Investment in Israeli high tech companies continued to fall in the second half of the year with 105 Israeli venture capital funds committing a total of $265 million, according to the Israel Venture Capital Research Center. This represents a 43 per cent decline on the same period last year. However, in the second quarter early stage investments jumped by over 90 per cent, compared to the previous quarter attracting $74 million. First round investments also put in a good performance up from $39 million in Q1 to $64 million in Q2.
Zeev Holtzman, chairman and CEO of Giza Venture Capital, an Israel-based fund with a global presence and offices in the US, Europe and Singapore, says deal flow is healthy. He also notes that the region is witnessing the same kind of trends and same rate of decline in activity as the US and Europe. He adds that there are a significant number of foreign funds looking for opportunities in the region and the level of competition from international funds is increasing. This, he says can only be beneficial for the market. While three years ago Israeli players were less likely to syndicate deals, now it is more common practice in the region. “In this climate we want partners with deep pockets. No one wants to be alone,” says Gilead Halevy, a director in the firm’s London office.
In terms of sector focus, while Giza splits its investments 50 per cent communications, 30 per cent software and 20 per cent life sciences, Halevy says communications is losing some of its appeal and there is an increased interest in life sciences and software. This is reflected in the data for the second quarter. Capital raised by communications companies totalled $108 million down 43 per cent from the previous quarter, while software was up 38 per cent to $33 million. Medical devices companies secured $35 million in financing in the second quarter, up 25 per cent, and capital raised by biotech companies jumped to $16 million from $2 million in the first quarter.
Boosting the profile of the Israeli venture capital scene, foreign investors in Israeli funds will gain some tax relief as a result of the new tax reform, which was finalised in July. The benefits are yet to be seen.