Capital Investments
Israeli "high-techies" continue to draw record investment amounts from venture capital firms. In the three months ending June 30, Israeli companies garnered a record one quarter high of $229 million.. The total represents a 76% increase over the preceding quarter and an impressive 44% increase over the previously established record of $159 million set in the quarter ending September 30, 1998. Eighty companies, also a record figure, benefited from the spending bonanza by the investment funds. Forty-five Israeli and five American venture capital firms participated in Kesselman & Kesselman PricewaterhouseCoopers Money TreeTM Survey. These figures are far from reflecting the real amounts invested by foreign venture capital funds. Some European and Far East based venture capital funds invest directly into Israeli companies, thus are excluded grom investment statistics based on Israeli venture capital funds. The survey does not include amounts directly invested but our own estimates based on our own sources as well as those reported in the local business press could add as much as an additional $55 million.
The communications and the software industries, accounted , on a fifty/fifty basis for 70% of the total invested. In October 1998 we predicted that "greater investment opportunities are ahead for venture capital funds. Large sums are likely to be invested in later stages of a company's development. In fact this later stage investment may replace, for the foreseeable future, the IPO financing option." The survey noted that the second quarter was marked by a large number of big-sum deals, with 60% of the total invested directed to nineteen companies, each picking up $5 to $10 million. Maturing companies, require larger sums the Survey pointed out. The average investment in communications companies climbed in the June 30 quarter to $5.1 million, compared to the averages of $3.1 million and $2.4 million in1998 and 1997, respectively.
The software group which includes Internet, multimedia and information technologies companies accounted for an all-time record of $80 million or 35% of the total investment. Twenty million dollars was invested in Internet companies, with an average investment of $2.5 million. Internet-related companies accounted for 31% of the total investment.
Israel lags in attracting Internet-related investments. In the United States the level of Internet-related investment over the last two years has tripled. In the medical devices group, twelve companies attracted a total of $23 million, representing just 10% of the total investment. Computers and electronics investments increased and accounted nearly $32 million, representing an increase of more than three times the amount invested in the first quarter of 1999 and almost 40% more than that invested in the comparable quarter in 1998. $5 million was invested in the biotechnology sector. It would seem that venture capital funds keep avoiding this sector and therefore, funds for these companies must be coming from other sources.
The venture capital firms surveyed, disappointed small companies seeking seed investments. Seed investments accounted a miserly 3% of the total venture backed investment, with the average investment falling from $1.91 million and $1.16 million, in 1997 and 1998 respectively, to $0.6 million. However startup companies could look forward to an emerging trend of new venture capital funds being established that specialize in early stage and seed investments.