Tech Roundup / Investors Shy Away From Israeli Start-ups

Israeli start-ups are finding less funding and some are moving to the U.S., but international investors continue to put faith – and personnel – in the country.

Venture-capital funds invested 11 percent less in Israeli high-tech firms during the first half of 2012 than in the first half of 2011, says a report published this week by IVC Research Online in cooperation with the KPMG Somekh Chaikin accounting firm.

The report finds that Israeli funds – including Pitango, Carmel and JVP – invested $225 million in Israeli start-up companies in the first half of 2012. In comparison, they invested $297 million in the first half of 2011 and $169 million in the first half of 2010.

Israeli funds' contribution to overall investment in Israeli start-ups also dwindled, according to the report. Israeli funds were behind 24 percent of local fundraising in the first half of 2012, compared with 28 percent in the first half of 2011.

The funds' lack of enthusiasm for Israeli start-ups was further evidenced by their decreasing willingness to give them early-stage investments – which are considered to be more dangerous. In the second quarter of 2012, Israeli funds made 18 percent of their local investments in companies they had not invested in before – the lowest quarterly rate in a decade. The number was 2.6 times greater – 48 percent – in the previous quarter.

* Thus for instance the Israeli company DoubleVerify relocated from Tel Aviv to New York, perhaps reflecting apprehension over the state of the markets. DoubleVerify developed software that enables advertisers on the Internet to prevent their advertisements from appearing on inappropriate websites, such as those featuring pornography or gambling. This week, 35 of the company’s employees received an offer to relocate to New York. Fifteen others will be laid off.

“The reason for moving the development center to New York is to be close to the company’s clients and to the product and sales teams. This will maximize the solutions and services that are provided to clients,” a high-ranking company official said.

Other Israeli companies are also moving their operations to the United States – either to be closer to their clients or because they were acquired by American high-tech giants. It is unclear whether, which was recently acquired by Facebook, will follow this trend. On the other hand, American companies are adding more personnel in Israel. Apple, which recently opened a development center in Israel, continues its intensive efforts to recruit workers. And IBM this week announced its intention to expand the local development team for WorkLight, an Israeli app developer that it acquired in February for $95 million.

Venture capital funds ranked Israel the third best place to invest in a global survey published this week, showing that American firms are not alone in their faith in Israel. The U.S. and Brazil took first and second place, respectively, and China tied Israel for third. The survey was conducted by the Deloitte accounting and consulting firm in partnership with the National Venture Capital Association and Israeli Advanced Technology Industries. It included more than 440 partners and venture-capital fund managers in 36 countries.