2012 remains a mixed bag for the Israeli VC community. According to a recent IVC report, “Most Active Venture Capital Funds in Israel,” Israeli venture capital funds raised $607 million in 2012, a 30 percent drop from the previous year. Nevertheless, more than 90 venture capital funds made first investments in Israeli-related companies in 2012, nearly double the 46 that made similar investments in 2011.
“VC funds are facing serious challenges today, not just in Israel but the world over,” said Koby Simana, IVC CEO. “The allocation for venture capital investments continues to decline among institutional investors. On top of that, Israeli VC funds are being challenged by fund raising competition from Asian VC funds – mainly from China and India. There’s room for optimism, however. While, on average, funds are raising less, the number of VC-backed companies is likely to rise over the next few years as more VC funds begin to raise capital.”
At 11 total first investments, Carmel led pack, up from three investments the previous year. With $608 million under management, the firm’s portfolio includes Facemoods, Ekoloko, and TradAir. Horizons Ventures ranked second with 10 first investments, with a portfolio that includes Everything.me, PlayMyTone, and Hola. Gemini and Genesis tied in third rank with seven first time investments each.
Nineteen Israeli and foreign VC capital funds made three or more first investments for the year. Another 52 fund made at least one new investment each.
In terms of amount of money raised, Sequoia V, Pitango VI and Magma III ranked among the three leading funds with a combined amount of $450 million, or 74 percent of the total raised by the Israeli VC community for 2012. With six microfunds raising a total of $83 million, or 14 percent of the total Israeli VC endeavor, micro VC funds proved to be significant. Four of the 12 VC funds that raised money last year were brand new, compared with eight new contributors the previous year.
“There is a major debate in the industry regarding the optimal fund size that will result in the highest returns to limited partners,” said Ofer Sela, a partner in KPMG Somekh Chaikin’s Technology group. “As a consequence, we are witnessing VCs reducing the size of their new follow-on funds in an attempt to maximize returns. Overall, during the last two years, the number of investment entities making investments in Israel has been on the rise, with most focused on the early stage. We believe that later stage funding will be available to the relevant portfolio companies either from corporate VCs or from foreign VCs operating in Israel.”
Israel’s VC activity can be traced over six cycles raising vintage years that began in 1992 and peaked in 2000 when more than $2.8 billion was raised, the report noted. Over the last eight years, Israeli VCs have experience a renewed surge of energy. The current cycle, its sixth, began in 2011. Counting the two previous cycles since 2004, Israeli VCs have raised $6.7 billion, 60 percent of the total $11.1 billion raised since 2000.