Corporates and financial institutions from the United States have extended their presence in the country to the point that they now dominate, both in terms of investments and exits.
The shift of Israel from a start-up nation to a scale-up nation is a well-known trend. However, what is driving this transition?
Corporates and financial institutions headquartered in the United States have increased their presence in the country and are now the majority, both in terms of investments and exits: “If we look at investment rounds exceeding $100 million, more than 70% (including all rounds ever) occurred in 2019, and 27 rounds (or 33% ) were completed this year, from January to May 2021. Twenty-three of these 27 rounds valued at more than $100 million were led or co-led by American institutions. By comparison, previous to 2019, only a third of rounds were led by American investors”.
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“There are numerous explanations for the increasing volume of money invested by US investors: To begin, Israel’s venture capital and private equity ecosystems are growing, with more startups and experienced entrepreneurs persuading US corporations and institutions to spend increasing sums in the nation. Second, the “start-up nation” has generated a huge number of companies valued between $300 million and $3 billion that are attractive prospects for substantial investments or buyouts by mid- and big-cap investors. Third, American investors believe Israeli companies are more affordable than US firms and are prepared to invest in them because they believe Israeli firms will shift their headquarters to the US to assist with the eventual withdrawal. Finally, Israel’s resilience in the face of crises such as the Covid-19 served as an excellent advertisement for Israeli businesses and the entire economy.
According to Cohen, the growth of the Israeli market also attracts foreign investors. “Catalyst receives numerous investment queries from Asia and the European Union, as investors seek to expand their exposure to Israeli technology. The US being the first mover in terms of huge investment rounds creates opportunities for other significant international investors, most notably Chinese players. With the maturation of other regions such as Asia and the Gulf Cooperation Council, Israel may one day be home to more than 100 unicorns “‘.
Capital investments in Israeli high-tech are increasing year after year and are expected to reach over $10 billion by 2020. 80% of investments in 2020 will be in growth-stage companies, up from $2.5 billion to $8.5 billion over the last five years. The trend continued in Q1 2021, with $5.4 billion invested in high-tech. US institutions typically invest alongside top Israeli funds, as they provide the company with a foothold in Israel.
The average time it takes for Israeli technology companies to become unicorns has decreased by half over the last decade – on average, it takes six years for Israeli unicorns founded after 2008 to reach a billion-dollar valuation, compared to fifteen years for Israeli unicorns founded between 1999 and 2008. Additionally, the number of unicorns has increased dramatically in recent years, from one in 2013 to 18 in 2019, and 65 in May 2021. (more than the sum of all the European unicorns).
When it comes to Israeli departures, the trend is similar – from 2017 to May 2021, 70% of 102 M&A transactions exceeding $100 million were completed by North American acquirers, 13% by European acquirers, 7% by Asian acquirers, 9% by Israeli acquirers, and 1% by Australian acquirers. Additionally, we observe a similar pattern in initial public offerings (IPOs) – 77% were done on the Nasdaq and New York Stock Exchange, 15% on the Tel Aviv Stock Exchange, and 8% on Euronext. Israeli entrepreneurs aim to list their companies on the world’s most prestigious stock exchanges (i.e. in the United States) or sell them to the world’s best technology businesses, which are often American-based.
Another global trend affecting Israeli late-stage enterprises is the SPAC — 70% of US listings in 2021 will be via SPAC (despite a slow-down of SPACs vs. regular IPOs in April). Israeli companies are attractive prospects for SPACs (in terms of possible upside), and over 15 Israeli firms have announced a de-SPAC, including two of Catalyst’s portfolio companies – Arbe and Taboola – for $722 million and $2.6 billion, respectively.”
Edouard Cukierman, Yair Shamir, and Boaz Harel founded Catalyst Investments in 1999. With nearly $400 million in assets under management, the fund invests in the long-term growth of medium-sized Israeli businesses through worldwide market innovation. The Fund’s investments are concentrated in the telecommunications, advanced manufacturing, information technology, medical equipment, and life sciences industries. Mobileye, Tufin Technologies, Taboola, Arbe Robotics, Eloxx, and SatixFy are just a few of the portfolio firms.
