Venture capital basically involves all the capital in terms of finance that is provided to companies in a country. Therefore, venture capital in Israel refers to the financial capital that is provided to companies in Israel. Either these companies could be new companies that are just starting operations or they could be companies, which have been in existence for several years. The country currently has several active venture capital funds, both national and international, that are active and this number keeps growing. The trend of venture capital financing in Israel began towards the end of the 20th century and has since continued to grow and its popularity has increased quite considerably.
The main role of venture capital investments is to provide startup capital to new business establishments and venture capitalists in Israel have been successful in doing this. Though most venture capitalists in Israel are very selective when it comes to deciding what to invest in, major economic fields have been able to develop considerably due to the help accorded to the by venture capitalists.
Some of these fields include life sciences, software, telecommunications, defense and homeland security systems, medicine, energy, environmental technology among others. Also benefiting from venture capital is water technology. Due to the diversity in venture capitalism in Israel and the development that comes with it, the country has also been able to attract leading multinational companies, which have invested in the country. These companies include Sony, Microsoft, Unilever, Hewlett Packard, Cisco, and Fuji. This has in turn continued to increase the rate of economic growth in the country.
Obtaining startup capital by borrowing venture capital in Israel is very much different from borrowing any other loan. The process of applying and qualifying for a venture capital loan involves a series of stages. These stages begin from writing a good business plan and then submitting it to a venture capitalist. The venture capitalist will then read and access the business plan. Depending on the conclusions drawn after analyzing it, the lender will decide if or not he is interested in investing in your business. If the venture capitalist decides to go ahead and become invested in the company, he then becomes actively involved in the company’s operations. The lender of venture capital will provide funding to a company in stages. These funds are provided after the company meets the requirements of previously agreed-on milestones. It comes a time a when the venture capitalist exit the company and this is usually after several years preferably after 4-6 years. This is usually in the form of mergers IPO has or even acquisitions.
Venture capitalists in this country in most cases provide capital to entrepreneurs in exchange for an equity stake in the company. In addition, they also have a right to be paid the full amount of capital that was lent together with the interest on such a ��loan.’ In addition, they also take the responsibility of nurturing a company up to the stage where the venture capitalists can assessments of the valuations are favorable to both parties i.e. the entrepreneur and the capitalists. This actually how venture capital providers make their money.
Upcoming and Common Trends in Venture Capital in Israel
In the past few years, there have been new trends and policies, which have become quite popular in the sector of venture capital in Israel. These include:
• Largest Venture Capital providers in Israel are continuously proving providing follow up capital to the companies they invest in.
• Local venture capital funds are also continually finding it difficult to raise money for new investments while foreign investors keep increasing their investments.
• Venture capital providers are increasing investing in mid-level companies more than in new companies and fully-grown companies.
• Venture capitalists have been able to deliver successful exits in the past few years thanks to the emergence of mergers and acquisitions. For instance in 2011 alone, there were at least 85 mergers and acquisitions of Israeli companies whose total value was $5.23 billion. This was a 134% increase from that of the previous year.
• Venture capital providers are continuously investing in four major sectors. These sectors include (in order from the most heavily invested in) internet, communications, software and finally life sciences.
The country’s venture capital industry is globally represented by the Israeli Venture Association commonly known as an IVA. This association is actively involved in carrying out research regarding venture capital in Israel and cultivating relations with other venture associations in the world. The association maintains the IVCA website (www.ivc-online.com) where it posts its research reports and anything else regarding this industry and the economy of Israel as well. In addition, the association also holds a conference each year in Israel where they discuss matters relating to and affecting venture capital industry among other things.
The one thing that has enabled the increase in venture capital investments in Israel is that the country has relaxed currency regulations that allow easy repatriation of funds. This has made it easy for both local and foreign investors to raise venture capital. In addition, Israel has already entered into various free trade agreements including agreements with the European Union, Czech Republic, USA, EFTA, Hungary, Poland, Turkey, and Canada among others. There are also trade agreements that are in progress. These have made it easier for foreign venture firms invest it in the country. The country is also part of various tax treaties with the some of the most industrialized countries in the world. Owing to these agreements, there are currently more than two hundred venture capital companies that have invested in the country.
The venture capital industry in Israel has also grown to a point where the country now has the highest number of start-up companies than any other country in the world. This is of course excluding the United States of America, which has the highest number of start-up companies.
At this point, it can be accurately stated that venture capital trend has really boosted the rate of economic growth. Different sectors of the economy have benefitted from venture capital funds and job creation has increased with development of companies.