Israel VC Indicator Q3 2008
Israeli venture capitalists: Employee layoffs, salary cut downs are expected according to Deloitte Brightman Almagor Zohar studyDOWNLOAD
Deloitte Israel study reveals the most negative attitudes in 7 years amongst Israeli VCs; Majority of VCs advised their portfolio companies to cut expenses; Wall Street crisis might cause limited partners to try and withdraw their VC commitments; Forming crisis won’t be as severe as the dot.com bubble collapse crisis
Tel Aviv, 26 October 2008 - Employees layoffs, salaries cut downs and decrease in revenues are expected in the Israeli high tech industry, according to the Israel VC Indicator Survey, conducted by Deloitte Brightman Almagor Zohar in early October. 70% of Israeli venture capitalists believe high tech employees are likely to see their salaries cut. 48% of venture capitalists to predict that the Israeli high tech industry will lay off many staff in the next six months, 52% also foresee layoffs but to a lesser extent. "As the effects of the financial service sector turmoil continue to spread into other regions and markets, Israeli high tech and venture capital industries gear up for some rough times", explains Asher Mechlovich, Israel TMT Leader at Deloitte Brightman Almagor Zohar.
The survey reveals that a 64% of Israeli VCs advised their portfolio companies to cut expenses and make necessary adjustments to the new forming economic reality. 29% of venture capitalists say that their fund started prioritizing which of its portfolio companies it might abandon and write down as losses if the situation deteriorates. 21% of respondents say that their fund has not done so yet but probably will do so soon. "Start ups need to cut expenses and try to be cash positive. Updating projections and rechecking the business model are also advised", explains Mr. Mechlovich. "Start ups can survive, and even thrive, during volatile economic times by building business models that are more responsive, adaptable, and efficient with resources", adds Mr. Mechlovich.
61% of venture capitalists surveyed fear that the Wall Street crisis might prompt limited partners to try and withdraw their VC commitments. "VCs might encounter difficulties when making capital calls to get the money the limited partners have pledged to the fund. Limited partners exposed to the financial markets might decide they are going to cut back on their commitments regardless of the subsequent fines", explains Mr. Mechlovich.
88% of Venture capitalists foresee harsh times for VCs raising new funds. As for high tech companies' revenues, most venture capitalists (70%) say that most companies will see a slight decrease in revenues. 30% of respondents foresee a major decline in revenues for most high tech companies.
81% of venture capitalists believe that the overall economic climate will worsen over the next six months. This is the highest expectation level for the economic climate to worsen since Quarter 4, 2001. However, forming crisis will not be as severe as the dot.com bubble collapse crisis according to 82% of venture capitalists.
All sectors are expected to show a decrease of transactions during the next six months, according to the venture capital community. The weakest expectations for an increase in transactions are for the Semiconductors, Wireless and Telecom and Software/IT sectors.
Access the complete results of Q3, 2008 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 26th Deloitte Brightman Almagor Zohar Israel VC Indicator Survey results for Q3, 2008 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 3, 2008 were collected from September 24th, 2008 through to October 5th, 2008. 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.