Foreign venture capital funds traditionally
represent more than 50% of total high-tech
investments. A closer look indicates that one of
the reasons for the high level of foreign
investments is related to the early exits by the
Israeli companies.
With increasing numbers of Israeli high-tech
startup companies being acquired by major firms,
or enjoying successful public offerings, the VC
funds that provided their early stage capital are
reaping returns from their investments at a
record pace. Probably no country in the world has
such rapid exits.
Israeli start-ups tend to adopt an M&A exit
strategy, due both to their great distance from
major markets and to their lack of appropriate
resources. This strategy usually creates lower
value than the potential value that would have
been achieved had the company adopted an IPO exit
strategy.
Another factor is the lack of experienced management.
Since the beginning of 2008 we have witnessed
eight exits totaling nearly three quarters of a
billion dollars. At this rate 2008 could be a
record year.
With venture capital finance continuing to pour
into Israel, there is no reason to believe the
deal making upswing won't continue in 2008, IVC:
Gemini and Vertex rated as most active VC funds
in 2007
In 2007 the Israeli high-tech sector raised just
under $2.0 billion. This was far less from the
record figure in 2000 when Israeli startups
raised more than $3.2 billion from venture
capital funds. However, this could be a record
year for company exits.
Staying independent and not rushing to sell its
technological achievements would most likely
enhance Israel's economy. Whether this would
affect the flow of foreign capital is
questionable. Israel has succeeded in creating
only four mega companies -Amdocs, CheckPoint,
Comverse and Teva. As long as companies continue
to make early exits
and thus providing the VC companies with profits
Israel will continue to be a focus for foreign
venture capital investments.