Israel fund-raising activity surges

Israeli venture capital funds raised $1.2 billion in 2005, an increase of 40% from the $724 million raised in 2004, according to an annual survey conducted by the IVC Research Center in cooperation with the Israel Venture Association.

But the fund-raising activity is expected to slow in 2006 over concern that domestic firms may lose out to aggressive foreign activity.

Zeev Holtzman, chairman of the IVC and of Giza Venture Capital, notes that about one-fourth of LP investments came from foreign financial institutions and pension funds, while less than 5% came from Israeli institutional investors. Israeli LPs, he said, are more risk-averse and lack the history of venture capital funds.

“In the United States, pension funds allocate 10% to 20% of their total assets into venture capital, compared with less than 1% in Israel,” he said. “This local inactivity raises concern that Israeli institutions will miss out on the new wave of promising investment opportunities.”

The survey found that during the past 18 months, the foreign pension funds in Israel that were the most active investors included the California State Teachers’ Retirement System, California Public Employees’ Retirement System, New York State Retirement System, Oregon Public Employees Retirement Fund, Pennsylvania State Employees Retirement System and TIAA-CREF.

Holtzman noted that funds raised by Israeli investors in 2005 were primarily driven by six new Israeli venture funds that closed their vehicles last year.

On that list was Benchmark Israel, which closed a $250 million second fund, followed by Carmel Ventures, which closed its $200 million second fund, and Israel Healthcare Ventures, which closed on a $140 million second fund.

Sequoia Israel and Genesis Venture Partners closed third funds of $200 million and $160 million, respectively, while Giza closed its fourth fund when it added $30 million to the $120 million it raised in 2004.

In addition, first closings were carried out by Vertex Management Israel, which closed on $120 million, and the life science-focused Medica-Poalim, which closed on $80 million in 2005.