First half Israeli high-tech venture capital rises by 15%

Capital raised in Q2 2005 reaches $387 million – up 11% from Q1.

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According to a quarterly survey carried out by IVC (Israel Venture Capital) Research Centre in association with Israel Venture Association (IVA), 98 Israeli high-tech companies raised $387 million from venture investors – both local and foreign (chart 1). The amount was up 11 percent from the $350 million raised by 102 companies in the previous quarter and was 14 percent higher than the $338 million raised by 91 companies in the second quarter of 2004. In the first half of 2005, capital raised was $737 million, up 15 percent from the first half of 2004 levels.

Zeev Holtzman, chairman of IVC and Giza Venture Capital, said, “The 15 percent increase in capital raised by Israeli high-tech companies in the first half reflects continuousness of the high level of activity in the Israeli high-tech sector. We foresee stability in H2/05 that will bring us to approximately $1.5 billion in capital raised for the full year.“

In Q2, the average company financing round was $3.9 million, an increase of six percent from the previous quarter and 15 percent from the second quarter of 2004. Sixty-two companies attracted more than $1 million in Q2. Of these, 11 companies raised more than $10 million each, and 10 companies raised between $5 million and $10 million each.

In Q2/05, Israeli VC funds invested $163 million in Israeli companies, a decrease of six percent from Q1/05, but five percent more than in Q2/04 level. The share of Israeli VC funds in the total amount invested in Israeli high-tech was 42 percent. The remainder of capital invested was mainly from foreign sources and also from other Israeli VC investors.

Capital raised by sector (chart 2)
The communications sector led the second quarter and H1/05 in fund raising.
Twenty-four communications companies attracted $136 million, 35 percent of the total amount raised in the quarter compared with 34 percent in the previous quarter and 36 percent in the second quarter of 2004.
In H1/05, communications companies raised $256 million, 35 percent of the total capital raised in the period.

Life science companies followed the communications sector both in Q2 and H1/05 with about one-fourth of the total capital raised. Efrat Zakai, director of research at IVC, commented, “The software sector, which raised only $32 million in the second quarter, continues to slip from its traditional position as the second most attractive Israeli sector.”

Capital raised by stage
Thirteen seed companies raised $22 million (six percent of the total raised) in Q2/05, compared with $32 million (nine percent) in Q1/05, and $17 million (five percent) in Q2/04. Three semiconductor firms accounted for $10 million of the investment in seed companies, while two Software firms raised $6.8 million. During H1/05, Seed companies attracted seven percent of the total funds, compared with 4.5 percent in H1/04.

In Q2/05, mid-stage companies dominated capital raising as they have for the past three years. Forty-five mid-stage firms raised $197 million, 51 percent of total capital raised. The mid-stage share held fairly steady during H1/05 with 51 percent of the total, compared with 52 percent in H1 2004.

Chart 1: Capital raised by Israeli high-tech companies by quarter ($m)

Chart 2: Capital raised by Israeli high-tech companies by sector (%)

For more information: www.ivc-online.com

© Chilli Publishing Ltd 2005

19JUL2005