from the April 2009 issue

Collateral Damage

The ongoing recession is effecting employment in the high-tech sector. Additionally there is collateral damage which is hurting two areas of activity: initial public offerings (IPOs) and startup capital.

A recent study shows a marked decrease in both the number and in the size of IPOs, when compared with the, already disappointing, third quarter of 2008, and a dramatic decrease in IPO activity compared to the fourth quarter of 2007. The fourth quarter typically displays strong IPO activity, but the fourth quarter of 2008 showed the lowest IPO activity since the first quarter of 2003, when new issue market confidence was weakened by the uncertainty surrounding events in the Middle East.Unaffected, so far, is the merger and acquisition market.

Among the benefits of IPOs is the fact that some of the money so raised is earmarked for new investments. Entrepreneurs do not like to leave money on the sidelines and are likely, in the aftermath of an IPO, to look for new investment possibilities.

Perhaps even more harmful to the high-tech industry is the decrease of investment capital in startup companies. It is evident among angel investment community which has been hurt by the recession. As a result these usually intrepid investors are less likely to inject risk capital.

To the best of our knowledge, funds available for startups from the Office of the Chief Scientist are still available. . This situation has increased the risk of startup failure. Venture capital companies claim that they are not launching new investments as they are retaining their funds to support their existing basket of investments.

As these issues play through the industry it becomes clear, that in due course, exports will decrease.

In 2000 the Israeli high-tech industry had a record year when it raised more than $3.0b. It has never rebounded to the highs though 2007 was a satisfactory year. In the past the high-tech industry has shown a high degree of resiliency and hopes are for a rebound in 2010.

Reprinted from the Israel High-Tech & Investment Report April 2009

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