Key facts:
- VC-backed deals boost Israeli capital raising to a record of $1.2 billion
- Late stage capital raising heads all capital raising, with $618 million – second highest in five years
- The average financing round reached a five-year high at $10 million
In Q3/2017 a $1.44 billion was raised by 144 Israeli startups in the third quarter of 2017, up 14 percent from $1.27 billion in the second quarter of 2017, and up 54 percent from $933 million in the corresponding quarter of 2016, (the lowest quarterly amount since Q4/2014) according to the latest report by IVC Research – ZAG – S&W. The number of deals, however, was down in the third quarter of 2017, at just over 140 deals.
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The average financing round was $10 million in the third quarter of 2017, the highest amount in five years, compared with an average of $8 million and $6.7 million in the preceding quarter and corresponding quarter of 2017, respectively.
The third quarter figures were boosted by a huge $250 million financing round completed by Via Transportation, which was among five deals of over $50 million each last quarter, making up 33 percent of the quarterly total.
In the first nine months of 2017, Israeli startups raised a record $3.8 billion, equal to the corresponding period of 2016. The number of deals, however – 457 deals in total – declined to the lowest number in the past five years. The average financing round has grown steadily from $3.3 million in the first nine months of 2013 to $8.2 million in the corresponding period of 2017.
IVC Research Center research director Marianna Shapira said, “IVC findings show a decline in the numbers of deals made in the first nine months of 2017. The IVC analysis found that most of this decrease stems from seed and early stage deals (17 percent decline compared with the five-year average). A reversal is needed in the fourth quarter for the sake of the new ventures and their success as part of the Israeli technology market.”
In the third quarter of 2017, venture capital-backed deals accounted for the largest quarterly amount in the past five years, with $1.2 billion raised in 89 deals. The venture capital-backed share of total capital increased steadily throughout the first three quarters of 2017 to 84 percent in the third quarter of 2017, compared with 67 percent in the corresponding quarter of 2016.
$2.9 billion was raised in 278 venture capital-backed deals in the first nine months of 2017, the entire 77 percent of total capital raised in this period, compared with $2.6 billion (68 percent) raised in 302 deals in the same period of 2016. Deals above $20 million drew the biggest share of capital raised in venture capital-backed deals, with 60 percent of the total dollar amount in the first nine months of 2017.
Israeli venture capital fund investments increased in the third quarter of 2017, with $277 million invested (16 percent), compared with $164 million (13 percent) and $139 million (15 percent) in the preceding quarter and corresponding quarter of 2016, respectively. Israeli venture capital funds preferred follow-on investments (66 percent) in the third quarter, with most of this capital (91 percent) going to mid and late-stage companies.
Adv. Shmulik Zysman, managing partner at Zysman Aharoni Gayer & Co. (ZAG/S&W), said, “We’re witnessing yet another report proving the confidence in and status of Israeli high tech. It seems the effect of the MobileEye deal is not yet run its course. During the third quarter, we noticed the dominant position of Israeli VC funds and the increased investment by foreign VCs compared with the corresponding quarter of 2016. Israeli high tech continues to be the growth engine of the Israeli economy and its share of GDP is steadily increasing.”
He added, “In August, the Chinese authorities published a new regulatory directive permitting investments outside of China in several sectors, including technology. I believe that this will boost Chinese interest in Israeli high-tech companies in the future.”
Capital raising by stage and sector
43 percent of capital raised in the third quarter of 2017 was invested in late stage companies, for a record of $618 million, compared with $425 million in the preceding quarter and $294 million in the corresponding quarter of 2016.
Adv. Zysman observed, “The trend of investing larger amounts in fewer companies indicates that investors have an appetite for greater risk. During the third quarter of 2017, we identified the dominance of late stage deals, but it seems that younger companies have not been adversely affected. Early stage companies are attracting investors’ attention and capital. It is clear that foreign investors see Israeli high tech as a source of innovation and investment opportunities.”
While software continued to lead capital raising in the third quarter of 2017, but its share shrank to 25 percent of total capital, below the two-year average of 35 percent, and followed closely by life sciences with 24 percent.
