Israeli Startups on Track to Raise a Record $4.4 Billion in 2015

Tech sector logged strong third quarter, taking in close to $1.1 billion, says IVC Research Center.

Israeli high-tech workers. Rare is the Ethiopian-Israeli among them.
Alon Ron

Israeli high-tech startups raised close to $1.1 billion in the third quarter, down slightly from the second but enough to put the industry on track to reaching a record $4.4 billion for all of 2015, the Israel Venture Capital Research Center said on Wednesday.

Israel companies raised $1.092 billion in the three months, down slightly from $1.43 billion in the second quarter but a 55% increase over the same time in 2014, reported IVC, which conducts the quarterly survey with the accounting firm KPMG Somekh Chaikin.

“The third quarter of the year tends 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,” said Koby Simana, CEO of the Research Center.

“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,” he said.

The third-quarter figures raised total high-tech fundraising to $3.2 billion so far this year, an amount equal to nearly the full-year 2014 level, said IVC.

The flood of venture and other capital reaching the industry was underscored by two large fundraisings in the last several days. Pyramid Analytics, a business intelligence platform, said last Thursday that it had completed a $30 million round of funding, while on Tuesday, cyber security company Illusive Networks announced that it took in $22 million.

One of the factors lifting the capital raising figure was the large number of financing rounds exceeding $20 million, like Pyramid and Illusive. In the third quarter alone, there were around 20 large deals resulting in a combined $703 million and accounting for nearly two-thirds of all the money raised.

The start-up industry has enjoyed monster fundraising rounds, with companies like the ride-sharing service Uber and lodging platform Airbnb raising money at valuations of up to $50 billion. With an average big-round size of just $35 million, Israeli companies are still not commanding valuations anywhere near that, said Simana.

“We are far from Silicon Valley’s $500 million 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,” he said.

Ofer Sela, partner at KPMG’s Technology Group, expressed concern that Israeli software startups weren’t capturing enough of the capital. Software accounted for just 24% of all investing in the third quarter.

“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,” he added.

Pyramid Analytics said that the proceeds from its fundraising, which was led by Viola Private Equity and included a second-round investment from Sequoia Capital, would be used for marketing and to hire more staff. The company’s BI Office platform analyzes, monitors and reports data for large government agencies like the U.S. Department of Veterans Affairs and Fortune 500 companies.

The funding at Illusive Networks, whose Deceptions Everywhere technology detects and disrupts security breaches by creating false information, was led by New Enterprise Associates. The company began operations only in June 2015, with a $5 million round from the Israeli cyber security investor Team8.