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VC funding for Israeli companies plummets

Venture funding for companies based in the country falls nearly 45 percent, a study says, with software companies seeing record lows.

Venture funding for Israel-based companies fell nearly 45 percent during the second quarter, according to new research, with software companies at their lowest level in three years.

Companies in Israel received funding of $224 million in the second quarter, down from $398 million in the previous quarter and down from $381 million a year ago, according to VentureOne, which provides research on venture capital and private equity.

Meanwhile, venture-backed companies in the United States are undergoing similar pains. The market's steep decline and a dried up IPO and acquisitions environment have tempered venture capitalists' free-spending days.

Investments in those companies during second quarter fell for the fifth period in a row, according to a recent survey, down 21 percent to $8.2 billion.

Funding for Israeli-based information technology companies, which account for 80 percent of the country's investments, were down from the previous quarter, falling more than 40 percent to $179 million.

Software companies took the largest hit in the second quarter, with funding falling to $27 million--a 79 percent decline from the previous quarter. That represented the lowest investment level in software companies since the first quarter of 1998.

Semiconductor companies, however, managed to post an increase in funding during the quarter. Funding rose to $57 million among six companies, compared with $40 million among five companies in the first quarter.

The median valuation, or market value, for venture-backed companies based in Israel fell to $7 million in the second quarter, down from $20 million in the previous quarter. The change in valuation was based on a company?s valuation prior to receiving its next funding round.

"This particular quarter?s drop is steeper than what we?ve seen in the United States, but we need to take into account the growing predominance of early (funding) rounds, which naturally carry a lower valuation," Venture One Chief Executive Dave Witherow said.

Israeli companies receiving a late round of funding saw the largest decline in investments, the survey found. Companies in their later stages of financing saw funding fall to $56 million, a drop of 63 percent. Companies getting seed rounds of funding posted the smallest decline in funding for the second quarter, falling to $10.3 million, a drop of 12 percent from the previous period.