Israeli companies received over $ 1 billion of venture capital investment in 1999. In Q4 1999, the
trend of increasing venture capital investments continued with $ 381 million invested of which 72%
was commited to Internet-Related companies.
In the past year, 254 companies benefited from vc funding, according to the recently published
Money TreeTM Survey by Kesselman & Kesselman Price Waterhouse Coopers.
The firm tracks activity of investment in venture-backed companies where at least one of the investors
is a venture capital firm. In Q4 1999 a record of $381 million - was funded, with 110 companies
sharing these funds (also a record). This marks an increase of 46% as compared to the record set in
the previous quarter and an increase of 189% as compared to the fourth quarter of 1998. In 1999,
total investments came to over a billion dollars. Cumulative investments over the last three years
aggregate $2 billion.
In Israel, venture capital investments increased by 77% in 1999, as compared to the previous year; the
NASDAQ index increased by 86% and twelve Israeli companies went public for the first time on Wall
Street, raising over $ 1.9 billion.
The competition between the funds for the riper companies has led to more and more funds varying
their portfolios with investments in seed companies. The relative weight of seed transactions in 1999
was almost double (17% of all transactions) what it was in 1998 (9%). Recently, we have noted the
establishment of venture capital funds, investment companies and new investment greenhouses, most
of which specialize in the seed stage.
Overview of results
In the fourth quarter of 1999, there was a relatively high number of large-scale investments; 27
companies raised amounts higher than $ 5 million (and 13 of those companies raised over $ 10
million). The average investment in a financing round in the fourth quarter was $ 3.5 million.
However, 52% of the investments in this quarter went to 12% of the companies.
The Internet phenomenon intensified in the fourth quarter with 72% of all investments going to
Internet-related companies (i.e. - those companies which cut across all standard industries).
From a geographic point of view, companies in Tel Aviv and the central area continue to be the
main magnet for venture capital investments. In 1999, 78% of all investments were made in the Tel
Aviv area, 14% in Haifa and the north and 8% in Jerusalem, with the south remaining devoid of
venture capital investments.
In 1999 as a whole, venture capital was invested in 254 companies with activities in Israel (in over
340 transactions). Forty-four percent of all transactions this year were in the software field (83 of
those transactions were in Internet companies), 17% in communications, 15% in medical equipment,
11% in computers and electronics, 4% in biotechnology and the rest - in other fields. Venture capital
investments were made in 110 companies in Q4 1999, an increase of 72% as compared to the
corresponding period in the previous year.
A peak of 57 transactions in the seed stage was recorded in 1999 (17% of the total transactions for the
year). This is a tremendous increase over the 23 transactions in the seed stage in 1998 (9% of
total transactions). This trend is likely to strengthen with the entry of foreign investors into the Israeli
market and with the increase in local venture capital investors.
The average investment in a transaction in most rounds of investment has increased over the years.
This is most obvious in later rounds, since the competition on international markets consumes more
and more resources, which are in turn more expensive. In the United States, the increasing cost of
financing rounds is even more striking, particularly in the Internet field. In Israel, the average
investment in an Internet company almost doubled from $ 1.6 million in 1998 to
$ 3.1 million in 1999.
52 Israeli and 4 American venture capital firms participated in the survey for Q4 1999.
Factors behind the rapid uptake of venture capital funding is related to two main themes. One is the
continuing dynamic emergence of Israeli startups in the "hot" fields of telecommunications and
software related to the Internet. The other is the growing demand for follow-on capital funding by
one-time startups as they enter the marketing stage. In 1999 all previous records were shattered.
Barring any major political or economic global upheavals the road is open for an even higher level of
investment activity in 2000.