First investments by Israeli venture capital funds were up 3% in 2014, while those by foreign funds were down 4%, IVC Research Centerreports. Software overtook the Internet as the most popular first investment sector and 2014’s most active micro venture capital fund made just 7 first investments, versus 11 made by the most active micro venture capital fund in 2013
The IVC Research Center report analyzes first investments in Israel by venture capital funds in the five years through 2014, and ranks the most active venture capital funds that invested in Israel in 2014.
In 2014, veteran Israeli fund Jerusalem Venture Partners (JVP) topped all investors by making 10 first investments, compared with 11 first investments by 2013's top-ranked fund, foreign micro fund SG VC. JVP, with $1.1 billion under management, invested via two new funds raised in 2014 - JVP VII and JVP VII Cyber, a fund dedicated to cyber security investments.
Placing a close second, with 9 first investments each, were large Israeli funds Pitango Venture Capital and Magma Venture Partners, with $1.6 billion under management, invested from its fifth fund and Magma, with $450 million under management, from its third fund. Both were raised in 2012. Two US-based funds, Blumberg Capital and Flint Capital, shared third place with eight investments each.
The leading investor among micro venture capital funds was Wadi Ventures with 7 first investments from its 2012 $10 million fund. Following Wadi were Israel’s First Time fund and Hong Kong-based iVentures Asia with 6 investments each.
The IVC-research report, which analyzes trends relating to first investments by foreign and Israeli venture capital funds in Israel, shows that foreign funds continued to lead in terms of both the number of investors and deals. Yet there was a decrease in first investments among foreign funds, while the number of first investments among the Israeli funds slightly increased.
The five-year average for venture capital first investments at 249 deals and 122 investors is skewed slightly downward by a relatively low number of first investments in 2010. In 2014, there was a slight dip in the number of first investments to 283 from 287 in 2013. The number of funds making first investments also slipped, dropping to 132 from 140 in 2013. These figures reflect a decrease of one percent in the number of deals and a decrease of six percent in the number of investors. (Chart 2)
IVC Research Center CEO Koby Simana said, "In light of record capital raising by Israeli high-tech companies, as we reported a few weeks ago, it is important to understand that the slight decrease in first investments in 2014 is not indicative of a general decline in investments, but rather reflects a change in the ratio between first and follow-on investments. More follow-on investments were made in 2014 than in the previous year.
He added, "This is mainly reflected in foreign fund activity, which was responsible for the larger part of first investments in 2014."
Foreign funds made 155 investments (55%) last year, down from 169 investments (59%) in 2013. Israeli venture capital funds made 128 investments (45%), up from 118 in 2013 (42%).
Simana said, "Unlike in the previous year, Israeli fund activity expanded in contrast to the foreign fund down trend. The slight increase in Israeli fund activity reflected their having raised more capital in 2014 than in any of the previous six years, and they therefore had more available capital for first investments. We expect this trend to continue in 2015 as well, along with the mounting pace of fund capital raising."
Another change observed in 2014 was in the most popular sector for first investments, with software attracting the largest number of investments following four years in which the Internet sector dominated. Funds made 97 investments in the software sector, which accounted for 34 percent of the total number of first investments made in 2014. In comparison, software accounted for a 25% share of first investments in 2013 and only 16% in 2010.
Rotem Inbar, who conducted the research at IVC, said, "Increased interest in the software sector does not come at the expense of the Internet sector, which continued to attract first investments due to its more modest capital requirements for the purpose of R&D and revenue generation. The increase in the software sector mostly reflected growing interest in two high interest fields - cyber and fintech - which are becoming increasingly important in today’s digital world. JVP, for example, established a fund specifically dedicated to cyber investments in 2014 and made six investments in this sector."
The Internet sector attracted 92 investments or 32% of all first investments in 2014. The number of first investments increased from those of 2013, and the sector has continued to retain its 30% five-year average share of investments. Two sectors that suffered a decrease in percentage of first investments were cleantech and life sciences, sectors that typically require relatively large investments and take longer to produce exits.
IVC data for 2014 also indicate a slackening in growth of first investment activity by micro venture capital funds in parallel with the decrease in fund raising by micro venture capital funds in the previous year. In 2014, 20 micro venture capital funds made 57 first investments, compared to 30 micro venture capital funds that made 75 first investments in 2013. These figures also help explain the apparent contradiction between increasing first investments by Israeli funds and the slight decline in the number of funds investing - 39 funds compared to 41 in 2013. The larger funds have more investment capital at their disposal compared to micro venture capital funds, IVC concludes.
Published by Globes [online], Israel business news - www.globes-online.com - on February 10, 2015
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