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Israel is the paramount venue for overseas investment in high-tech, after the US.
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The successful initial public offerings on Nasdaq by Israeli companies, and the growing awareness that Israel is an incubator of state-of-th-art-technology, have significantly increased the interest of foreign investors in Israeli start-ups.
Private-capital investment obtained by Israeli high-tech companies has risen rising sharply in the last few years – a consequence of increases in local venture capital fund activity and in foreign investment interest.
Statistics collected by Israel Venture Capital Online, which tracks investment and VC fund activity in Israel, show that Israeli high-tech companies raised a total of 1.28 billion in the first half of the year – 27 percent more than the total ($1.01 million) raised in the whole of 1999.
During the second quarter of 2000, private high-tech companies obtained $609.9 million from local and foreign venture capital funds, 10 percent less than the $676.7 million raised in the previous quarter, but 175 percent more than the $222 million received in the corresponding quarter of 1999.
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Of the total amount raised, Israeli VC funds provided $260.6 million. This was 20 percent more than the amount they had invested in the previous quarter, and 164 percent more than their investment in the corresponding quarter of last year.
The remaining $349.3 million raised came from sources other than Israeli VCs – mainly foreign VCs – which invested $809 million in the first half of the year, a 275 percent rise on the figure for the first half of 1999.
"Five years ago there was no foreign activity," said Matty Karp, a managing partner at Concord Venture management Ltd. "Today there is a significant rise in interest in Israeli start-ups and VC firms."
Karp said the increased interest by foreign investors was spurred by stiffer competition in the US, and the greater mounts of money available. These factors have pushed VC funds and corporations to seek investment opportunities elsewhere. Because of its technological strength, "Israel is the paramount venue for overseas investment in high-tech, after the US," he said.
Investment in Israeli start-ups by foreign venture capital funds, corporations and institutional investors is effected directly or through local venture capital firms.
"We make deals directly or through local VC firms and relationships with key individuals," AOL Investments President Lennert Leader recently told reporters in Israel, at a conference organized by the Israel Venture Association.
AOL Investments, the venture capital arm of America Online, has invested $60 million in Israel since January this year. Of this amount, approximately $30 million was invested in five Israeli venture capital funds, including Polaris Venture Capital, Israel Seed Partners and Jerusalem Global, and other $30 million went to five start-ups as direct equity investment.
"Israel is the only country outside the US in which AOL Investments has put funds," Leader said. Our $60 million investment in Israel represents a major commitment." To provide a comparison, he noted that AOL Investments has allocated $110 million for projects in the US since July 1999. Lennert said he expected AOL to increase its investments in Israel.
"AOL Investments has invested in our fund, but we act as their radar (seeking additional investment opportunities)," said Rami Kalish, managing director of Polaris, which recently launched its $500 million Polaris III fund.
Cont.