• Deals over $20 million increase substantially in both number of deals and total capital raising
• VC-backed deals proceeds: $1.1 billion
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• Israeli VC funds invest $222 million, 13% of capital raised
• Communications companies reach a staggering $592 million
IVC and KPMG report:
Israeli startups raised an astounding $1.7 billion in Q2, in 187 financing deals. The amount was a whopping 55 percent above the $1.1 billion raised in 174 high-tech financing rounds in the previous quarter. The largest deal in the quarter, $300 million raised by mobile app company Gett, accounted for 18 percent of the total proceeds. Even without the Gett deal, capital raised in Q2 reflects a 27 percent increase compared to the first quarter of the year.
The average company financing round peaked at $9.2 million, higher than the $6.5 million and $6.7 million averages of Q1/2016 and Q2/2015, respectively.
In the first half of 2016, Israeli high-tech capital raising reached $2.8 billion in 361 deals, 35 percent above the $2.1 billion raised in 327 deals in the first six months of 2015. (Figure 1)
According to Ofer Sela, Partner at KPMG Somekh Chaikin’s Technology group: “All indicators point to a healthy and vibrant ecosystem that continues to mature and generate new companies. We are in the middle of the summer, and it seems that economic winter is not quite around the corner. Having said that, there is no doubt a significant portion of the growth capital recently raised was induced by the need to prepare for a rainy day.”
The IVC-KPMG Survey reveals a number of trends leading to the exceptionally high quarterly results, the most prominent of which is the continued increase in deals above $20 million. With $1.1 billion closed in 25 deals (including the Gett round), large deals above $20 million increased both in number (39 percent) and total capital raised (88 percent) compared to the first quarter of 2016.
According to Koby Simana, CEO of IVC Research Center, “the clear increase in large deals is driven by the enhanced activity of foreign investors – primarily corporate investors and VC funds – in growth-stage companies. However, the increase is not limited to top-tier deals. We are also seeing an increase in low to mid-range deals, with those between $5 million and $10 million jumping 50 percent, to a record $234 million. This across-the-board trend leads us to believe 2016 will continue to be strong in capital raising, with a projected 20 percent year-on-year increase, or about $5.3 billion in total to be raised by the end of the year.”
In Q2/2016, 117 VC-backed deals accounted for a record $1.1 billion, fetching 63 percent of total capital raised, and reflecting a 37 percent increase from $782 million invested in 97 deals in the previous quarter.
The IVC-KPMG Survey also indicates an increase in the number of deals involving foreign VC funds. In the first six months of the year, some 57 percent of the deals included at least one foreign VC investor, compared to a 32 percent average in the first half of the previous two years.
Israeli VC fund investment activity.
In Q2/2016, Israeli venture capital funds invested $222 million in Israeli high-tech companies, a record amount accounting for a modest 13 percent of total investments. The amount was 43 percent above the $155 million average quarterly investment of the previous two years, while slightly below the two-year average quarterly share of 15 percent out of total dollar proceeds.
First investments by Israeli VC funds increased in Q2/2016, reaching 41 percent of their total capital investments, up from 29 percent and 36 percent directed into new portfolio companies in Q1/2016 and Q2/2015, respectively.
Capital Raised by Sector
The communications sector led capital raising in Q2/2016, with 35 percent of the capital. While the $592 million raised by the sector was driven up by the Gett deal, it reflects a 180 percent increase in capital raising even without that mega-deal.
Three other major sectors saw an increase in capital raising, including software, at 28 percent over the previous quarter, with a record 63 deals raking in $472 million – a 20 percent increase compared to Q1/2016. Internet capital raising was up 179 percent, with $392 million raised, after a slump in the first quarter, when only $140 million was raised by the sector, the lowest amount in the past two years.
KPMG’s Ofer Sela provides pointed out an interesting connection between trends: “The Israeli fintech industry is accelerating and has been raising increasing amounts for lending and other fintech platforms, ” he says.
