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Venture investing in Israel sank 30% in Q3, says IVC study

Companies at all stages, from seed to growth, saw a drop in the average take

Venture investment in Israeli hi-tech sank 28% in the third quarter compared with the previous three months to $371 million, according to Israel Venture Capital.

Second-quarter venture capital investment was $513 million. But less companies raised capital then, 117 compared with 137 I the third quarter.

Against the third quarter of 2002, which saw a record $1.083 billion in investment, venture financing tumbled 66%.

The third-quarter result was the lowest since the fourth quarter of 1999, when investment sank to $343 million.

Seed investments dropped to $18.5 million in the third quarter, comprising 5% of total investments in Israeli startups during those three months. This compares with $40 million in the same period last year, or 7% of total startup investments.

The average amount per company decreased to $3.2 million, 14% below the comparable figure of the second quarter, which was $3.7 million.

Israeli investment dropped 11% from Q2
Israeli venture capital investments in the third quarter decreased to $180 million, 11% less than in the second quarter, and 54% less than in the same period last year.

First-round investments by Israeli venture capital funds sank to $51 million in the third quarter, compared with $104.4 million in the second quarter.

Follow-on investments came to $129 million.

First investments by Israeli venture capital funds constituted only 28% of their total outlay, a record low.

In the second quarter, comparable first investments reached 52% of total outlay, down from 66% in the first quarter.

The data clearly shows that funds preferred to keep their cash for portfolio startups, rather than seek new opportunities.

Investment in the life sciences rose in the third quarter, at the expense of communications and software companies.

Communications investments down 37% in Q3
Thirty-nine communications companies raised $141 million, 37% down from Q2 and 75% down from the parallel.

Communications startups posted the most financing rounds, but their share of the total dropped to 37%, from 43% in Q2.

The number of companies raising money in Q3 remained firm from Q2.

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The average amount each telecoms startup secured fell to $3.6 million, from $5.7 million in Q2.

Life sciences investments up 23% in Q3
The life sciences sector roped in $81 million capital, 23% more than in Q2 and just 2% less than in the parallel.

Twenty-two companies got 22% of the total venture funding in Q3, compared with 13% in Q2.

Startups brought in an average $3.7 million, 23% more than in Q2.

Software investments down 63% in Q3
Thirty-three software companies raised $54 million, 54% less than in Q2, and 63% less than in the same quarter of 2000.

Investments in software companies comprised 15% of total capital raised, compared with 23% in the second quarter.

The average amount slid to $2.3 million, 45% below Q2, when the average round was $4.2 million.

Internet investments leap 231% in Q3 - but it isn't a rally
Internet investments leaped to $43 million, 213% more than in the second quarter, which had been a dreadful time for Internet startups ¿ which raised all of $13 million.

Internet investments comprised 12% of total capital raised, compared with just 3% in the second quarter.

The average financing round jumped to $2.8 million, 300% more than in the second quarter, when the average volume came to $0.7 million.

But IVC Research Director Racheli Er-el said that the leap in Internet investments is solely due to a huge financing round by Sanctum (formerly Perfecto Technologies). It does not indicate a sector rally.

Amount per stage dropped across the board
In the third quarter, the amount raised in each financing round decreased at all company stages - seed, R&D, initial revenue, and growth.

The worst hit were R&D- and seed-stage companies, which saw their funding rounds drop by around 45% against the second quarter.

Companies in the initial-revenue stage attracted 13% less capital against Q2.

Investments in growth companies were 11% less in the third quarter.

The IVC study covered 128 venture capital investors, 91 Israeli funds and 37 investors, mostly foreign.