Venture capital fundraising down 28% in 2013

13 funds raised $526 million in 2013 but IVC predicts a turnaround in 2014, expecting $1 billion to be raised.

Israeli venture capital funds raised 28% less capital in 2013 than in 2012. 13 funds raised $526 million in 2013, compared with the $725 million raised by 14 funds in 2012, reports the IVC Research Center and KPMG Somekh Chaikin Israel today. Fundraising in 2013 was also 28% less than the ten-year average of $732 million.

IVC predicts a turnaround in 2014, expecting $1 billion to be raised this year by 30 Israeli venture capital funds that are seeking to raise $2 billion.

IVC attributes the drop in fundraising to the creation of a large number of new micro-venture capital funds. Only two funds raised more than $100 million in 2013: Vintage Investment Partners' sixth fund, which raised $161 million; and Aleph, a new fund raised by veteran venture capitalists Michael Eisenberg and Eden Shochat, which raised $151 million. In 2012, three firms - Magma Venture Partners, Pitango Venture Capital, and Sequoia Capital - each raised more than $100 million for new funds.

Micro venture capital funds raised $124 million in 2013, 24% of the total capital raised, the largest proportion in three years, even though the number of these funds fell to eight, from nine in 2012 and eleven in 2011.

Israeli venture capital funds have $1.6 billion in capital available for investment in 2014, of which $359 million (22%) is earmarked for first investments, and the rest for follow-on investments.

"It seems that fund raising has slowed since 2011, with less capital being raised by fewer funds," said IVC CEO Koby Simana. "The majority of first-time funds in 2013 were micro venture capital funds, specializing in early stage startup investment. However, we believe this is not a new strategy for venture capital funds, but rather a reflection of the difficulties of fund raising by both first time funds and established funds.”

"Except for a handful of institutional investors, the local capital market is not taking part in the success of Israel's venture capital industry," says KPMG Somekh Chaikin Technology Group partner Ofer Sela. "Substantially all of the gains of Israeli venture capital funds is being enjoyed by foreign investors, and the Israeli economy is not reaping its benefits as an investor. These factors result in insignificant capital being raised by the local venture capital funds, especially relative to total investments in Israeli portfolio companies."

Sela adds, "In the late 1990s and the ensuing decade, foreign investors invested in Israel mainly through venture capital funds that were managed locally. The tremendous success of the Israeli technology market, together with the experience and confidence gained by some investors led to a change, and now a substantial number of foreign investors are investing directly in Israel's technology market through foreign venture capital funds, corporate venture capital funds or as individuals. A significant number of foreign venture capital funds operating from the US, Europe or the Far East allocate substantial capital from the overall managed capital to investments in Israel."

Published by Globes [online], Israel business news - - on January 14, 2014

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