Israeli VC Fund-Raising Improves

The Israeli venture capital community took in some welcome news last week as fund-raising showed a comeback.

Israeli VCs raised $724 million in capital last year, according to the IVC Research Center, after two years of a somber fund-raising environment. The study also expects this year’s fund raising to reach $1.5 billion, more than double last year’s total.

Returning funds were a boost to the comeback. Almost half of the small country’s fund-raising success was credited to Pitango Venture Capital’s fourth fund, which closed last year with $300 million. Other fund-raising successes include Gemini Capital Fund Management closing on Gemini IV with $200 million; and Giza Venture Capital closed on $120 million for its fourth fund.

However, there is still a shortage of funding for startups in Israel, according to the IVC. Israeli funds have been looking to raise more than $4 billion in capital. Even if Israeli VCs double their projected $1.5 billion in fund-raising next year, it will still fall short of demand.

Zeev Holtzman, chairman of IVC Research Center and Giza Venture Capital, said that a shortage of capital for investments in technological companies is expected.

“This situation is in contrast to the US where there is an overhang of capital.,” Holtzman says. “Israel, as a result, will continue to have attractive opportunities.”

The study found that Israeli VCs now have $1 billion in capital available, half of which is earmarked for first rounds of tech startups.

The IVC reports that the peak year for capital raised by Israeli venture capital funds was 2000, when $3.7 billion was raised.

IVC compiled the figures with the cooperation of the Israel Venture Association. The data will be published in in the upcoming IVA 2005 Yearbook, to be published in April.