Israel led the world in venture capital investment in 1998-2001. Venture capital investment amounted to 1.3 of GDP in 1998-2001, compared with 0.7% in the UK, 0.6% in the US and Sweden, 0.3% in the EU and 0.03% in Japan, according to a recent OECD survey
Ministry of Industry and Trade deputy director general for economics and planning Dr. Mordechai Ish-Shalom, who attended the OECD conference on industry in Paris, said, "The representatives of the OECD's 30 member states expressed great interest in the Israeli experience, particularly in the government policy of encouraging the venture capital industry, which came into existence very quickly since the founding of Yozma Venture Capital in 1993. The EU, which suffers from low innovation and entrepreneurship relative to other developed countries, was especially interested."
In addition to the large quantitative amount of venture capital investment in Israel, the OECD members were impressed by Israel’s estimated 3,000 start-ups and their high quality, which the venture capital industry measures by the rate of exits, i.e. IPOs on stock exchanges and/or mergers and acquisitions by foreign companies.
However, the representatives were most impressed by the fact that in 1998-2001, 50% of investment was in early and seed stages, compared with the few investments in these stages in the UK and other countries. 70% of investments in these countries were late stage investments and/or management buy-outs and leveraged buy-outs, which are more akin to financing deals than venture capital investment.
Ministry of Industry and Trade economists recommend Israel pay attention to OECD recommendations as well as its praise. The OECD study notes that Israel was highly dependent on foreign investment, compared with other countries, which pushed young companies to rapid IPOs and/or acquisition by foreign companies, and put production of Israeli technology and products at risk. Industrial employment was also a problem. The study also found that venture capital accounted for only 0.2% of institutional investment by pension funds, insurance companies, etc., compared with 3-5% in the US and EU.
Published by Globes [online] - www.globes.co.il - on October 9, 2002