Israeli Startups Raise Most Capital in a Quarter Since Dot-com Boom

Investment in tech companies reached $660 million in the third quarter, up a third from the previous three months.

Israel’s high-tech startups raised $660 million in the third quarter, the highest three-month total since the dot-com bubble burst in 2000, the IVC Research Center and KPMG Somekh Chaikin said Tuesday.

This performance marked a 34% jump from the $493 million that startups raised the previous quarter and the $488 million a year earlier, IVC said. In the first nine months of the year, 474 companies raised $1.63 billion from investors, a 12% increase from the same period in 2012, although only 4% more than in the same time of 2011.

Israel’s startup sector has been busy of late, including a wave of mergers and acquisitions led by Google’s $1 billion purchase of Waze and a parade of initial public offerings on Wall Street. On Monday, Facebook agreed to acquire mobile app compression startup Onavo for as much as $200 million.

“A growing number of mature companies are generating substantial revenue and focusing on global expansion by building up sales and marketing infrastructure,” said Ofer Sela, a partner in KPMG Somekh Chaikin’s Technology Group. “This trend will continue to increase the M&A size and volume in the Israeli market, as we’ve recently seen. Likewise, we’re hopeful that some of these firms will continue to expand independently, raising capital through the IPO route.”

In the quarter, 14 companies accounted for about 40% of the capital raised, IVC said. Five companies attracted more than $20 million each, accounting for 25% of the total. Another nine companies attracted between $10 million and $20 million each, accounting for 16%.

While tech companies enjoyed a huge infusion of cash in the quarter, the role of venture capital funds, especially local ones, continued to shrink. VC funds provided 70% of the capital raised by startups in the third quarter, down from 81% in the previous quarter and 77% a year ago. Israeli venture capital funds’ share of total investment was 23%, the lowest in a decade and down from 25% in the previous quarter.

“Interestingly, all types of investors have expanded their activity – venture capital funds, investment companies, corporate investors and angels, both Israeli and foreign. But most of the increased activity stemmed from the stepped-up involvement of foreign venture capital funds,” said Koby Simana, chief executive of IVC Research Center.

First-time investments grew to $52 million in the third quarter, a 49% increase from the previous quarter but a 9% fall from a year ago. And seed capital – money raised by the youngest companies – dropped, with 25 startups raising $17 million, a 37% decline from the second quarter and a 60% tumble from a year ago.

By sector, the biggest fund-raising increase was recorded by Internet companies, which raised $179 million in the quarter, just over double the previous quarter and nearly three times the level a year ago. This was followed by life-sciences startups, which raised $128 million.

Moti Milrod