The situation certainly isn’t as grim as in 2010, when venture capital firms in Israel raised zero dollars, but 2012 didn’t produce much to cheer about, suggests a new report out of the Israel Venture Capital (IVC) Research Center.
According to its figures, Israeli venture capital funds raised $607 million last year – down 30 percent from 2012. More, nearly 75 percent of it was raised by just three firms. Sequoia Capital Israel V locked up $200 million; Pitango Venture Capital announced a $150 million first closing of Pitango VI; and Magma Fund raised $100 million for its third fund.
If there’s a silver lining, it seems to be that micro-VC funds are increasingly entering the market to help nascent startups whose traditional funding options have been steadily dwindling over the past decade or so. (In 2000, Israel-based venture funds raised $2.8 billion.) Indeed, according to the IVC, six micro-VC funds raised a collective $83 million last year, representing nearly 14 percent of the total capital raised.
Still, the situation is beginning to look much like that in the U.S., where there’s both ample seed stage capital available, as well as late-stage capital, but fewer and fewer options for companies stuck somewhere in the middle.
“Fundraising is mostly being carried out by the large VCs that are initiating follow-on funds and, on the other end, relatively small funds that are industry specific and/or early stage focused,” noted Ofer Sela, a KPMG partner who is focused on technology, in IVC’s report. In between, said Sela, “There are VCs…that are no longer attracting new funds.”
Exacerbating the situation, noted IVC’s chief executive, Koby Simana, is the increased competition that Israeli VCs face from Asian VCs — particularly in India and China — for institutional investors’ attention.
Still, Simana noted that there’s “room for optimism,” writing that while “on average, funds are raising less, the number of VC-backed companies is likely to rise over the next few years as more VC funds begin to raise capital.”
The reason: Between 2003 and 2012, Israel’s venture capital funds attracted $6.77 billion. The capital available for investment by Israeli venture capital funds at the beginning of this year was approximately $2.1 billion, according to the IVC, which projects that $484 million of that capital — or 23 percent– remains earmarked for first investments. The IVC is also anticipating that at least another $600 million will be raised by Israeli venture funds this year.
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