.6 million in Q2, a 20% increase over the $216.7 million
invested in Q1, and a 164% increase over the $98.7 million invested in Q2/1999.
Although capital raising declined in this quarter, the $1,286.6 million raised in the first half
of 2000, $609.9M in Q2 and $676.6M in Q1, is 27% higher than the total figure of $1,011.6
million in 1999, and set an all-time record.
Zeev Holtzman, Chairman of Zinook and Giza Venture Capital, explained that "the increased
investment by Israeli venture capital funds is due to the intense capital raising carried out by
the funds themselves." This capital raising, explains Holtzman, "has allowed the funds to
invest larger amounts of money every quarter since the beginning of 1999."
The Kesselman & Kesselman Pricewaterhouse Coopers Money Tree Survey reports lent
support tp the Zinook report with nearly similar results.
In Israel, investments in Internet-related companies in this quarter accounted for 54% of the
investments for the quarter, whereas investments in Internet-related companies constituted
71% of total investments for the previous quarter/
This is the first time there has been a decrease in the proportion of investments in
Internet-related companies since the third quarter of 1998.
In the United States, the Internet is still the leader in venture capital investments. However,
for the first time, there are indications of a distinct change in the investment channels within
the internet-related field: there has been a decrease in investments in e-commerce sites (B2B,
B2C) as compared to previous quarters. The Money TreeTM Survey performed in the
United States indicates that companies engaged in the "business side" (i.e. - services,
tools/application and access/infrastructure jointly accounted for 66% of the Internet pie
(25.6%, 24.4% and 16%, respectively). In Israel, the breakdown of investments in
Internet-related companies was as follows: access/infrastructure - 42%, tools/application -
37% and services - 15%, a total of 94% of the Internet pie. Analysis by industry shows that,
in the United States, companies engaged in software (24%), telecommunications (22.4%),
and business services (18.9%) attracted a total of $ 12.8 billion in the second quarter of
2000.Although software's dominance of investments goes unchallenged, investments in
telecommunications did increase significantly (by 46% - to $ 4.3 billion) over the previous
quarter. In Israel, telecommunications, software and new media attracted 60% of investments
in the second quarter (about 20% each).
Networking and equipment attracted 18% of the total investment for the quarter and reached
a record-breaking level of $ 130 million.
In the second quarter, 60% of all investments in Israel were in the early round, either start up
or early stage, and represented 48% of total transactions, the average investment in these
stages being $ 5.16 million. Companies in the third round raised 33% of the total
investments, which represented 16% of the total transactions. The average investment in this
stage was $ 11.6 mil,
In conclusion, the atmosphere of uncertainty, which has been surrounding the capital market
lately and which has shaken up the international economy, has not deterred venture capital
investors. On the contrary, the venture capital investors showed a combination of "healthy
optimism and patient money" and made their mark - once again - breaking new investment
records.