Bethel Finance: Israeli VC funds raised $796m in 2011

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Israeli venture capital funds raised $796 million in 2011, IVC Research Center KPMG Israel Somekh Chaikin reported, after raising nothing in 2010, and just $256 million in 2009, which was 76% less than in 2008.

The seven funds that raised capital in 2011 are considered “micro funds.” These funds, with less than $30 million under management, invest small sums and generally focus on early stage candidates. Micro funds raised a total of $87 million in 2011, nearly 11 % of total capital raised last year.

Of the 14 venture capital funds to raise capital in 2011, eight are managed by newcomers in Israeli venture capital, or are organizations raising their first venture capital fund. Six of the micro funds were raised by new players.

Also new was Orbimed Israel, the first biomed fund raised as part of the Israeli government's plan to encourage life science investments in Israel. Within the program, the government agreed to invest $50 million in the fund, against investments by other LPs. While OrbiMed Advisors - the US investor that initiated the fund - had invested in Israel before, its establishment of an office and its first Israel-dedicated fund represent a major escalation in OrbiMed's Israeli activity.

KPMG Somekh Chaikin’s Technology Group partner Ofer Sela said "Globally, and also in Israel, the venture capital industry is shrinking in terms of number of entities raising new funds. Limited partners investing in venture capital firms are more selective in their investments and prefer investing in the most prominent VCs. The rest of the industry is re-inventing itself and trying to come up with an investment model that will attract limited partners with a lower burden of management fees and overhead costs and a less binding capital commitment for the limited partners.”

Historically, the growth of Israel’s venture capital industry has been through six cycles based on fund raising vintage years that started in 1992 and peaked in 2000, when more than $2.8 billion was raised. The sixth and current cycle started in 2011, and with the previous three cycles (since 2000), Israeli venture capital funds have attracted $10.7 billion, nearly 73 % of the $14.7 billion that was exclusively allocated to investments in Israeli high technology by Israeli venture capital funds between 1992 and 2011.

IVC CEO Koby Simana said, “The ability of Israeli venture capital funds to raise follow-on funds in the current cycle running through 2012 and 2013 will have a strong impact on overall performance and the future of Israel's high-tech sector, especially startups."

He added, “More than 20 funds are currently in the process of raising capital, many of them by veteran venture capitalists who are raising continuing funds. Underway, too, is capital raising by a number of new players, mostly micro funds which are likely to be successful in light of the recent micro and angel fund trend. Overall, we forecast that $800 million will be raised in 2012 by Israeli VC funds for investment in Israeli high-tech companies, maintaining the same level as in 2011."

According to IVC estimates, capital available for investment by Israeli venture capital funds at the beginning of 2012 was slightly under $1.66 billion. Of this amount less than $300 million is earmarked for first investments. The remainder is reserved for follow-on investments.
Mr. Cedric Marmet from Bethel Finance Ltd said, “Over the last few years, the Israeli high-tech industry has become more global in terms of investments with significant capital being attracted from non-Israeli venture capital firms. Record high investments in Israeli companies in 2011 indicate that foreign investors are finding Israel attractive, a trend we expect to continue.”

According to the latest IVC-KPMG survey, in 2011 Israeli companies raised $2.14 billion, 25% of which came from Israeli venture capital funds. The remainder came from other Israeli and foreign investors. Considering the needs of the industry, and the fact that the capital available to local venture capital funds should stretch over the next four years, the gap between supply and demand is clear the Israeli venture capital industry is about a billion dollars short.