Key facts:
• Capital raising in third quarter 2018 – equaled 82% of the total capital raised in 2017
• The number of Artificial Intelligence deals grew 15% compared with third quarter 2017
• $1.1 billion was raised in deals larger than $20 million in third quarter 2018
• Only 21 seed deals were recorded in third quarter 2018 – the lowest since 2013
Between January-September of 2018, the Israeli High-Tech raised $4.54 billion in 444 financing rounds, the most ever raised in Israeli high tech during a three-quarters period, according to a report by IVC Research Center.
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The number of deals matched 68% of the total number of deals in 2017. Yet, in the first nine months of 2018, Israeli high-tech capital raising equaled 82% of the total raised in 2017.
In the third quarter of 2018, Israeli high-tech companies raised $1.6 billion in 131 deals. There were fewer deals compared with the last quarter but the amount invested was high. In comparison with the $1.65 billion raised in the second quarter and the $1.6 billion raised in the third quarter of 2017.
Only one mega-deal was recorded in third quarter 2018 – Trax Solutions raised $125 million, equal to 8% of the total amount raised in the third quarter.
Following an uplift of seed capital raising in the first half of 2018, only 21 seed deals were recorded in third quarter 2018, the lowest number since 2013 and below the ranges of the last five years.
The number of mid and late financing rounds (B and Later rounds) was in the range of the previous years, while A rounds decreased in Q1-third quarter 2018. According to IVC analysis, median numbers at all stages continued to increase.
Capital Raising by Deal Size and Type
In the third quarter of 2018, deals above $20 million reached a record level of $1.1 billion. While the number of deals under $5 million decreased, the number of deals larger than $10 million continued to rise.
Marianna Shapira, research director at IVC Research Center points out: “Investors preference for mature companies has negatively affected the levels of seed financing, which continues to shrink similar to US patterns.” Shapira added, “We expect capital raising in 2018 to achieve the levels of 2017. According to the investment patterns in Israeli high-tech from the last years, it seems the third quarter marked a bottom for the latest period.”
Inthird quarter 2018, VC-backed capital raising deals totaled $1.3 billion in 67 deals. The number of VC-backed deals dropped 34% compared with third quarter 2017. Non-VC-backed deals accounted for $285 million, at the lower end of the last three years.
Capital Raising by Stages and Selected Technology Clusters
In the third quarter of 2018, mature-stage companies raised almost six times more capital compared with early-stage companies. In terms of the number of deals, IVC found that, through 2016, investors favored seed and R&D stages. Since 2017 and even more in 2018, the trend shifted, as investors turned to more mature companies (initial growth + revenue growth stages).
In third quarter 2018, software companies raised $760 million mainly due to 12 deals, each larger than $20 million. Artificial Intelligence (AI) companies were the main attraction for financing deals in the last quarter. The number of deals grew 15% in the third quarter of 2018, compared with the corresponding quarter last year. The number of AI deals in Q1-third quarter 2018rose steadily – 17 companies attracted more than $20 million each.
Investor’s Activity
In the third quarter of 2018, IVC analysis found that the share of corporate VCs grew to 14% of total capital invested. An increase was noted in VC funds’ investments, following a slowdown that started in Q1/2017. In the third quarter of 2018, VC funds’ investments accounted for 42% of total capital invested.
“Despite the vacations in the third quarter, Israeli high-tech was able to withstand this period,” said Shmulik Zysman, managing partner at Zysman, Aharoni, Gayer & Co. (ZAG-S & W): “More importantly, the total amount raised was similar to the total amount raised in the corresponding quarter of last year, one of the highest in the past six years, indicating the stability of the market.”
Zysman notes that, “Although the number of companies that raised capital this quarter declined, the amount of capital grew. Some would see it as a lack of confidence in the Israeli high-tech industry, we believe it is another evidence of the vitality of the Israeli high-tech.”
According to Zysman, the volume of capital raised from foreign investors continues to be particularly high: “This is in spite of the fact that Israeli companies that have benefited from Chinese investors are now encountering much more sophisticated and selective Chinese investors. This increase can also be credited to European venture capital funds that start investing in Israel”.
