Startup Fundraising in Israel and Silicon Valley Defies Fears of Downturn

Tech firms raised 10% less in first quarter than 2015 record, not by enough to worry industry.

Inbal Orpaz
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A start-up in Tel Aviv (illustrative)Credit: Moti Milrod
Inbal Orpaz

Concerns that the high–tech boom in both Israel and Silicon Valley is coming to a close seem to be premature, according to first-quarter figures released on Tuesday by Israel Venture Capital Research Center.

IVC said 173 Israeli startup companies raised $1.09 billion in the first quarter, an 8% increase over the same period in 2015.

Fundraising was down 10% from fourth-quarter 2015, when 201 companies raised a record $1.2 billion, but fourth quarters are traditionally the strongest for the industry. In the last five years, the drop from the fourth quarter to the first has been 12% on average, it said.

“Despite various forecasts published recently regarding the industry in Israel, the results of the first quarter of 2016 show stability,” said Koby Simana, IVC Research Center’s CEO. “The volume of capital, the number of quarterly deals and the mix of deals by size are very similar to the averages of 2015, which was considered very successful.”

The figures come four days after the U.S. National venture Capital Association said first-quarter fundraising by American startups edged up to $12.1 billion in the first quarter over the fourth, though was down 11% from a year earlier.

Simana said the difference between the United States and Israel is that Israel didn’t experience the same sharp increase in fundraising at the peak of the recent boom and therefore may suffer a smaller decline, if at all.

Still, he warned, it was too early to say whether a decline might yet set in. “The following quarters will determine if the slowdown trend that began in the United States will take hold in Israel as well,” he said.

“There is a fear that the global technology market is about to shrink,” said Ofer Sela, a partner in KPMG Somekh Chaikin’s Technology Group, which co-sponsored the report. “Nevertheless, as can be seen from the total volume of investments this quarter, the industry is hard at work and the investors are still in the game.”

One prominent development in the first quarter was the decline in funding by venture capital funds, as opposed to investments by private investors, big corporations and others. VC-backed deals dropped 91% from the fourth quarter to $744 million and were down 12% from a year earlier, IVC said. The share of VC-backed deal fell to just 68% in the first quarter.

Israeli venture funds saw their share drop even more sharply to just 12% of all investments in the first quarter. They invested just $130 million in startups in the three months, 40% down from the fourth-quarter 2015 and 23% down from a year ago, IVC said.

Another dark spot in an otherwise strong quarter was the Internet sector, where startups raised the least amount of capital since 2013. IVC said 37 companies raised a combined $100 million, not much more than 25% of the record $389 million they had raised in the previous quarter.