Bethel Finance: VC fails to tempt Israeli financial institutions

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Bethel Finance news:
1. One of the reasons that financial institutions in Israel don't like investing in venture capital and private equity finds is that the Israeli funds aren't good enough. Their performance does not ensure satisfactory returns. The Ministry of Finance tried to encourage the institutions through the Comparative Advantage program, but the institutions are not jumping onto that bandwagon.

A handful of Israeli institutions overcome the hurdle by allocating capital for investment in overseas private equity funds, but the vast majority will prefer to buy bonds of Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR) or Yitzhak Tshuva. It's hard to blame them. Even those funds that find the capital to invest in funds overseas know that they will not be able to invest in the best funds, such as Sequoia or NEA or Bessemer or Benchmark. These funds don't need institutions from Israel; they have a pool of contented investors, and even waiting lists. When you're the best, the choice is yours.

On the other hand, foreign venture capital funds active in Israel, two of the biggest and best, have lately proposed to local institutions that they should invest in new funds. The institutions still chose not to invest, even in good funds with proven track records of returns. They apparently just don't like this sort of investment.

2. While in Israel, venture capital funds are scarcely managing to raise money, in the US they have had a good year. Khosla Ventures, for example, raised $1.05 billion, Bessemer raised $1.6 billion, Sequoia raised $1.3 billion.

The annual report of the National Venture Capital Association (NVCA) in the US published this week, compiled jointly with Thomson Reuters, found that US venture capital funds raised $18 billion last year, 2% more than in 2010. This is good news only if the positive momentum continues, and additional funds manage to raise more money this year.

In 2011, US venture capital funs invested some $30 billion in companies, but raised only $18 billion. According to the report, this was the fourth successive year in which US funds invested more than they raised. Moreover, despite the handsome rise in the amount of capital raised, the number of funds remained about the same, at 169. The NVCA said in its announcement that it would like to see more funds succeeding in raising money. The Israel Venture Association would heartily second that wish.