Life science companies accounted for the largest share of venture capital investment in January-September 2012, according to the IVC Research Center and KPMG Somekh Chaikin Israel venture capital survey for the third quarter of 2012. Life sciences start ups raised $387 million (27% of total venture capital investment), up from $320 million (20%) in the corresponding months of 2011. In the third quarter, life sciences companies raised $147 million (30% of total investment), putting the sector in first place for the third time in the past decade.
Internet companies were in second place, raising $271 million in January-September (19% of total investment), down 22% from the $348 million (22%) raised in the corresponding months of 2011. Communications companies were in third place, raising $248 million (17%) in January-September, 15% than the amount raised in the corresponding months.
KPMG Somekh Chaikin partner Ofer Sela, who head its technology group, said, "The life sciences sector is expected to have a record year in terms of dollar amounts raised, showing consistent growth since 2009. This is in contrast to the trend in the US, where capital raising for the life sciences has been in decline. The combination of a highly educated workforce, robust technology transfer from leading academic institutions, and the Israeli government's incentive program for the life sciences are the main reasons for this sector's positive performance."
Israeli venture capital investment in decline
144 Israeli high-tech companies raised $488 million from Israeli and foreign venture capital funds in the third quarter of 2012, 8% more that $453 million raised in the preceding quarter, but 7% less than the $522 million raised by 137 companies in the corresponding quarter of 2011. In January-September, Israeli venture capital investments fell 9% to $1.4 billion from $1.6 billion in the corresponding months of 2011, but was 55% more than the $900 million invested in the corresponding months of 2010.
During the third quarter, seven companies raised more than $20 million each, eight companies each raised $10-20 million, and thirteen companies each raised $5-10 million. 65 companies each raised $1-5 million. The average financing round was $3.39 million in the third quarter, below from average of $3.54 million in the preceding quarter and the $3.81 million in the corresponding quarter.
Israeli venture capital funds investment January-September in Israeli companies fell to $341 million from $393 million in the corresponding months of 2011 and $278 million the corresponding months of 2010. Israeli venture capital funds accounted for 24% of investment in Israeli companies in January-September, down from 25% in the corresponding months of 2011 and 30% in the corresponding months of 2010. However, investment by Israeli venture capital funds rose 21% over the corresponding quarter to $116 million in the third quarter.
IVC Research Center CEO Koby Simana said, "The Israeli VC industry continues to perform strongly despite the challenges presented by a worsening global economy." He adds, “The Israeli VC fund share of total investments has leveled at a sustainable 24%/ Secondly, capital raising for new funds is slowly picking up, with new funds recently raised by Pitango Venture Capital and Sequoia Capital Israel and more funds about to close soon. These funds will inject much needed capital for first investments."
First round investment picks up
First round investments accounted for 47% of total venture capital investment in the third quarter, the second highest quarter level in the past ten years, exceeded only by the 48% reached in the first quarter of 2012. First round investments rose to 38% of total investment in January-September from 26% in the corresponding months of 2011 and 30% in the corresponding months of 2010. The average first investment was $2.12 million in the third quarter.
Sela said, "This year is expected to be a record year in terms of the number of companies raising first investments. This is mainly due to the increase in the number of investors, including foreign investors, operating in the market. It is a strong indicator to the globalization of the local venture capital-backed industry."
Seed investment accounted for 9% of total investment in the third quarter and 6% of total investment in January-September, up from 5% in the corresponding months of 2011 and 3% in the corresponding months of 2010. Early-stage investment totaled $190 million in the third quarter and mid-stage investments accounted for $191 million (39% of total investment each).
Published by Globes [online], Israel business news - www.globes-online.com - on October 23, 2012
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