Israeli startup companies raised record $1.2 billion in capital in the fourth quarter of last year, defying the global slowdown in venture capital investing, a survey by Israel Venture Capital Research and the accounting firm KPMG Somekh Chaikin reported on Monday.
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The quarterly total was 10% higher than the same time in 2014 and lifted the total for all of 2015 to $4.43 billion – the highest annual amount ever, IVC said.
A record 708 companies raised money last year and the average size of the financing round also climbed to $6.3 million, compared with the previous year’s $5 million average and a $4 million average deal in the past 10 years.
Barely a month into 2016, the pace of fundraising by Israeli startups has shown no signs of letting up and in approaching $500 million, including a $76 million round by the cyber security startup Forescout last week. That round enabled the Israeli-U.S. company to join the ranks of so-called unicorn companies, with valuations of a $1 billion or more.
But Ofer Sela, partner at KPMG Somekh Chaikin’s technology Group, said global trends suggested that the flood of venture capital would soon by receding.
“In the last quarter of 2015, the trend in Israel ran contrary to that of the rest of the world. While global markets were affected by the slowdown in the Chinese stock market, an unstable global economy and the interest rate hike in the U.S., Israel remained untouched by this global wariness,” he said, warning, “We expect the Israeli market to slow down if the bear market persists. The general current sentiment in the Israeli market is that ‘winter is coming.’”
Overall, however, 2015 was a banner year for global venture capital investments both in Israel and the U.S., which was reflected in big increases in the number of mega-deals, Sela said. In the United States such rounds, which are defined as over $100 million, grew 48% while in Israel, where the benchmark is $20 million, the number jumped 62%.
In Israel, 63 mega-deals accounted for $2.3 billion of all 2015 fundraising, or 53% of the total.
Koby Simana, CEO of IVC Research, said more mature Israeli startups in their growth stage of development have been raising more money since the second quarter of 2014 to take market share and expand product line. But, he warned, that trend could also be endangered by a global slowdown.
“The trend was largely fueled by the influx of capital from foreign investors, and a shift in market trends may indeed cause a slowdown on that front,” Simana said.
Israeli venture capital funds stepped up their investments last year but at a slower pace than the growth of the market, IVC said. They invested $653 million, up from 2014’s $568 million, but well below the record set in 2008 of $780 million invested. The share of Israeli VC funds in total high-tech fundraising has been declining steadily, as foreign VCs and other investors step up their commitments, and reached just 15% of the total.
In terms of sectors, software companies led capital raising, with 81 companies raising a combined $1.3 billion or 29% of the total in 2015, IVC said. Internet startups were not far behind, with 172 rounds raising just under $1.3 billion. The life sciences sector followed, with about $970 million.