Israeli Startups Raised a Record $1.7b Last Quarter

The results defied the dire forecasts that were made for Israel’s tech sector at the start of the year. While it’s too early to say definitively, the first six months suggest that 2016 could be a record-shattering year for the country’s startups.

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

Israeli high-tech companies broke a quarterly fundraising record, drumming up $1.7 billion in 187 financing deals, Israel Venture Capital Research Center reported Wednesday.

The total for the three-month period was 55% above the $1.1 billion that was raised in 174 deals in the first quarter of the year.

Of the $1.7 billion, a full 18% – $300 million – went to the mobile app company Gett.

The results defied the dire forecasts that were made for Israel’s tech sector at the start of the year. While it’s too early to say definitively, the first six months suggest that 2016 could be a record-shattering year for the country’s startups.

The survey, which was conducted by IVC and the KPMG Somekh Chaikin accounting fund, found several notable trends. One was the continued increase in deals above $20 million, it noted. Some $1.1 billion was closed in only 25 deals, including Gett’s fundraising round. Three deals were for more than $50 million each, according to the report.

The average company financing round in the quarter was $9.2 million, compared to an average of $6.5 million for the first quarter of 2016 and $6.7 million for the second quarter of 2015.

“All indicators point to a healthy and vibrant ecosystem that continues to mature and generate new companies,” said Ofer Sela, partner at KPMG’s technology group.

“We are in the middle of the summer, and it seems that economic winter is not quite around the corner. Having said that, there is no doubt a significant portion of the growth capital recently raised was induced by the need to prepare for a rainy day,” Sela said.

Koby Simana, the CEO of IVC Research Center, noted that in comparison, fundraising by companies in the United States and China grows 100% to 150% year over year, compared to the increase of 30% in Israel.

U.S. companies raised a total of $74 billion last year, compared to $4.4 billion in Israel for 2015. The U.S. investments included billions invested in so-called unicorns – companies with a valuation of at least $1 billion – after which investors realized the companies’ values were inflated and reduced their valuations on the books, Simana said.

Valuations go hand in hand with the sums being raised, said Simana. These kinds of valuations and fundraising rounds aren’t being seen in Israel, he said.

“The clear increase in large deals is driven by the enhanced activity of foreign investors – primarily corporate investors and venture capital funds – in growth-stage companies,” said Simana.

“However, the increase is not limited to top-tier deals. We are also seeing an increase in low to mid-range deals, with those between $5 million and $10 million jumping 50%, to a record $234 million,” Simana said.

“This across-the-board trend leads us to believe 2016 will continue to be strong in capital raising,” he said.

Simana forecasted that a total of $5.3 billion would be raised by the end of the year, for a 20% increase over 2015.

The IVC report is based on reports from 285 investors, including 54 Israeli venture capital management companies.

Last week, IVC Research Center reported that the global high-tech slowdown had reached Israel in the first half of the year, with mergers and acquisitions by Israeli tech companies declining sharply from 2015 levels and just one initial public offering completed.

The total value of mergers and acquisitions exits in the first six months of 2016 was $3.32 billion, down from $5.29 billion in the parallel last year. The number of deals fell to 45 from 54.

The only IPO was from Trendit, which raised just $5.9 million for trading on the London Stock Exchange.