Venture capital in Israel

Venture capital in Israel refers to the financial capital provided to early-stage, high-potential, high risk, growth startup companies based in Israel. Israel's venture capital industry was born in the mid-1980s and has rapidly developed since. Israel currently has about 70 active venture capital funds, of which 14 are international VCs with Israeli offices.[1] Israel's venture capital and incubator industry plays an important role in the booming high-tech sector that has been given the nickname "Silicon Wadi", considered second in importance only to its Californian counterpart, the Silicon Valley.[2]

According to IVC, Israeli Research Center, in 2015, proceeds from Israeli startup M&A (exits) exceeded $9 Billion – up 16% from 2014. The average exit rises to $87 million – 43% above 10-year average. Software topped all exits with $3.88B [3]

According to IVC, In 2015, venture capital investment in Israel stood at $4.43 billion – the highest annual amount ever. In comparison, In 2008, venture capital investment in Israel stood at $1.9 billion.[4] A record 708 companies raised money and the average size of the financing round was $6.3 million, compared with $5 million average in 2015 and a $4 million average deal in the past 10 years.[5]

History

Israel's venture capital industry was born in 1985,[6] when the first Israeli venture capital fund,[7] Athena Venture Partners, was founded by Major-General Dan Tolkowsky, the past Chief of Staff of the Israel Air Force;[8] Dr. Gideon Tolkowsky; and Frederick R. Adler, a pillar of the US venture capital industry who had conceived the notion of taking Israeli High-tech companies public on NASDAQ. Subsequently, in 1990, Gideon Tolkowsky and Yadin Kaufmann founded Israel's second VC firm, "Veritas Venture Capital Management",[9] whose main investors were Anglo American Corporation of South Africa and De Beers.

The success of the Venture Capital industry in Israel continued with Yozma (Hebrew for "initiative"), a government initiative in 1993 offering attractive tax incentives to foreign venture-capital investments in Israel and promising to double any investment with funds from the government.[10] As a result of their efforts, Israel's annual venture-capital outlays rose nearly 60-fold, from $58 million to $3.3 billion, between 1991 and 2000. The number of companies launched using Israeli venture funds rose from 100 to 800. Israel's information-technology revenues rose from $1.6 billion to $12.5 billion. By 1999, Israel ranked second only to the United States in invested private-equity capital as a share of GDP. It also led the world in the share of its growth attributable to high-tech ventures: 70 percent.[10] According to the OECD, Israel is also ranked 1st in the world in expenditure on Research and Development (R&D) as a percentage of GDP.[11]

Though Israel's venture capital industry played an important role in the high-tech sector, the financial crisis of 2007-2010 also affected the availability of venture capital locally. In 2009, there were 63 mergers and acquisitions in the Israeli market worth a total of $2.54 billion; 7% below 2008 levels ($2.74 billion), when 82 Israeli companies were merged or acquired, and 33% lower than 2007 proceeds ($3.79 billion) when 87 Israeli companies were merged or acquired.[12]

In 2019 Israeli companies are considered to be more popular than their American peers. For comparison, investments volume in Israeli startups grew by 140% during 2014-2018 and investments in technological startups from the U.S. grew by 64%.[13][14] Moreover, Israeli startups are becoming so attractive that US companies tend to acquire them more than anyone else: they account for half of all transactions in 2018.[15] Thus, Israels eventually became a “net seller”.[16] In particular, Artificial Intelligence (AI) raise most investments (17%) among all high technologies in Israel. In addition, the recent acquisition of Israeli company Mellanox for $ 6.9 billion by Nvidia Corporation is indicative. It is a definite contender for the largest M&A deal in 2019.[17]

Characterization

Israel's venture capital industry has about 70 active venture capital funds, of which 14 international VCs with Israeli offices. Additionally, there are some 220 international funds, including Polaris Venture Partners, Accel Partners, Greylock Partners, that do not have branches in Israel, but actively invest in Israel through an in-house specialist.

In 2009, the Life Sciences Sector led the market with $272 million or 24% of total capital raised, followed by the Software Sector with $258 million or 23%, the Communications sector with $219 million or 20%, and the Internet sector with 13% of capital raised in 2009.[12]

Technological business Incubators

In the early 1990s, the Israel government created a technological business incubator program (Hebrew: חממה טכנולוגית) to leverage the strengths of approximately 750,000 scientists, engineers, and physicians who had just arrived from former USSR. Israel's Office of the Chief Scientist (OCS), a division of the Ministry of Economy, started six "incubators" designed to foster seed and early-stage technology development through entrepreneurship. Today there are 24 such incubators located throughout Israel, and 65 percent of the projects are science-related research and development.

In 2007, incubator companies raised $435 million in private funds, up 74 percent from 2006. Currently, the OCS allocates approximately $1 billion per year to incubators and other programs that encourage technology development[18]

See also

References
  1. "Venture Capital in Israel". Archived from the original on 2006-02-18. Retrieved 2010-11-18.
  2. "Land of milk and start-ups", The Economist, 2008-03-19, retrieved 2008-03-22.
  3. "IVC-MEITAR HIGH-TECH EXITS 2015 REPORT", IVC Online, retrieved 2016-10-05
  4. "International Venture funding rose 15 percent in 2008, VentureBeat, February 18, 2009
  5. "Israeli Tech Companies Raise Record Capital in 2015 but Outlook Growing Dimmer, Haaretz, January 26, 2016
  6. "Athena". Bloomberg Businessweek. Bloomberg. Retrieved 11 March 2013.
  7. "The Past, Present, and Future of Israeli Innovation". Shlomo Klahr
  8. "Dan Tolkowsky". Israel Air Force History. IDF. Retrieved 11 March 2013.
  9. Tolkowsky, Gideon. "Veritas". Veritas VC. Retrieved 11 March 2013.
  10. Gilder, George, "Silicon Israel — How market capitalism saved the Jewish state", City Journal -Summer 2009, 19 (3), retrieved 2009-11-11
  11. OECD Factbook 2010: Economic, Environmental and Social Statistics
  12. "Venture Capital in Israel". Archived from the original on 2006-02-18. Retrieved 2010-11-18.
  13. "Start-Up Nation Central's Annual Ecosystem 2019 Report". Start-Up Nation Central.
  14. "Through the Thorns to the Stars: Israeli Startups Ecosystem 2019". 8allocate. 2019-07-08. Retrieved 2019-10-05.
  15. "Through the Thorns to the Stars: Israeli Startups Ecosystem 2019". 8allocate. 2019-07-08. Retrieved 2019-10-05.
  16. "Startup M&A worldwide: a $1.2 trillion market led by US and Europe". startupeuropepartnership.eu. 2018-09-12. Retrieved 2019-10-05.
  17. GmbH, finanzen net. "Nvidia is buying Mellanox Technologies in a $6.9 billion deal (NVDA) | Markets Insider". markets.businessinsider.com. Retrieved 2019-10-05.
  18. .Israel's High-Tech Boom, The Jewish Policy Center, Summer 2008
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