1 / 18

Changes in the Israeli VC Market: From an Emergent to a Developed Market

Changes in the Israeli VC Market: From an Emergent to a Developed Market. Gil Avnimelech & Dafna Schwartz School of Management Ben Gurion University, Israel 5 th Bi-National Regional Science Workshop Tel Aviv, 29-30 April 2007. Objectives.

whitney
Download Presentation

Changes in the Israeli VC Market: From an Emergent to a Developed Market

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Changes in the Israeli VC Market: From an Emergent to a Developed Market Gil Avnimelech & Dafna Schwartz School of Management Ben Gurion University, Israel 5th Bi-National Regional Science Workshop Tel Aviv, 29-30 April 2007

  2. Objectives • This paper analyzes the process of development of a VC industry in a new geographical market • We examine the changes that have occurred in the Israeli VC market since its emergence at the early 1990s toward its consolidation stage • We identify changes in the VC market size, structure, concentration, investment patterns and performances.

  3. The Israeli VC Industry • High VC investments as a share of GNP – 1.2% during 1997-2006, compared with 0.48% in the U.S.. • High Share of VC investments in Early Stages - 44% of VC investment during 1997-2006, compared with 25% in the U.S., and 23% in EU. • High Share of VC investments in ICT - 74% of VC investment during 1997-2006, compared with 55% in the U.S. • Diversified Global Exit Channels –almost all exits are in Global capital markets – IPOs in NADSAQand in other global capital marketand acquisitions by MNEs.

  4. Related Literature • Evolutionary Economics (Winter & Nelson 1982; Dosi 1982, 84; Freeman, 1988; Arthur 1990) (Anderson & Tushman, 1990; David, 1994; McKelvey, 1998; Perez, 2002) • Product/Industry Life Cycle (Abernathy & Utterback, 1975, 1978, Klepper, 1996, 1997, 1999, 2000, 2001) (Malerba & Orsenigo, 1996; Audretsch & Feldman, 1996, Simons, 2001) • Geographical Economics - Clusters (Marshell, 1890; Krugman, 1991; Audretsch & Feldman, 1986, 2003) (Maskell, 2001; Saxenian, 1994; Boschma & Lambooy, 1999; Fujita & Thisse, 1996) • Venture Capital & Entrepreneurship (Chan, 1983; Act & Audretsch, 1990Timmons & Bygrave 1992;Berglof, 1994) (Himmelberg & Petersen, 1994; Hellman & Puri 2002; Wright & Robbie, 1998) (Marx, 1998; Gompers & Lerner 1999, 2001; Repullo & Suarez, 2004 )

  5. The Main Arguments • The services provided by VCs should be analyzed as innovative services within the financial markets. • When VC industry enters a new geographical market, in many aspects, it follows similar patterns to an innovative product life cycle. • A new VC industry will initially include a few but extremely innovative agents. • As the industry matures it becomes much more competitive and the VC agents become less innovative.

  6. Israel's high Tech ClusterSelected Structural Elements (1969-2006) Sources: IVC (2007), USPTO (2007), IAEI (2007)and authors processing

  7. VC Emergence 1993-1998 • Triggered in 1993 by Yozma created a critical mass of activity  VC Industry Emergence • Few VC agents – Extremely innovative agents • Rapid development of the high tech cluster  demand for VC services • Rapid growth of NASDAQ, of global high tech sectors and of Global VC industry  Exit opportunities  Accelerated growth of VC activity in Israel  VC Industry Development

  8. VC Emergence & DevelopmentStartups’ Foundation: 1986-2005 Source: IVC 2007

  9. VC Emergence & DevelopmentVC Raised & Invested: 1991-2006 (M$) Source: IVC 2007

  10. Toward Consolidation • Entry of a significant number of foreign VC agents to Israel. • A solid base for acquisitions of Israeli startups – significant number of MNE active in Israel • More diversified exit channels for Israeli startups. • First VC companies complete a full VC cycle and raise third and forth funds. • Overcoming the external high tech crisis • Only successful VC raise new fund.

  11. Entry of Foreign VCInvestments of Israeli vs. Foreign VCs (M$) Source: IVC 2007

  12. Not Only VCs Finance StartupsVC-backed Startups 1991-2006 Source: IVC 2007

  13. Less High-Risk InvestmentsStages of VC Investments 1997-2006 Source: IVC 2007

  14. More Competitive IndustryA Dominant Group of Leading VCs Sources: IVC (2007) and authors processing

  15. Characteristics of Israeli Startups that were targets of M&As 1997-2006 Sources: IVC (2007) and authors processing

  16. Characteristics of Israeli Startups that had IPOs on NASDAQ 1997-2006 Sources: IVC (2007) and authors processing

  17. Characteristics of Consolidation • Relative stability in VC investments • Continued stream of startup creation with realistic closure rate (50%-70%) • More diversified VC market. • More conservative industry - less early stage and high risk investments. • Much lower returns – larger investments and many rounds & investors in each startup

  18. Conclusions • When VC industry enters a new geographical market, in many aspects it follows similar patterns to a product life cycle. • A new VC market will initially include a few but extremely innovative agents, which gain very high returns. • As the industry matures it becomes much more competitive and conservative, therefore it will be less innovative and take lower risks and consequently have significantly lower returns. • This have significant policy implications.

More Related