Key facts for third quarter:
- Israeli high-tech capital raising activity: $1.1 billion raised
- VC-backed deals peak at $908 million – highest ever
- Israeli VC funds share low at 12% of total investments
- Large deals ($20m or more): 67% increase in number
IVC and KPMG survey has found: 165 Israeli high-tech companies raised $1.1 billion in the third quarter of 2015, $3.2B in first 9 months of 2015.
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The amount was slightly below $1.14 billion raised by 181 companies in the preceding quarter, but 55% above the $703 million raised by 170 companies in the corresponding quarter of 2014.
In the first three quarters of 2015, a total of 506 Israeli high-tech companies raised a phenomenal $3.2 billion, reaching in nine months, nearly 95% of the entire 2014’s record capital raising. In the first three quarters of 2014. $2.3 billion was raised by 504 companies and $1.5 billion was closed in 469 financing rounds in 2013’s respective period.
IVC research Center CEO Koby Simana said, “The third quarter of the year tends traditionally to be on the slow side for capital raising, so we expected to see a slight drop from the previous quarter’s records, yet capital raising is still going exceptionally strong, which is why this drop is marginal at best. We expect the fourth quarter trend to go up again, and believe 2015 may end with as much as $4.4 billion in total capital raising by high-tech companies.”
In the third quarter of 2015, venture capital backed deals reached a record $908 million (83%) invested in 100 deals. The amount was 70% above the $534 million raised in 101 venture capital backed deals in the second quarter of 2015, which was at an all-time low, 47% of high-tech capital raising, and 92% more than $474 million or 67%, closed in 97 deals in the third quarter of 2014.
The average venture capital backed deal in the third quarter was $9.1 million, close to the $9.3 million record average in the first quarter of 2015, and much higher than the $5.3 million and $4.9 million average venture capital backed deals in the second quarter of 2015 and third quarter of 2014, respectively.
One of the continuing trends the IVC-KPMG Survey points to is the ever-increasing prominence of large deals of $20 million or more. There was a significant increase in the number of such deals in the third quarter of 2015, with 20 deals reaching a staggering total of $703 million, making up 64% of the total capital raised in the third quarter.
Simana said, “The fact that an average Israeli large financing accounted for the $35 million in the previous quarter, reveals that even Israeli growth-stage companies are priced well within the lower range of growth deals in comparison with other countries. We are far from Silicon Valley’s $0.5 billion financing rounds, even while we do find the occasional $100 million round here as well, but in general large deals in Israel are affordably-priced, reflecting real, rather than speculative, valuations.”
Israeli venture capital fund investment activity
In the third quarter of 2015, Israeli venture capital funds invested $133 million, just 12% of the total capital raised by Israeli high-tech companies in the quarter, no change from $132 million (12%) invested by Israeli venture capital funds in the previous quarter, and just under the five-year average of $136 million placed by Israeli venture capital funds quarterly. First investments by Israeli venture capital funds in the third quarter of 2015 accounted for 29%, down from 34% in the preceding quarter and 42% in the third quarter of 2014.
In the first nine months of 2015, Israeli venture capital funds invested $443 million, up 21% from $367 million invested in the corresponding period of last year. The Israeli venture capital fund share in the first three quarters of 2015 fell to 14% of investments, down from 16% in the corresponding period of 2014.
Capital raised by sector In the third quarter of 2015, 33 life science companies raised $327 million, leading capital raising ahead of all other sectors with 30% of total capital. Internet companies followed with 26%, while the software sector’s share fell back to 24%, from an exceptionally high 44% in the second quarter of 2015, when the sector led all investments.
KPMG Somekh Chaikin Technology Group partner Ofer Sela said, “While 2015 is in the process of becoming a record year in terms of the dollar amount invested, the proportion of investments made in software companies out of the overall VC investments is a reason for concern in comparison with the US market, where software takes up a much larger share of total investments.
The unavailability of sufficient private equity for this segment in Israel is one of the main causes for the shortage of Israeli software companies gearing up to get listed on NASDAQ, resulting in a local “glass ceiling” in terms of the size of companies established locally.”
The solution, says Sela, “should focus on local institutional investors, who should ‘get off the fence’ and step into the technology market as participating investors, especially in companies that are at the expansion stage. The benefit to the overall Israeli high-tech ecosystem will be dramatic and long-lasting. The Israeli government should consider adopting regulations that will encourage this change.”
