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  • The Kesselman and Kesselman PricewaterhouseCoopers MoneyTree™ Report Crisis has also hit venture capital investments in Israel, with 32% decrease in level of investment as compared to that for previous quarter; lowest level of investment for five years The latest Kesselman and Kesselman PricewaterhouseCoopers Israel MoneyTree™ Report shows that venture capital-backed high-tech companies (companies in which one of the investors in the investment round is a venture capital fund) raised approximately $194 million in Israel during the first quarter of 2009, a decline of approximately 32% in comparison with the level of investment in the preceding quarter (when approximately $287 million was raised) and a decline of approximately 55% in comparison with the level of investment in the corresponding quarter of last year (when approximately $427 million was raised). The level of investment for this quarter is the lowest since the fourth quarter of 2003 when $192 million was raised. The Report also reveals that only 49 Israel high-tech companies raised capital in the first quarter of 2009, as compared to 81 such companies that raised capital in the preceding quarter and 92 such companies that raised capital in the corresponding quarter of last year. The average investment per company in the quarter under review was $4 million, as compared to $3.5 million in the preceding quarter and $4.6 million in the corresponding quarter of last year. The data matches the trend discerned in the United States during the first quarter whereby, as reported in the latest U.S. MoneyTree Report, that quarter reflected a decline of 47% in venture capital fund investment in comparison with investment levels in the preceding quarter and a decline of 37% in the number of companies seeking investment. The Israel MoneyTree Report points to an increase in the relative proportion of total investment represented by large transactions (transactions involving investment in any one company in an amount exceeding $10 million) in the quarter under review. During the course of the quarter, seven large transactions totaling approximately $106 million were implemented (55% of total investment for the quarter), as compared to four such transactions totaling approximately $56 million in the preceding quarter (19% of total investment for that quarter)
  • and to twelve such transactions totaling approximately $170 million in the corresponding quarter of last year (40% of total investment for that quarter). Joseph Fellus, Partner and Advisory & High-Tech Practice Leader at Kesselman and Kesselman PricewaterhouseCoopers Israel, remarks that “the expectation of a reduction in investment levels was also borne out in this quarter. The underlying causes of this trend remain and it would seem that no change in the reality of the situation can be anticipated in the short term.” Robi Suliman, High-Tech Practice Partner at Kesselman and Kesselman PricewaterhouseCoopers Israel also notes that “the results for this quarter undoubtedly speak for themselves and reflect the fears of the funds engendered by the crisis. The results clearly indicate that the funds are preparing for a long winter. In the absence of any significant change in the global economy, investment levels in the prevailing state of uncertainty will remain low. On the other hand, with the deepening of an unremitting crisis, more and more companies will find themselves in need of additional finance from the funds – a trend that will pressure the funds to increase the scale of their investment, thereby exacerbating the struggle for survival of the investee companies. “I would add that, for some quarters now, we have been warning of the low level of investment in seed companies. In this quarter, just 2% of total investment is directed towards three companies at the seed stage of development – an all-time low. This particular trend, if it continues, could react adversely on the future of the high-tech industry in Israel.” Percentage of funds making no investment 50% 45% 41% 40% 37% 36% 36% 35% 35% 34% 35% 33% 32% 32% 32% 31% 30% 31% 30% 30% 29% 29% 30% 28% 28% 27% 28% 25% 25% 26% 25% 26% 26% 24% 24% 25% 24% 25% 23% 20% 18% 17% 16% 15% 10% 5% 0% Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- 00 00 00 01 01 01 01 02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09
  • Average investment per company (in millions of dollars) 8.0 7.0 6.2 5.9 5.7 6.0 5.1 4.6 4.7 4.6 5.0 4.4 4.5 4.1 4.2 5 4 4 3.7 3.7 3.7 3.8 3.8 3.5 3.6 4.7 3.5 4.0 3.1 3.3 3.2 2.8 3.6 3.1 3.1 3.1 3 2.6 3.0 3.5 2.3 2.0 2.4 2.5 1.0 0.0 Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- 00 00 00 00 01 01 01 01 02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 Average Deal Size 5.9 5.7 6.2 4.4 3.6 3.1 2.8 3.6 4.5 3.1 3.1 2.3 2.4 3.5 2.5 2.6 3.1 4.7 4.6 3.7 3.3 3.7 3.7 3 3.5 5.1 3.8 4.1 3.8 4 4.7 3.2 4.6 4.2 5 3.5 4 Slice of Israel Venture Capital Funds in high-tech cake The domestic venture capital funds invested approximately $94 million, this sum representing approximately 48% of total investment for the first quarter of 2009. This investment for the present quarter compares with similar investment of approximately $142 million for the previous quarter (approximately 49% of total investment for that quarter) and of approximately $204 million for the corresponding quarter of 2008 (approximately 48% of total investment for that quarter). In addition to investment in high-tech companies with operations in Israel, local venture capital funds also invested approximately $8 million in 4 overseas high-tech companies that are not engaged in operations in Israel. This compares with approximately $32 million invested in 9 foreign companies in the previous quarter and with approximately $21 million invested in 10 foreign companies in the corresponding quarter of last year.
