Key facts:
- Israeli VC funds invested $814 million in 2017 – the highest sum since 2013
- Four deals over $100 million each captured 12 percent of total amount raised in 2017
- Number of deals in seed stage dropped 17 percent in 2017 compared to 2016
- Average financing round reached $8.5 million almost tripled compared to 2013
The total capital raised by Israeli startups showing continuous growth since 2013. In 2017 high-tech companies raised $5.24 billion (in 620 deals), an increase of 9 percent compared to $4.83 billion attracted in 2016 (673 deals), according to the latest report by IVC-ZAG.
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The increase was caused by four large deals of over $100 million each, capturing 12 percent of the total amount raised (Cybereason, Via, Lemonade and Skybox). The average financing round has grown from $3.6 million in 2013, reaching an average of $8.5 million in 2017.
In the fourth quarter of 2017, Israeli high-tech companies raised a total of $1.44 billion in 159 deals, a 34 percent increase from the $1.07 billion raised in 166 transactions in Q4/2016. The average financing round stood at $9.1 million in the fourth quarter of 2017, compared to $6.5 million in the same period of 2016.
Israeli VC funds invested $814 million in 2017, the highest sum since 2013, and an increase of 25 percent from $651 million in 2016. The upsurge was a result of the 58 percent increase in the VC’s first investments. The Israeli VC’s were very active in the fourth quarter of 2017, investing $211 million, compared to $129 million in the last quarter of 2016.
Marianna Shapira, Research Director at IVC Research Center, explained: “According to IVC data, currently there are about $3 billion in capital available for investments (“dry powder”), as most Israeli VC funds are entering their 4th vintage year. Moreover, quite a few newly raised VCs are ready to enlarge their portfolio at this period. Israeli VC funds raised $1.3 billion in the course of 2017, joined by four additional funds with $550 million under management early in 2018.” Shapira continued, “As IVC analysis shows, investors poured more capital into fewer selected companies, providing portfolio companies the necessary means to mature. We expect to see young technology companies enjoying this situation in the course of 2018, yet to develop.”
Capital raising by stages
In 2017, as in the past two years, companies in growth stages (mid and late stages) attracted the largest part of capital – raising $3.9 billion, compared to $3.4 billion in 2016. Mid-stage companies increased their share to $2.1 billion in 2017, compared to $1.8 billion in 2016. Seed and early-stage companies raised $1.36 billion in total throughout 2017, compared to $1.43 billion attracted in the previous year.
The fourth quarter of 2017 was slow for late-stage companies, raising $393 million. However, this period was exceptionally favorable for the mid-stage companies with $698 million, compared to $534 million in the fourth quarter of 2016. In the fourth quarter of 2017, seed companies raised a total of $92 million, an upsurge from the $42 million raised in the fourth quarter of 2016. The increase was caused by a few larger deals of over $10 million each, attracting 40 percent of the entire seed capital in the last quarter of 2017.
The data indicates a decrease of 8 percent in the number of capital raising deals in 2017, continued from 2016. The two following patterns were responsible for this general decline:
Traditional investors in seed companies (incubators, accelerators, and private investors) were involved in 49 percent less deals in 2017, compared to 2016; in addition, VC funds are notably avoiding R&D companies – a continuous downturn of past 5 years has reached the lowest level of involvement in 2017, when 40 percent fewer deals involved VC funds, compared to 2013.
Adv. Shmulik Zysman, Managing Partner leading the high-tech sector at Zysman Aharoni Gayer & Co. (ZAG S&W), said: “The high-tech industry matures and settles as the source of innovation and interest for investors and entrepreneurs from all over the world. Mid-stage companies led in terms of capital (698 million) in the fourth quarter, presenting the continuous and meaningful increase, both compared to the previous quarter and to previous years. Companies in early seed stage have also seen an increase, raising larger amounts, invested in fewer companies. This means the average financing round per company has grown. It is an interesting change, possibly increasing the chances for the next Israeli “Mobileye” to flourish. ”
Adv. Zysman added: “According to my estimation, the positive trend will strengthen in 2018. The lack of clarity in regulations, prevailing in China in 2017, was often exploited by Chinese investors to withdraw from investment agreements. Close to the end of this year, the Chinese Regulator established clear investment rules/regulations, among them a recommendation to perform investments in the technology industry. This addition of Chinese investments to the regular capital intake of Israeli technology market is the major reason for my optimism.”
Capital raising by sector
Leading all sectors, software companies raised $1.9 billion in 208 deals in 2017, similar to 2016, which totaled $1.7 billion in 209 deals. Life sciences companies raised $1.2 billion, 41 percent more compared the $850 million raised in 2016. Semiconductor companies raised $348 million compared to just $124 million in 2016. Communication companies showed a decline in the number of deals and total capital raised – $569 million in 72 deals, compared to the exceptional $872 million in 106 deals in 2016.
Software companies had a fruitful the fourth quarter of 2017 raising $588 million (56 deals), 45 percent more than the $406 million in the same period of 2016. Internet companies raised $328 million in the fourth quarter of 2017, almost twice as much as the $115 million in the fourth quarter of 2016, while the number of deals remained in the range of the past three years.
Capital raising by selected clusters
IVC clusters analysis revealed that the amounts raised by companies with major tech market clusters characteristics – cybersecurity, automotive and artificial intelligence (AI) – kept growing for the fifth year in a raw. However, the number of investments made in the cybersecurity arena showed a different pattern, declining dramatically in 2017.
ICO – Initial Coin Offering 2017
Last year, 10 Israeli companies went through a process of Initial Coin Offering (ICO)– in which they raised money in return for its cryptocurrencies. The ICOs have become favorable in 2017 among blockchain companies that wish to get capital and recognition. From a financial perspective, a coin offering has not considered an investment but has some characteristics of a financial asset. As such, the hype which we witnessed in 2017 can indicate a similar pattern going forward, or a change in the dynamics and a tremendous crash.
