In the first quarter of 2013, the software sector attracted the largest share of venture capital investment for the first time in four years, according to the latest quarterly report by IVC Research Center and accounting firm KPMG Somekh Chaikin.
Thirty-four software companies raised $136 million (29%), compared with $105 million (21%) and $107 million (22%) in the fourth quarter of 2012 and the first quarter of 2012, respectively. The Internet sector followed with a 22% share of investments.
"The current year opened with a very strong quarter for the information technologies and software sector, with a record high level of investments both in amount invested and number of transactions made." noted Ofer Sela, of KPMG. "This sector, traditionally one of the backbones of the Israeli high-tech industry, is mainly being propelled by cloud-based enterprise applications and IT security."
In total, 169 Israeli high-tech companies raised $474 million from local and foreign investors in the first quarter of 2013, 4% less than the $494 million raised by 163 companies in the fourth quarter of 2012, and 2% less than the $485 million attracted by 141 companies in the first quarter of 2012.
Seventeen companies attracted more than $10 million each, accounting for 50% of the total amount raised in the quarter.
Ninety-nine VC-backed deals attracted $364 million, equal to 77% of the total amount raised in the first quarter of 2013. This compares with 77% in the fourth quarter of 2012 and just 66% in the first quarter of 2012. The average company financing round was $2.8 million, while the average VC-backed deal financing round was $3.68 million. Ofer Sela, a partner in KPMG Somekh Chaikin’s Technology group, commented, "The majority of funding during the first quarter of 2013 was allocated to companies already generating revenue in businesses where feasibility was already proven. Most funding to companies at that stage was directed to the software and Internet sectors. This reflects the cautiousness of investors nowadays and is in contradiction to the concept that 'if you build it, they will come'. Investors are forcing entrepreneurs to bootstrap for a longer period and to have proof-of-concept before committing to a significant investment."
Israeli VC fund investments accounted for $147 million in the first quarter of 2013, 5% above the $140 million invested in the fourth quarter of 2012 and 18% up from the $125 million invested in the first quarter of 2012.
In the first quarter of 2013, $62 million (42%) was directed toward first investments a decrease of 7% from $67 million (48%) in the fourth quarter of 2012 while in the first quarter of 2012 $61 million (49%) was for first investments. Follow-on investments by Israeli VC funds in the quarter accounted for 58% of total investments
"The increase in Israeli VC fund activity in the first quarter of 2013 is a direct result of capital raising by the funds in 2012," said Koby Simana, IVC Research Center’s CEO. "Capital raised by a number of veteran fund management companies, together with new players in the micro-VC niche, has increased capital available for investments, as described in our recently published Israeli Venture Capital Fund Raising report for 2012. Several funds are currently in advanced stages of capital raising. As a result, we expect the overall amount of capital to grow, expanding Israeli VC fund investments in local high-tech companies, and even possibly increasing their share of investments in the industry. "
Fifty-three seed companies raised $31 million (7%) in the first quarter of 2013, a 37% decrease from $49 million raised by 53 companies in the previous quarter and 6% below $33 million (7%) attracted by 41 seed companies in the first quarter of 2012.
The IVC-KPMG Somekh Chaikin survey reviews capital raised by Israeli high-tech companies from Israeli and foreign venture capital funds as well as other investors, such as investment companies, corporate investors, incubators and angels. The survey is based on reports from 101 investors, of which 50 were Israeli VC management companies and 51 were other entities.
The survey covers total investments in the Israeli venture capital sector, including both VC-backed rounds where at least one investor participating in the round is a VC fund as well as deals not backed by venture capital funds.
Published by Globes [online], Israel business news - www.globes-online.com - on April 22, 2013
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