  • Israel VC’s Investment Levels ($ million) 1,100 1,000 900 800 ($ in millions) 700 600 500 400 300 200 100 0 Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3 - Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- 00 00 00 00 01 01 01 01 02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 0 9 Total Investmen ts 617 735 1034 845 471 415 330 384 344 217 221 200 14 3 24 3 19 0 19 2 255 326 347 292 292 286 311 221 318 300 253 330 307 319 350 221 427 291 393 287 19 4 Israel VCs 176 226 308 343 208 184 167 144 122 112 106 88 66 85 10 9 88 137 147 152 123 159 153 178 128 161 118 126 150 164 159 160 118 204 148 181 142 9 4 Israel VCs(%) 29% 31% 30% 41% 44% 44% 51% 38% 35% 52% 48% 44% 46% 35% 57% 46% 54% 45% 44% 4 3% 5 4% 5 4% 57% 58% 51% 39% 50% 45% 53% 50% 46% 53% 48% 51% 46% 49% 48% Analysis by Geographic Location of Company Registration 30 companies, representing 61% of the total number of companies raising capital in the first quarter of 2009, are registered in Israel. These companies raised approximately $102 million, this sum representing approximately 53% of total investment. The remaining companies are registered overseas, the overwhelming majority in the United States. Companies Receiving Grants from the Chief Scientist 11 companies, representing 22% of all companies raising capital in the first quarter of 2009, have received grants from the Office of the Chief Scientist. Approximately $33 million of total investment funds has flowed into these companies. Analysis by Leading Technological Sector The Communications and Networking sector raised the greatest amount of capital in the first quarter of 2009, with 17 companies raising approximately $101 million. This situation compares with 26 companies raising approximately $93 million in the preceding quarter and with 22 companies raising approximately $104 million in the corresponding quarter of last year. The average investment per company in this sector for the present quarter was $6 million, as compared to $3.6 million in the preceding quarter and to $4.7 million in the corresponding quarter of last year. The present quarter saw five large transactions in this
  • sector at a total value of approximately $71 million, an amount representing 71% of total investment in the sector. During the course of the quarter under review, 11 companies operating in the Software sector raised approximately $18 million, this representing 10% of total investment for the quarter. This situation may be compared to an investment of approximately $52 million in 19 companies in the preceding quarter and of approximately $114 million in 25 companies in the corresponding quarter of last year. In monetary terms, this performance is equivalent to a sharp decrease of approximately 65% in comparison with the preceding quarter and of approximately 84% in comparison with the corresponding quarter of last year. In the present quarter, the average investment per company was $1.7 million, as compared to $2.8 million in the preceding quarter and $4.6 million in the corresponding quarter of last year. During the course of the first quarter of 2009, 3 companies operating in the Semiconductor sector raised approximately $12 million. This situation may be compared to an investment of approximately $39 million in 5 companies in the preceding quarter and of approximately $63 million in 10 companies in the corresponding quarter of last year. In the present quarter, the average investment per company in this sector was $4 million, as compared to $7.8 million in the preceding quarter and $6.3 million in the corresponding quarter of last year. In monetary terms, this performance is equivalent to a sharp decrease of approximately 69% in comparison with the preceding quarter and of approximately 81% in comparison with the corresponding quarter of last year. The Life Sciences sector, incorporating Medical Devices and Biotechnology, also exhibited a decline in comparison with the preceding quarter. During the course of the first quarter of 2009, 5 companies operating in the sector raised approximately $11 million. This situation may be compared to an investment of approximately $58 million in 13 companies in the preceding quarter and of approximately $50 million in 12 companies in the corresponding quarter of last year. In the present quarter, the average investment per company was $2.3 million, as compared to $4.5 million in the preceding quarter and $4.1 million in the corresponding quarter of last year. Amongst the companies operating in the Miscellaneous sectors category are companies operating in the internet sector, the clean-tech sector and the media sector. 13 companies classified under this category raised approximately $51 million in the present quarter, this sum representing approximately 26% of the total investment for the quarter. This situation may be compared to an investment of approximately $44 million in 18 companies in the preceding
  • quarter and of approximately $95 million in 23 companies in the corresponding quarter of last year. With 5 companies raising approximately $15 million, the Internet sector attracted approximately 30% of the total investment attributable to this category (a level of investment representing also approximately 8% of the overall investment for the quarter as a whole). Total Investment by Sector Other 26% Communications & Networking 52% Semiconductors 6% Life Sciences 6% Software 10% Analysis by Investment Round Early round In the first quarter of 2009, 15 companies raised approximately $97 million in the early round (the first and second rounds combined). This compares to 25 companies that raised early round investment funds of approximately $80 million in the preceding quarter and to 29 companies that raised early round investment funds of approximately $151 million in the corresponding quarter of last year.
