First quarter saw the most fundraising by start-ups in two years, bringing in $479m. in fresh capital; much from foreign investors.
Israeli high technology may be on the cusp of a recovery and the industry can thank foreign investors for it, figures on venture capital investment released on Wednesday by the IVC Research Center showed.
Israeli technology start-ups raised $479 million in fresh capital in the first quarter of 2011, the biggest three-month total in two years and double the amount they raised the same time in 2010, according to the IVA, which tracks the industry. Some 140 companies took in new investment, 49 more than the first-quarter 2010.
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In fact, the figures probably understate the size of the increase in investment because some of the biggest deals of the quarter, including a $50 million fundraising by PrimeSense, whose technology is used in Microsoft’s Xbox, weren’t counted because they fall under the category of private equity rather than venture capital, said Koby Simana, chief executive officer for IVC.
The big increase came from foreign investors, with Israeli venture capital funds accounting for less than 30 percent of all the money invested in tech companies for the quarter. Nearly all the rest came from foreign investors.
“I hope that this is the turnaround that we’ve all been waiting for, but I can’t really say because it’s only the beginning,” Simana told The Media Line. “There is a big opportunity in the Israeli industry. There are good, mature companies in the revenue stage that need financing to grow. Foreign venture capitalists notice that and they are coming.”
Venture capital is critical to Israel’s vaunted high technology sector. New companies need money as much as they need innovative ideas and entrepreneurs to develop new products and bring them to the market. Venture funds are specialists in assessing infant companies that often consist of little more than a prototype and a management team.
While Israeli technology has wracked up some important successes, with technology exports showing a double-digit increase in 2010 and the industry’s global stars trawling the country for companies to buy and do deals with, the local venture capital industry has been ailing. That has made it hard for start-ups to find capital.
Last year, Israeli venture funds raised no new money in 2010, according to the IVC. It was the first year of nil new investment since 2003 when the industry was pounded by the bursting high tech bubble and the Palestinian intifada. At the end of last year, they had just $1.4 billion in reserve for future investments and many have been holding tight to their cash.
But the prospects for raising cash are improving as Israeli funds can show their investors a track record of profitable investments, Simana said.
Two funds – Israel’s Carmel Ventures and America’s Sequoia Capital – profited from the sale of Snaptu, a developer of Internet applications for mobile phones, last month to Facebook for a reported price of $60 million to $70 million. In February, MobileAccess, which makes wireless telecommunications technology for inside buildings, was bought for a price estimated at as much as $150 million by the U.S. glass-maker Corning. The venture funds Genesis Partners, Pitango Venture Capital, Poalim Ventures and Eurofund were all investors in the company.
I know there are many companies either going to a Nasdaq IPO [initial public offering] or have a merger and acquisition deal in negotiation. I hope this will help the Israeli VC funds to raise capital in 20011 and 2012,” said Simana “And there will be a new cycle of investments in Israeli companies.”
Another reason for optimism is new legislation approved by the Israeli government to encourage domestic investors to invest in venture capital. Until now, local investors generally didn’t back their own country’s VC funds, but IVC estimates they will invest some $220 million over the next two years, although most of that will occur in 2012.
Plenus Venture Lending Fund plans to raise $150 million, leveraging the new government, the Globes financial daily reported on Wednesday. That would mark a big increase in capital for Plenus, which provides loans to technology companies in exchange for repayment and equity. It now manages $320 million.
Plenus has had several successful exits, among them the $313 million sale of Provigent, a maker of microwave radio technology, to Broadcom in March.
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