Israeli Startups Shine in Another Record Quarter

Tech companies raise $1.12 billion with new kinds of investors joining the fray.

Inbal Orpaz
Inbal Orpaz
Send in e-mailSend in e-mail
The Pebbles team.
The Pebbles team.Credit: Pebbles
Inbal Orpaz
Inbal Orpaz

Israel’s high-tech money machine keeps surpassing records: Startup companies raised $1.12 billion in the second quarter, beating their previous three-month maximum by a sliver, the IVC Research Center reported Tuesday.

The second-quarter total exceeded the previous record in the fourth quarter of 2014 by just $3 million, but it was up more than 20% on the same period a year earlier. IVC said the increase was led by big investment rounds of $20 million or more, which accounted for half the total spent, including two very large rounds.

But venture capital funds, traditionally the mainstay of startup financing, found themselves crowded out by private equity funds, which specialize in buying control of older, established companies rather than injecting new equity into startups. IVC, which published the report with the accounting firm KPMG Somekh Chaikin, said corporate players like Microsoft and Intel were also big players.

Private equity funds and companies accounted for 43% of total investments, or $477 million, in the second quarter. VC-backed investing dropped 9% from a year ago to $486 million, or 44% of the total, its lowest share in six years, IVC said.

Israeli VC funds accounted for just 10% of the investing in the quarter, down 23% from a year ago, IVC said.

But Kobi Simana, IVC’s chief executive, put a positive spin on the development. “If we want the local high-tech industry to continue growing and see more large-scale, mature companies emerge, there is room for technology investments from more than just VC funds — local or foreign,” Simana said.

“The industry needs a variety of investors and investment models to support companies throughout various stages. Private equity funds and international conglomerates are the kind of investors we want to see supporting growth companies.”

Israel’s startup nation has seen an efflorescence of activity, with mergers and acquisitions reaching $6 billion in the first half of the year, feeding demand from technology investors to get a piece of the action. In the latest exits, Facebook agreed this month to buy the virtual reality startup Pebbles Interfaces for $85 million, and Microsoft agreed to acquire the cyberfirm Adallom for $320 million.

The average high-tech fundraising round for the 179 startups raising money in the first half grew to $6.2 million from $4.8 million a year earlier. Ofer Sela, a partner at KPMG Somekh Chaikin’s technology group, said the increase reflected “the health of the venture-backed ecosystem in Israel and the patience of investors supporting their portfolio companies to complete home runs and grow into Unicorns that are substantial and mature.”

Another major factor in the growth of startup investing is the expanding presence of Asian investors, which is adding to the amount of cash available in Israel, said Simana.

Click the alert icon to follow topics:

Comments

SUBSCRIBERS JOIN THE CONVERSATION FASTER

Automatic approval of subscriber comments.
From $1 for the first month

Already signed up? LOG IN

ICYMI

Charles Lindbergh addressing an America First Committee rally on October 3, 1941.

Ken Burns’ Brilliant ‘The U.S. and the Holocaust’ Has Only One Problem

The projected rise in sea level on a beach in Haifa over the next 30 years.

Facing Rapid Rise in Sea Levels, Israel Could Lose Large Parts of Its Coastline by 2050

Tal Dilian.

As Israel Reins in Its Cyberarms Industry, an Ex-intel Officer Is Building a New Empire

Queen Elizabeth II, King Charles III and a British synagogue.

How the Queen’s Death Changes British Jewry’s Most Distinctive Prayer

Newly appointed Israeli ambassador to Chile, Gil Artzyeli, poses for a group picture alongside Rabbi Yonatan Szewkis, Chilean deputy Helia Molina and Gerardo Gorodischer, during a religious ceremony in a synagogue in Vina del Mar, Chile last week.

Chile Community Leaders 'Horrified' by Treatment of Israeli Envoy

Queen Elizabeth attends a ceremony at Windsor Castle, in June 2021.

Over 120 Countries, but Never Israel: Queen Elizabeth II's Unofficial Boycott