Venture capital investments in Israeli companies plummeted 43 per cent in 2002 to $1.14 billion in 2002. Also, 2003 looks set to be another poor year for Israeli investments.
Foreign VCs reduced their involvement in the Israeli market, with investments down 49 per cent to $156 million. Investments made by Israeli-based VCs also fell, down 40 per cent to $481 million, as Israeli funds are finding it increasingly difficult to attract funding from institutional investors with reservations about the region. Just over 350 companies raised capital in 2002, a decrease of 33 per cent from 2001.
The average financing round in 2002 was $3.2 million, 16 per cent below the $3.8 million average round in 2001.
The continuing decline in investments in 2002 had a particular impact on seed companies, which in turn is likely to affect the number of start-ups in the future. Last year seed companies took just two per cent of total fund raising.
The decrease in fund raising by Israeli start-ups reflects global trends, says Zeev Holtzman, chairman and CEO of Giza Venture Capital. However Israeli companies did experience a smaller decline than US or European firms, which indicates that there is still substantial interest in Israel. But Holtzman adds that funds at the disposal of Israeli VC funds are limited and foreign investors are hesitant to invest. “This points to 2003 being another year of reduced investment in Israeli start-ups. The high tech sector is of premium national importance and the negative trend will therefore be another blow to economic activity in Israel,” he says.