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Israeli VCs miss the mark

September 30, 2006
Israeli VCs miss the mark. Check it out:
(Israel Business Arena Via Thomson Dialog NewsEdge) Venture capital provides a source of funds through investment, usually for companies or projects that are un the start-up or at a very early stage of product development. These projects and organizations generally would not attract sources of finance such as loans and could not raise money in the major public stock markets.



The role of venture capital in enterprise development in developing countries is critical. The collateral of emerging enterprises is not incorporated in fixed tangible assets like plant and machinery, but more on elements like market access, human capital, intellectual property and goodwill. Manpower and financial needs in new companies are generally focused on research, development and introduction of a product into the marketplace, production and manufacturing. This results in initial low or negative cash flows and the need to finance these companies rests on potential future earnings rather than current profits. These factors make it difficult for new and emerging companies to obtain traditional financing.

We believe that in the area of financing start-ups the Israeli venture capital industry is lagging sadly behind its overseas counterparts. According to a recent IVC Center Research report Israeli venture capital companies thirteen seed companies attracted $34 million, 10 percent of the total amount raised in Q3. During the first three quarters of the year, seed companies attracted eight percent of the total funds, compared with six percent in Q1-Q3 2004.

By contrast American seed and early stage companies accounted for 36.8% of all companies funded in the second quarter, according to the PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association MoneyTree Survey. These figure indicate that the Israeli venture capital financing industry is far from being venturesome and that it underperforms in the area, which is basic to its tenets. There is a yawning chasm between its funding of local start ups as compared with the American industry.

Notwithstanding the industry has badgered the Government for preferential conditions for foreign investors. Perhaps most damning are the poor returns that the industry provides for its investors. Many of the venture capital companies are still stuck with the unprofitable investments from the dot.com era. Had the rate of investments in start ups been higher in previous years we would see a parade of initial public offerings in a period when the stock markets are absorbing them so successfully.

Published by Globes [online], Israel business news - www.globes.co.il - on February 15, 2006

Copyright 2006 Globes. Source : Financial Times Information Limited.


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