Venture Capital in Israel

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When entrepreneurs have innovative ideas for starting a company, they seek funding to transform their vision into a reality.  Venture capital firms like Effi Enterprises are here to support that entrepreneur in finding the necessary funding to create a successful enterprise. Venture capital firms are always watching the global markets, looking for emerging markets with extreme potential for investment opportunities.  With an extremely successful history with venture capital activity, Israel is a prime place for venture capital firms to be getting involved.

History of Venture Capital Market in Israel

The first venture capital fund was seen in Israel in the 1980s and from then on, especially in the 1990s, the Israeli venture capital industry has thrived and contributed directly to an extreme boom in the high tech sector of their economy, leading some to compare its thriving high-tech sector with Silicon Valley.  After experiencing a successful beginning, the venture capital industry in Israel continued to grow with the support of Yozma, which was a government initiative in 1993 that offered tax incentives to foreign venture capital investors and supported private venture capital funds that invested in young Israeli high tech startups. This program was so successful that between 1985 and 2003, around 120 Israeli companies issued shares on NASDAQ, more than any other foreign country besides Canada.  Yozma has managed more than $170 million in its two funds and made direct investments in more than 40 portfolio companies.

Current State of Venture Capital Market in Israel

The recent economic crisis has left the Israeli VC market facing serious challenges, but there have been declines seen all around the world.  The venture capital funds are expected to rise a little over $600 million in 2013, which is similar to the $607 million raised in 2012.  These levels are a slight downturn from 2011.

Some of the trouble has been contributed to the fact that many of the existing venture capital funds are towards the end of their ten years, which is the lifespan of a venture capital fund, causing them to focus more on their existing investments instead of making new ones.  This makes it harder for new, early stage startups to raise money to grow.

In 2011, 75% of capital invested came from the United States.  In the first three quarters of 2012, the life sciences sector led capital raising with $387 million, or 27%, of the total capital raised.  Internet followed with $271 million, or 19%, while the communications sector raised $248 million, or 17%, of the total capital.  Life sciences sector is expected to have a record year in dollars raised, indicating growth since 2009.

Future of Venture Capital In Israel

Since the worldwide economic crisis, Israel’s venture capital market has yet to fully bounce back but the past extreme success of their VC industry provides reason to expect a comeback in their future and possibility of future success.  First investments in the first three quarters of 2012 made up 38% of Israeli venture capital fund investments, which has increased from the 26% and 30% in 2011 and 2010, demonstrating an investor confidence in the future of the Israeli high-tech industry.  Israeli share in total investments has leveled at a sustainable 24%, capital raised for new funds is increasing, and the number of investors, including foreigners, is on the rise.  This all provides evidence for optimism in the Israeli venture capital market.  It is an industry that should be monitored closely by venture capital firms across the world, as a revival is very possible.

About Efraim Landa

My name is Efraim Landa I am an entrepreneur and an expert in venture capital. I am the co founder of Effi Enterprises, a venture capital firm as well as the co founder and CEO of Gluco Vista, a company that is in the process of developing a non invasive glucose meter for those with diabetes.

Posted on May 4, 2013, in Business Financing, History of Venture Capital, Venture Capital, Venture Capital Markets and tagged , , , , . Bookmark the permalink. Leave a comment.

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