Israeli VCs to Pick up Pace

Regional tension surrounding the Israel-Hezbollah conflict last year may have created political turmoil in the Middle East, but investors apparently made the distinction between the violence on the ground last summer and the fundamental stability of Israel’s tech industry. Greylock Partners, for example, announced it raised a $150 million fund dedicated to Israel just as the political conflict flared up.

In 2007, Israeli venture firms should begin to rebound and collectively raise $700 million, according to predictions by the IVC Research Center.

Fund-raising dropped 67% to $473 million in 2006, down from $1.46 billion in 2005, the IVC reported. But Zeev Holtzman, IVC chairman, predicts that the fund-raising cycle will reach its peak in 2008.

On top of the $700 million that the IVC predicts will be raised this year, about $1.5 billion in capital is currently available for investment by Israeli VCs. Of that, $900 million is intended for first investments in local tech companies, according to IVC estimates. The remainder is reserved for follow-on deals.

Although the fund-raising climate may have slowed, VCs stepped up the pace as they put more money to work in Israel. Israeli venture firms invested nearly $500 million in 112 startups during 2006, according to data from Thomson Financial (publisher of PEHub.com). That’s up more than 11% from the less than $450 million they invested during 2005. It’s the largest amount of money Israel-based VCs have invested since the dot-com boom.