Q1 Israeli Investments Increase

Venture capital investment in Israel hit a two-year high during the first quarter, and the rise is likely to continue, investors say.

During the quarter, 111 tech companies raised $323 million, a jump of 31% over the previous quarter when 96 companies raised $246 million in venture capital, according to a report released last week by the IVC Research Center in Tel Aviv.

“I would describe what is going on as a slow and steady awakening, rather than a second-coming of the go-go 90s,” says Micah Avni, a partner with Jerusalem Global Ventures in Israel. “We are certainly optimistic.”

Silicon Valley, at least, is too. A three-day trip to Israel sponsored by the California-Israel Chamber of Commerce in March included 35 venture capitalists for meetings with local entrepreneurs, venture capitalists and government figures like Nobel Prize winner Shimon Peres. Plus, during his tour of the Middle East last week, California Governor Arnold Schwarzenegger gathered a group of Israeli and U.S. venture capitalists at the Tel Aviv Hilton to encourage cross-border investment. Their interest may eventually spark further investment.

“The increase [in capital raised by Israeli startups] is a good sign, indicating the strength of Israel’s high-tech industry,” says Zeev Holtzman, chairman of IVC Research.

Another positive sign is the steady number of seed- and early-stage deals.

Israeli seed-stage companies raised $13 million during the first quarter, accounting for 4% of the quarter’s total – the same share as during the previous quarter.

Jerusalem Global Ventures led one Series A investment during the first quarter, a $2 million round in Video Codes, and Avni reports an increasing number of follow-on deals with up-round valuations.

Communications companies are raking in the largest slice of the investment pie. During the first quarter, Israeli communications companies raised $108 million from venture capitalists, accounting for 33% of the quarter’s total. Also, 27 software companies raked in $89 million, making it the second most popular sector for investment in Israel. Life sciences and Internet-related companies accounted for the rest of the nation’s venture capital dollars.

IVC’s research is based on a survey of 117 venture capital firms active in Israel.