  • The average early round investment per company for the first quarter was $6.5 million, as compared to $3.2 million for the preceding quarter and $5.2 million for the corresponding quarter of last year.
  • Third round In the first quarter of 2009, 5 companies raised approximately $35 million in the third round. This compares to 8 companies that raised third round investment funds of approximately $57 million in the preceding quarter and to 8 companies that raised third round investment funds of approximately $59 million in the corresponding quarter of last year. The average third round investment per company for the first quarter was $7 million, as compared to $7.1 million for the preceding quarter and $7.4 million for the corresponding quarter of last year. Later round During the course of the first quarter of 2009, 9 companies raised approximately $41 million by means of transactions undertaken within the context of later investment rounds (i.e., commencing with the fourth investment round). This compares to 11 companies that raised later round investment funds of approximately $62 million in the preceding quarter and to 23 companies that raised later round investment funds of approximately $137 million in the corresponding quarter of last year. The average later round investment for the first quarter was $4.6 million, as compared to $5.6 million for the preceding quarter and $5.9 million for the corresponding quarter of last year. Bridge loans In the first quarter of 2009, 18 companies raised approximately $15 million through the medium of bridge loans. This compares to 34 companies that raised bridge loan finance of approximately $82 million in the preceding quarter and to 32 companies that raised bridge loan finance of approximately $79 million in the corresponding quarter of last year. In the present quarter, the average amount of a company bridge loan was $0.9 million, as compared to approximately $2.4 million in the preceding quarter and to approximately $2.5 million in the corresponding quarter of last year.
  • Total Investment by Investment Round Bridge Loan Later Round 8% 22% Early Round Third Round 51% 19% Analysis by Company Development Stage Seed/start-up stage Three companies at the seed stage raised approximately $4 million during the first quarter of 2009, this representing just 2% of total investment for the quarter. This may be compared to situations in which 9 such companies raised approximately $16 million in the preceding quarter and 18 such companies raised approximately $44 million in the corresponding quarter of last year. In the first quarter, the average investment per company at this stage of development was $1.3 million, as compared to $1.8 million in the preceding quarter and $2.5 million in the corresponding quarter of last year. Intermediate stage (early/expansion stage) In the first quarter of 2009, 37 companies at the intermediate stage of development raised approximately $154 million. This compares to 62 such companies that raised approximately $224 million in the preceding quarter and to 57 such companies that raised approximately $287 million in the corresponding quarter of last year. The quarter under review also saw five large transactions totaling approximately $86 million, this representing 56% of the total investment in companies at the intermediate stage of development. The average investment for the quarter was $4.2 million, as compared to $3.6 million for the preceding quarter and to $5 million for the corresponding quarter of last year.
  • An internal analysis of intermediate stage investment reveals that 25 companies at the early stage of development raised approximately $95 million during the quarter under review, with 12 companies at the expansion stage of development raising approximately $59 million during that same quarter. Later stage In the first quarter of 2009, 9 companies at the later stage of development raised approximately $36 million. This compares to 9 such companies that raised approximately $46 million in the preceding quarter and to 17 such companies that raised approximately $95 million in the corresponding quarter of last year. The average investment for the quarter was $4 million, as compared to $5.1 million for the preceding quarter and to $5.6 million for the corresponding quarter of last year. Total investment by company development stage Seed/Startup Later Stage 2% 19% Early Stage Expansion 49% Stage 30% The MoneyTree™ Report is issued quarterly by Kesselman & Kesselman, Israel, in conjunction with the reports issued in the United States and Europe by the world’s largest accounting firm, PricewaterhouseCoopers. This quarter, 43 venture capital firms participated in the production of the Report. The findings of the Report are widely used each quarter by Israeli and foreign venture capital funds, commercial banks, investment banks and other financial institutions both in Israel and abroad, and by high-tech companies, government departments, the Office of the Chief Scientist and others. For further information, please contact Benny Ginat, Kesselman & Kesselman PricewaterhouseCoopers - Tel: 972-54-5615737, E-mail: benny.ginat@il.pwc.com Legal disclaimer The information contained in this survey is for general guidance on matters of interest only. The application and impact of laws can vary widely based on the specific facts involved. Given the changing nature of laws, rules and
  • regulations, there may be delays, omissions or inaccuracies in information contained in this survey. Accordingly, the information on this survey is provided with the understanding that the authors and publishers are not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. Before making any decision or taking any action, you should consult a PricewaterhouseCoopers professional. While we have made every attempt to ensure that the information contained in this survey has been obtained from reliable sources, PricewaterhouseCoopers is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information in this survey is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will PricewaterhouseCoopers, its related partnerships or corporations, or the partners, agents or employees thereof be liable to you or anyone else for any decision made or action taken in reliance on the information in this Site or for any consequential, special or similar damages, even if advised of the possibility of such damages.