VCJ Report: Retooling the Mideast Venture Scene

Last year was a lousy time for Israeli venture funds. In 2010, VCs in Israel raised zero capital. Zilch. Nada. Nothing.

Already, that tide seems to be turning as Pitango Venture Capital is reportedly raising $350 million for its sixth fund, sources familiar with the matter told Globes.

Still, as reporter Tom Stein writes in the latest issue of Venture Capital Journal, almost everyone agrees that now is a precarious time for the venture business in Israel. In response to the lack of fundraising activity, one notable VC wrote a public letter to Prime Minister Benjamin Netanyahu, calling the situation an “emergency.”

“Israel’s venture capital and startup industry is heading for collapse,” cautioned Zeev Holtzman (pictured), founding partner of Giza Venture Capital, based in Tel Aviv. “The industry, which is the economy’s growth engine, is liable to be irreversibly damaged.”

Just look at the numbers. At the industry’s peak in 2000, there were as many as 100 active VC firms in the country. Today, there are probably about 10 active firms. VC fundraising has fallen off dramatically, from a high of $2.8 billion in 2000 to zero in 2010, according to the Israeli Venture Capital Research Center (IVC).

The good news, however, is that VCs are learning to adapt to a changing Israeli market, Moshe Mor, an Israel-based partner at Greylock Partners, tells VCJ.

“We have seen a subtle ongoing shift in the Israeli high-tech scene from more capital-intensive projects in areas like semiconductor and networking equipment, to more capital-efficient projects related to the Internet and online media,” Mor says.

This shift was somewhat validated in March when Facebook made its first acquisition in Israel, picking up mobile app vendor Snaptu for an estimated $70 million. Mor also notes that some of the most promising companies coming out of Israel—such as mobile app publisher Conduit, Flash-based website and widget builder Wix, and Web app security firm Imperva—are involved in Internet-related technologies.

The retooling of Israeli VC comes at a time when neighboring Palestine has a brand new venture firm called Sadara Ventures, located in the West Bank town of Ramallah. It’s seeking to raise $50 million in capital.

The fund is backed largely by U.S. and European limited partners, such as Google, Cisco Systems, the Soros Economic Development Fund, Skoll Foundation and the European Investment Bank.

Subscribers of VCJ can read the full story about the Mideast venture scene here.

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And if you want to talk more about venture activity in Israel, Palestine or other markets, send an email to VCJ Editor-in-Charge Alastair Goldfisher at [email protected].

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