96% of Israeli venture capitalists predict more layoffs by high-tech companies because of the economic crisis, according to the Second quarter Israel VC Indicator Survey by Deloitte Brightman Almagor Zohar. 21% of respondents predict extensive layoffs, while 76% say that the layoffs will be modest in scope.
72% of venture capitalists believe that Israel is already in a recession, even though official figures do not yet reflect this. 55% of respondents predict that Israel's economic situation will deteriorate over the next six months.
39% of respondents said that there was a severe shortage of financing for mezzanine rounds.
Deloitte Israel TMT leader Asher Mechlovich said, "Not even one Israeli company held an IPO on Nasdaq during the first half of 2008, and the number of IPOs by US venture capital-backed companies was at a five-year low."
Mechlovich added, "Weak market conditions make 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."
Mechlovich noted, "The Israeli economy cannot completely avoid the effects of the US recession and the weak dollar. Israel is well placed to meet the economic global crisis since 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."
The survey also pointed to the ongoing decline in valuations for investments in start-ups and for their exits. 46% of respondents predict a drop in valuations for investments over the next six months, compared with 2007, and 36% predict a drop in valuations for exits.
Two-thirds of venture capitalists believe that cleantech is over-hyped. Nevertheless, 74% of respondents predict an increase in the number of venture capital investments in cleantech start-ups over the next six months.
Mechlovich said, "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."
Published by Globes [online], Israel business news - www.globes-online.com - on July 2, 2008
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