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IVC-KPMG Quarterly Survey

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Monday, November 7th, 2011

As reported in IVC:

Summary of Israeli High-Tech Company Capital Raising – Q3/2011
IVC and KPMG Report:
$522 million raised in Q3, down 8 percent from Q2 2011
Q1-Q3 capital raising – up 71%
Israeli VC fund investments in 2011 reached 25%

Tel Aviv, Israel, October 24, 2011. The following are the findings of the IVC-KPMG Quarterly Survey conducted by IVC Research Center in cooperation with KPMG Somekh Chaikin Israel. This Survey reviews capital raised by private Israeli high-tech companies from Israeli venture capital funds, foreign and other investors. The Survey is based on reports from 128 investors, of which 45 were Israeli management companies and 83 were other – including foreign – investment entities.

In the third quarter of 2011, 137 Israeli high-tech companies raised $522 million from venture investors – both local and foreign. This is down 8 percent from $569 million raised by 145 companies in Q2/2011, but up 53 percent from $341 million raised by 96 companies in Q3/2010. (Chart 1) Four hundred and twenty-two companies attracted a total of $1.57 billion in the first three quarters of 2011. The amount raised was 71 percent above the $918 million raised by 291 companies in the corresponding period of 2010. “Data for the first three quarters of 2011 indicates investment activity at the high levels of 2008,” observed Koby Simana, CEO of IVC Research Center. “However, one big difference is the mix. The share of Israeli VCs has markedly declined, while foreign investors have strengthened their presence in the Israeli market.”

In Q3/2011, 83 companies attracted more than $1 million each. Of these, five raised more than $20 million, 13 raised between $10 million and $20 million, and 17 raised from $5 million to $10 million each. Israeli VC Fund Investment Activity In the third quarter of 2011, Israeli venture capital funds invested $96 million in Israeli companies, 40 percent below the previous quarter (which was the highest in three years) and 12 percent below Q3/2010. Israeli VC funds invested $393 million in the first three quarters of 2011, a 41 percent increase from the same period in 2010. The Israeli VC fund share was 25 percent, a decrease from 30 percent.

In the third quarter, first investments by Israeli VC funds accounted for 30 percent of their total investments, compared to 26 percent and 28 percent in Q2/2011 and Q3/2010, respectively. The average first investment by Israeli VC funds in the third quarter was $1.93 million, while the average follow-on investment was $0.85 million. First investments in the first three quarters of 2011 accounted for 26 percent of Israeli VC fund investments, compared to 30 percent in the corresponding period of 2010. The average first investment in Q1-Q3 was $1.94 million, while the average follow-on investment was $1.09 million. percent above the $174 million of the previous quarter. In the first three quarters of 2011, investment in Israeli high-tech companies – excluding Israeli VC fund investments – reached $567 million, 144 percent above the $232 million invested in the year-earlier period.
Capital Raised by Sector
In the third quarter, the software sector led capital raising with $115 million or 22 percent of total capital raised. Communications followed with $114 million or 22 percent, Internet with $93 million or 18 percent and life sciences with 16 percent. In the first three quarters of 2011, the Internet sector – for the first time in four years – accounted for the largest share of investments of any sector. Internet companies attracted $348 million or 22 percent of total capital raised by high-tech companies, up 130 percent from $151 million raised in the year-earlier period. Life sciences followed with $320 million or 20 percent, an increase of 28 percent from the year-earlier period. Communications attracted $290 million or 18 percent. Ofer Sela, partner in KPMG Somekh Chaikin’s Technology group, observed: “As in the previous quarter, the mobile industry is propelling growth and impacting several sectors, including communications, semiconductors and the Internet, in terms of both applications and infrastructure.”

Capital Raised by Stage
In the third quarter of 2011, seed companies attracted $48 million or 9 percent of total capital raised, compared to 2 percent in the previous quarter and 1 percent in the third quarter of 2010. The amount was the most raised by seed stage companies in any single quarter since 2008. Mid stage companies led capital raising with $215 million or 41 percent of total capital raised. (Chart 2) In the first three quarters of 2011, mid stage companies led capital raising – as in the 2010 period – with $702 million or 45 percent. Seed companies attracted 5 percent of capital raised, slightly above 3 percent in 2010. Early stage companies accounted for 26 percent, down from 33 percent in 2010. Mid and late stage companies together raised $1.084 billion, an increase of 84 percent from the Q13/2010 period, when mid and late stage companies attracted $589 million.
Ofer Sela added: “A significant percentage of seed and early stage firms is headed by experienced entrepreneurs who have raised funds for a number of companies. Several of these were in the “bootstrap” stage prior to raising VC funding. We believe that this demonstrates a change in the way VC funds are making initial investments in the technology sector. So, despite an increase in total seed investments during the quarter, seed stage investing remains a cause for concern.”