Israel VC Indicator Q1 2009
The global financial crisis is reaching its nadir while venture capitalists gear up for continued rough timesDOWNLOAD
The global financial crisis is reaching its nadir while venture capitalists gear up for continued rough times; The technology capital markets expectations reflect the same essence of pessimism with 42% of respondents think that the global technology - sector based equity indexes (such as the NASDAQ index) will continue to lose ground in the coming year; Sixty four percent think we will see a major decrease in the Israeli high tech companies' revenues.
The majority of venture capitalists (64%) think that the current financial crisis has more impact on the high tech industry than the impact that the "Internet Bubble" bursting had on the high tech industry.
Tel Aviv, March 31, 2009 - The global financial crisis is reaching its nadir while venture capitalists gear up for continued rough times. For the first time, none of the respondents think that the overall economic climate will improve during the next six months (compared to 7% in Q4 2008). This is the lowest expectation level for improvement in the economic climate since Q4 2001 when Deloitte's first Israel VC Indicator Survey was launched.
The technology capital markets expectations reflect the same essence of pessimism with 42% of respondents think that the global technology - sector based equity indexes (such as the NASDAQ index) will continue to lose ground in the coming year and 55% think that the indexes will show idle in the coming year.
The majority of the technology companies in Israel are facing difficulties such as a slowing revenue stream, cash flow generation, difficulty accessing capital and pressure to contain expenses. The venture capitalists' forecast in regards to revenues is unfortunate. Sixty four percent think we will see a major decrease in the Israeli high tech companies' revenues.
The current extent of the crisis is leading to an unavoidable comparison to previous crises in general and to the "Internet Bubble" bursting in 2000, specifically. The majority of respondents (64%) think that the current financial crisis has more impact on the high tech industry than the impact that the "Internet Bubble" bursting had on the high tech industry.
"We are facing challenging times. The capital markets are now in a state of paralysis and the outlook of the overall economic climate is reaching its lowest point. It is already clear that the coming era is going to be formidable." explains Asher Mechlovich, Israel High Tech Leader at Deloitte Brightman Almagor Zohar.
The crisis urges companies to push the envelope and reinvent themselves and their business models. The venture capital industry however, is much more conservative. Fifty five percent of respondents report that the global recession does not affect the focus of their venture investment strategy in terms of stage of development of investee companies. Thirty nine percent of respondents report they are shifting focus to later stage companies and existing portfolio companies and only 6% see the current situation as an opportunity to shift focus to early stage companies.
The respondents' outlook regarding investment valuations is bleak. The respondents of this survey are hitting the bottom once again. None of them expect investment valuations to increase during the next six months. The picture is crystal clear, the vast majority expects to see a decrease in investment valuations during the next six months with the remaining respondents expecting investment valuations to remain unchanged.
"The decrease in both the number of new investments and the valuations of these investments upon exit should urge them to invest in early stage rounds today more than ever. Taking the risk in times of crisis by investing fairly small amounts of money in early stage companies can smartly position the venture capitalist for the end of the downturn. Those prepared to take equally profound action in their investments will emerge as leaders in the medium and long term." explains Mr. Mechlovich.
The crisis is leading to polarization of the sectors between the ones which are highly sensitive to volatile markets and the ones which are not. Amongst venture capitalists, thirty six percent think that the first major sector which will recover from the downturn in the economy will be the Cleantech sector, followed by the Medical Devices sector with twenty six percent responding with a favorable outlook.
"It appears as if the Cleantech and the Medical Devices sectors should be the accelerator to pull out the industry of this crisis. The pattern of changing economic cycles is part of the environment in which we live and conduct business, therefore the entrepreneurs and the investors should dedicate their resources to industry sectors that might be less influenced by the economic downturn which we are currently experiencing." adds Mr. Mechlovich.
Access the complete results of Q1, 2009 Israel VC Indicator Survey at: http://www.deloitte.com/il/vc
The purpose of the Israel VC Indicator Survey is to identify trends within the venture capital arena. Its objective is to give a comprehensive picture of the expectations of the Israeli VC community for the next six to twelve months. The survey is designed to explore relevant key aspects, such as economic and market conditions, deal activity and investment and managerial focus. The results produce a forward-looking measure of the overall sentiment in the Israeli venture capital community, which is extremely relevant to immediate deal flow.
The 28th Deloitte Brightman Almagor Zohar Israel VC Indicator Survey results for Quarter 1, 2009 include a comparison, where relevant, to responses from previous surveys.
The VC Survey and Private Equity Surveys are a Deloitte initiative. The surveys have been conducted for some years, running concurrently in Israel, the United Kingdom, Germany, Spain, Portugal, Central Europe, Mexico, South Africa and India, to name but a few. Moreover, once a year, Deloitte also releases a Global VC Survey. The Global Survey purpose is to identify attitudes of venture capitalists and private equity investors regarding investing on a global basis and tracking long-term trends about the attitudes of international investing.
Responses for Israel VC Indicator Survey Quarter 1, 2009 were collected from March 9th, 2009 through to March 19th, 2009. The responses were collected from venture capitalists in Israel, including replies from the major VCs in the country.
Deloitte TMT Business Development Team use a variety of research and statistical tools to provide extensive analysis of the survey results. If respondents do not answer a question, the count for the question is adjusted accordingly. All charts presented in this report are sourced from the survey results.