Israeli venture capital rises

• IVC: Israeli high-tech capital raising – stable over 2005 first nine months, despite a 13% drop in Q3 figures
• 10% of capital invested is directed to Seed companies

In Q3 2005, 90 Israeli high-tech companies raised $336 million from venture investors – both local and foreign. The amount was down 13 percent from the $387 million raised by 98 companies in the previous quarter and was 23 percent lower than the $438 million raised by 113 companies in the third quarter of 2004.

Tel Aviv, Israel, November 14, 2005. The following are the findings of the Quarterly Survey
conducted by the IVC Research Center, which for more than eight years has been at the forefront of
venture capital and private equity research in Israel. 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 92 venture
investors of which 57 are Israeli management companies and 35 are other – mostly foreign –
investment entities.
In Q3 2005, 90 Israeli high-tech companies raised $336 million from venture
investors – both local and foreign (Chart 1). The amount was down 13 percent from
the $387 million raised by 98 companies in the previous quarter and was 23 percent
lower than the $438 million raised by 113 companies in the third quarter of 2004.
“Despite the apparent drop,” said Efrat Zakai, Director of Research at IVC,
“capital raised in the first nine months of 2005 indicates stability in capital flow
relative to 2004 figures.” In the first nine months of 2005, capital 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 capital
raised annually” said Zakai.
The average company financing round was $3.73 million in Q3, compared with $3.94
million in the previous quarter and $3.87 million in the third quarter of 2004.
Sixty-six companies attracted more than $1 million. Of these, 15 companies raised
between $5 million and $10 million each, four companies raised between $10 million
and $20 million each and one company raised more than $20 million.
Israeli VC investments
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 VC
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,
which 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.
For more Information:
Efrat Zakai, Director of Research:
IVC Research Center
972 -3-640-2337
Efrat@ivc-online.com
www.ivc-online.com
-2-
Ramat Aviv Tower, 5th floor, 40 Einstein St., P.O.Box 17672, Tel Aviv 61172, Israel
Tel. +972-3-640-2350 Fax. +972-3-6402351 E-mail: efrat@ivc-online.com www.ivc-online.com
Israeli VC investments in foreign companies
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 investments.
Capital raised by sector (Chart 2)
The Communications sector led capital raising in both the third quarter and the first
three quarters of 2005. Thirty-one Communications 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 Life Sciences succeeded, though, in keeping its position as
the second most attractive Israeli sector in the Q1-Q3 2005 period, attracting 22
percent of the capital raised.
Capital Raised by Stage
Thirteen Seed companies attracted $34 million, 10 percent of the total amount raised
in Q3. The amount was a significant jump from the $22 million or six percent raised
in Q2, and a slight drop from $36 million (8 percent) in Q3 04. Within Seed
companies, three Communications 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.