In Israel, Early Stage Venture Slump Is a Good Sign

It could signal that the ecosystem itself is maturing, meaning more sophisticated investors placing bets on companies with potentially better growth prospects

Themarker
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We’re seeing a trend of startups that are getting funded raising larger amounts, especially seed and Series A
We’re seeing a trend of startups that are getting funded raising larger amounts, especially seed and Series ACredit: Motil Milrod
Themarker

The trend from a recent and popular TechCrunch article - that there’s a slump in the number of early stage funding to startups - applies here too. In Israel, the number of early stage rounds has decreased, but the amount per round has increased. Early stage rounds have become larger.

By early stage investments we mean seed and post seed rounds (e.g. A round) from VCs.

An analysis of data from Start-Up Nation Finder shows a definite dip in the number of early stage rounds by VCs.

In 2015, there were 154 companies that raised rounds of less than $1M million. A year later, that number dropped to 131. By December 5, 2017, that number has plunged to 67. The number of companies raising between $1M-$5M rose last year from 119 to 199, but has dropped to 115 in 2017. The real change can be seen however in the number of companies that have raised between $5M-$10M. This has grown from 67 in 2015 to 75 in 2017. And 61 companies raised between $10M-$20M this year, up from 47 in 2015.

Zooming out, we’re seeing a trend of startups that are raising larger amounts, especially seed and Series A.

Across all funding stages, the average funding round size for an Israeli tech startup has increased dramatically. In 2015 it was $6.8M, in 2016 that amount rose to $8.8M –an almost 30% increase. That figure has almost doubled this year, and is now at $11.9M as of December 5 –another 35% growth.

The median size of a funding round has climbed from $2M in 2015 to $3M in 2016, and by today is at $5.7M, an increase of 185% over three years.

We see a similar trend while looking at early stage deals. Median early stage rounds increased from $4.5M in 2015 to $6.5M in 2017. And the average early stage rounds increased from $5.9M in 2015 to $8.1M in 2017.

As the venture ecosystem matures, the dip in the number of early stage rounds by VCs, reflects perhaps the growing size of local funds who have more capital to allocate - and therefore need to write larger checks. It could also signal that the ecosystem itself is maturing, with ever fewer companies raising even larger amounts of money, meaning more sophisticated investors placing bets on companies with potentially better growth prospects.

It remains to be seen however if this trend of fewer companies raising bigger rounds leads to better performance in terms of revenue, growth, IPOs and exits in the future.

The DataNation series is published in collaboration with Start-Up Nation Central and is based on information and insights collected and analyzed by the organization. Start-Up Nation Finder maps the Israeli high-tech industry and connects the world to Israeli start-ups, investors and innovation programs

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