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In addition to the increase in the aggregate amounts invested into VC funds, there has
also been an increase in the number of funds raised, a drop in the number of “micro
funds” in favour of slightly larger funds, an increase in the average fund size, and a
fair presence of first time funds and teams. These metrics strongly point to a recent
strengthening of the Israeli venture capital industry, as compared with previous years.
Increased Israeli institutional investor involvement in VC funds
After years of minimal or no investment in VC funds, we have witnessed rising interest
and involvement by Israeli institutional investors in these types of investments over
the past two years. This includes investments by smaller institutional players that were
not previously active in the field, as well as more investments by Israeli institutional
investors in first time funds, to such an extent that there are first time funds in which
Israeli institutional investors contribute the majority of the capital. On top of this, the
actual size of individual investments has grown dramatically.
A significant increase in the presence of Chinese investors
After years in which US investors dominated the Israeli VC investment fund landscape,
recently Chinese investors have also demonstrated enormous interest in Israel, and
have invested considerable sums in Israeli funds and also directly in Israeli companies.
Such investments serve a critical strategic role for Chinese investors keen on gaining
a competitive advantage through technological innovation, and function as a gateway
and important avenue for potential commercial cooperation, R&D and acquisitions.
In a number of recently formed VC funds, interests held by Chinese investors have
reached as high as 30 or even 40 percent.
Greater funding for, and more types of, private equity funds
For years, Israeli VC funds typically raised more capital, and were able to stir more
interest among foreign investors than Israeli private equity (“PE”) funds. With time, as
successful management teams have emerged, the average size of Israeli PE funds has
increased, more management teams have been established, and investment scopes
have multiplied. Today, there are Israeli buyout funds, infrastructure funds, secondary
funds, funds of funds, various types of debt, real estate and agricultural funds across
the globe, as well as other types of funds that defy easy categorization. In 2014, Israeli
PE funds raised a total of $1.7 billion, which represents a 2.5-fold increase from the
amount raised only a year before, and in the first half of 2015 alone, $1.3 billion has
already been raised.With many PE funds planning to raise money in the near future, we
expect significant funds to flow into the industry.
Increased private debt fund activity
A severe shortage of available credit has cast these types of investment opportunities
in the spotlight.TheStateof Israel recently issuedabid toencourage theestablishment
of private debt funds focused on small and medium-sized businesses. As part of the
incentive program, the State will invest in the fund and also mitigate some of the risk
of certain other investors. This program is the latest in a line of incentive programs
for funds, the first and best known of which was the Yozma (initiative) program of the
1990s, which is considered to be the wellspring of the Israeli venture capital industry.
To the best of our knowledge, today there are more than ten groups participating in
the bidding process, and more than five groups that are raising money for private debt
funds outside the scope of the tender. This is by all accounts the hottest field of the
year in terms of PE fundraising.
More investor-friendly terms
In recent years, there has been stronger insistence, especially from Israeli institutional