In 2014, 12 Israeli venture capital funds raised $914 million, the most raised by Israeli venture capital funds in six years, according to the Israeli venture capital fund raising 2014 report compiled by the IVC Research Center in cooperation with KPMG Somekh Chaikin. The report found that fund raising was up 68% last year from $544 million raised by 11 VC funds in 2013, and was 18% above the 10-year average of $777 million.
Four veteran Israeli venture capital funds raised more than $100 million each and accounted for 64% of total capital raised in 2014. Carmel Ventures fourth fund attracted the largest amount - $194 million, while Magma raised $150 million for its fourth fund, less than two years after closing its previous $110 million fund. JVP made a first closing of $160 million of a targeted $180 million for its seventh fund, while Vintage's seventh fund attracted $144 million, 50% of which is being allocated to Israeli investments.
The average fund size in 2014 reached $76 million, 55% up from $49 million in 2013, and up 46% from $52 million in 2012. The increase reflects the raising of more medium sized funds and fewer micro venture capital funds than in each of the previous two years.
Between 2011 and 2014, micro venture capital funds - managing capital below $50 million - accounted for 14%, or $439 million of the total amount raised by venture capital funds. However, the micro venture capital fund trend seems to have abated, as only three new funds were established in 2014, down from an average of nine over the previous three years.
IVC CEO Koby Simana said, "A favorable window of opportunity for fund raising, has enabled a number of management companies to progress from a micro VC model to mid-size range, which offers more investment flexibility. Funds having scaled up include Amiti Ventures and Glilot Capital, but it remains to be seen if more of the existing micro-VC funds will follow suit or choose to maintain the micro VC fund model.”
On the other side of the spectrum, there is an awakening of late and growth stage venture capital funds that focus on companies with proven product viability and expanding sales. Many such companies have the potential to develop into large global corporations and are stimulating the demand for more late stage funding. Qumra Capital, founded by former Evergreen partners Boaz Dinte and Erez Shachar, and Agate Korea are two examples of firms active in the growth market. In addition, at least five more funds are in various stages of capital raising and are focused at late stage companies and growth funding. Interestingly, funds in this group opt for a wide variety of investment mechanisms that include growth venture capital, venture lending, mezzanine financing and private equity.
KPMG Somekh Chaikin’s technology group partner ofer Sela said, "The record number of Israeli portfolio companies with valuations of hundreds millions of dollars, together with positive investor sentiment in Nasdaq, has made it easier for VC firms to show good returns and raise capital. In the past 24 months, global and Israeli VC returns have been among their highest ever. This has encouraged new limited partners from China and Israeli institutional investors to join the more traditional investors in Israeli VCs, such as university endowment and US public pension funds."
The growth of Israel’s venture capital industry is traced to six cycles of fundraising that peaked in 2000 when $2.9 billion was raised, and declined until 2003 when only $64 million was raised. The industry’s sixth cycle, which started in 2011, began a recovery and raised a total of $3 billion over four years through the conclusion of the cycle in December 2014. A seventh cycle, underway now in 2015, already looks promising.
IVC research manager Marianna Shapira said, “Our data show that 19 funds, including six new VC players, are currently in the process of raising capital with an aggregate target of $1.8 billion. We expect that the majority of these funds will raise capital in 2015, and believe as much as $1.2 billion could be raised by the end of the year. We’ve already seen the first $200 million, with the 83North (by former Greylock partners) closing announced last week.”
At the beginning of 2015, IVC found that some $1.8 billion was available for investment by Israeli venture capital funds. Of this amount, $462 million (25%) is earmarked for first investments. The remainder is reserved for follow-on investments.
Published by Globes [online], Israel business news - www.globes-online.com - on January 14, 2015
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