Sequoia harbors no plans for Israeli growth fund

Sequoia Capital has no plans to launch an Israeli growth fund, citing a dearth of later stage opportunities, Partner Randy Ditzler told PE Week.

Sequoia has pushed its growth strategy of investing large sums into mature companies that can quickly ramp up their profits into nearly every edge of its global investing empire.This year, it has announced an $861 million U.S. growth fund, a $400 million growth fund for India and a partner at the firm told PE Week the firm was raising a China growth fund this summer. But no other details on the China fund have yet been announced.

As for Israel, Ditzler says, “There just haven’t been enough opportunities there to justify a separate growth fund.”

The firm is making growth investments in Israel from Sequoia Capital Israel III, a $200 million fund that it raised in earlly 2005.

The firm has invested in five companies so far this year that are based in Israeli or have a strong connection to the country. The firm invested in mobile content company Amobee’s $5 million Series A in March with Accel; digital camera lens software startup Dblur’s $6 million Series A in April with Landa Ventures, Siemens and Tempo Capital Partners; Internet telephone company Jajah’s $3 million Series A; security software startup PortAuthority’s $18 million Series D, led by New Enterprise Associates; and networked storage company SANRAD’s $10 million Series B, led by Foundation Capital.

One key difference that may be keeping Sequoia’s investments in Israel small has to do with the country’s market for technology products. “China and India are different,” Ditzler says. “Entrepreneurs there are making products for their own markets. Israel has no natural market, so entrepreneurs there have to build products for the U.S., Europe or Asia.”

Overall, VC investment in the region has remained relatively steady since the market rebounded from its post-bubble downturn. Venture firms poured $404 million into 109 companies during the second quarter of 2006, up just 4% from the $387 million raised by 98 companies during the same period last year, according to the Israel Venture Capital Research Center.

Less competition for the best early stage deals could help keep Sequoia out of the later-stage market. Competitor Star Ventures Management, one of the most active venture investors in Israel, has been hobbled by the departure of four of its 10 general partners in recent months. The firm has made only four investments in Israel this year, according to data from CapitalIQ.