Israel VC Indicator Q2 2008
U.S. Slowdown, the weakness of the Dollar to cause layoffs in the Israeli high-tech industryDOWNLOAD
Tel Aviv, 02 July 2008 – The U.S. economic slowdown combined with the weakness of the U.S. Dollar lead 96% of Israeli venture capitalists to predict that the Israeli high-tech industry will lay off staff, according to the Israel VC Indicator Survey, conducted by Deloitte Brightman Almagor Zohar in the last 2 weeks.
Whilst an economic slowdown has not yet been fully reflected in the official economical indicators, according to nearly three quarters (72%) of venture capitalists surveyed, Israel is already undergoing an economic slowdown. 55% of venture capitalists surveyed expect that the overall economic climate will worsen over the next six months.
"Israel is well placed to meet the economic global crisis after its economy has grown by 5% or more in each of the past four years and with high tech exports which not only rely on price but also on competitive edge and innovation", explains Asher Mechlovich, Israel TMT Leader at Deloitte Brightman Almagor Zohar. "slowdown is here and might yet strengthen but it will probably not be dramatic, just a relative lull compared to the past few years. There will be limited layoffs, exports will slightly shrink and growth will decrease, but not substantially" adds, Mr. Mechlovich.
Six months into 2008 and not even one Israeli company went public on NASDAQ and IPOs of American venture backed companies have been few and far between. The survey reveals that a mere 3% of Israeli venture capitalists expect the NASDAQ IPO market to re-open by the end of 2008. Nearly a third (35%) of venture capitalists think that the IPO market will re-open in early 2009. The majority (62%) of respondents believe that the NASDAQ IPO market will not re-open before late 2009. "Weak market conditions make the NASDAQ practically closed for IPOs and this has significant implications on late stage companies. No IPOs mean delayed exits, more M&As and potentially lower valuations. Companies waiting for the IPO market to re-open will need additional financing (mezzanine rounds) as it seems that it will take the IPO market at least one year to re-open", explained Mr. Mechlovich.
The survey further revealed that two thirds of respondents think Cleantech is over-hyped, yet Cleantech transaction expectations remain strong. "Investors believe that while this is a hot sector which will grow in the coming years, market expectations are currently exaggerated. Whilst we have not seen any mega-exits, Investors should still be wary of over-inflated valuations" explained Mr. Mechlovich.
The highest expectations of transactions increase are, once again, in Cleantech, 74% of respondents expect an increase of transactions in this sector. Internet sector is second in expectations of transactions increase with 42%. The Software/IT sector is third with 39%. The weakest expectations are for the Semiconductors sector, only 7% of respondents expect an increase in transactions in that sector, while 45% expect a decrease.
Below you will find the VCI survey results (PDF - English).
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 25th Deloitte Brightman Almagor Zohar Israel VC Indicator Survey results for Q2, 2008 include a comparison, where relevant, to responses from previous surveys.
Deloitte Brightman Almagor Zohar is one of Israel’s leading professional services firms, providing a wide range of world-class audit, tax, consulting, financial advisory and trust services. Through approximately 70 partners and directors and over 1000 employees the firm serves domestic and international clients, public institutions and promising fast-growth companies whose shares are traded on the Israeli, US and European capital markets. The firm is a fully integrated member of Deloitte Touche Tohmatsu.