"The Israeli venture market continued to develop favorably in 2004," says the latest survey by the IVC Research Center. According to the survey, 428 Israeli companies high-tech raised $1.46 billion from local and foreign venture investors, 45% more than the $1.01 billion raised in 2003.
The rate of investment dipped somewhat in the fourth quarter: $366 million was raised by 113 companies in that quarter, compared with $438 million raised by the same number of companies in the third quarter. Nevertheless, the fourth quarter of 2004 saw the second highest amount of capital raised since the first quarter of 2002.
Life sciences companies continue to attract a larger and larger proportion of the capital raised. The proportion rose from 8% in 2000 to 22% in 2004, and in the fourth quarter of 2004, 35 life sciences companies raised a total of $130 million, accounting for a third of the general total.
For 2004 as a whole, communications remained the dominant sector, though less so than in the past. 117 communications companies attracted $430 million, 29% of the total amount raised, compared with $332 million (33%) in 2003 and $418 million (37%) in 2002. Software companies raised 22% of the total in 2004.
Another trend in 2004 was more investment in seed stage companies. 54 seed companies attracted $108 million - 8% of the total capital raised. The amount was almost twice the $58 million (6%) of 2003. In the fourth quarter, 15 seed companies attracted $42 million, accounting for 12% of Q4 capital raising, compared with $36 million (8%) in Q3, and just $10 million (4%) in Q4 2003.
“We are experiencing a significant raise in Seed investing," said Zeev Holtzman, Chairman of IVC Research Center and Giza Venture Capital. "The amount and relative share of investments directed to seed companies reached their highest level of four years. As more serial entrepreneurs get back in the industry, seed investments are predicted to grow, consequentially in 2005.” Mid-stage companies (up to $10 million in revenue) attracted the most funding in 2004, as 196 companies raised $819 million - 56% of total capital raised, compared with 177 companies that raised $493 million (49%) in 2003. In Q4 2004, 53 mid-stage firms raised $210 million (57%), compared with $134 million (55%) in Q4 2003.
Zeev Holtzman, chairman of IVC Research Center and Giza Venture Capital, said, “2004 was characterized by a return to full-scale activity in Israel’s high-tech sector, from depressed 2001-2003 levels. Israel is a global technology and innovation center that keeps attracting international investors, foreign VCs and multinational corporations. We anticipate 2004’s $1.5 billion investment pace to continue in 2005”.
73 companies attracted more than $1 million each in the fourth quarter. 18 companies raised between $5 million and $10 million each, and 10 companies raised more than $10 million each. The average company financing round was $3.2 million, compared with $3.9 million in the previous quarter, and $2.6 million in the fourth quarter of 2003.
In 2004, Israeli VC investments totaled $665 million, 58% more than the $421 million invested in 2003. The Israeli VCs’ share of the total amount invested in Israeli high-tech companies was 45%, slightly above the 42% average of the previous five years.
First investments made by Israeli VCs were 46% of the total amount invested by Israeli VCs in 2004, slightly above the 43% of 2003. The average First and Follow-on investments were $2.2 million and $1.1 million, compared with $1.6 million and $0.7 million in 2003.
Israeli VCs invested $107 million in foreign companies in 2004, in addition to their investments in Israeli high-tech companies. This compares with $101 million in 2003, and $62 million in 2002. First investments accounted for 46% of the Israeli VCs’ foreign investments in 2004.
The survey, conducted with the cooperation of the Israel Venture Association, is based on reports from 115 venture investors of which 62 are Israeli management companies and 53 are other mostly foreign investment entities.
Published by Globes [online], Israel business news - www.globes.co.il - on January 24, 2005