Israeli Startups Raised Record Capital in 2018 Amid Gathering Clouds for Global Tech

Companies took in $6.47 billion last year, IVC Research says. This marks the sixth consecutive year of growth amid a U.S.-China trade war that Israel finds itself caught in the middle of

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FILE Photo: Employees works at the Jerusalem Venture Partners JVP Media Labs, situated in the JVP Media Quarter in Jerusalem, Israel.
Employees works at the Jerusalem Venture Partners JVP Media Labs, in the JVP Media Quarter in Jerusalem, Israel.Credit: Rina Castelnuovo/Bloomberg

Israeli startups raised a record amount of capital in 2018 as the trend of fewer, more mature companies raising bigger amounts of money strengthened, figures from IVC Research Center released on Wednesday showed.

Israeli startups raised $6.47 billion last year, marking the sixth year of consecutive growth in the figure that serves as a rough benchmark for the state of Startup Nation. It was a 17% increase over 2017 and 120% above the level in 2013. The fourth quarter also saw record fundraising — an 8% year-on-year increase to $1.82 billion.

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The number of companies raising money fell in 2018 to 623 from 661 the year before — a sign that many industry observers say points to growing maturity of the Israeli industry as entrepreneurs let their companies grow and develop rather than selling them quickly and cashing out.

“The phrase ‘wealth attracts money’ describes the continued investment trend in Israel, as in the United States,” said Marianna Shapira, research director at IVC.

“A number of other signs hint that the Israeli technology market will enter 2019 as an attractive target for global investments: more companies (43% of all active) have reached mature stages, a desirable goal for investors concentrating on quality rather than quantity,” she said.

IVC said that big deals in excess of $20 million marked another year of growth, led by megadeals for Landa Corporation (a maker of digital printing technology) for $300 million and JFrog (software for developers) of $165 million. All told, nearly two-thirds of all funding rounds were in excess of $20 million, it said.

The record level of fundraising for Startup Nation comes amid a difficult period for global high-tech. Shares for high-tech giants like Apple and Amazon have led the sell-off on Wall Street and the U.S.-China trade war has clouded the future for many companies.

Cooling ties between the United States and China could present opportunities for Israeli startups as China sources its technology elsewhere (see story on this page).

Earlier this week, however, U.S. National Security Adviser John Bolton warned Israeli leaders that the United States was concerned about Israel’s burgeoning tech, trade and investment ties with China.

But Shmulik Zysman, managing partner at Zysman, Aharoni, Gayer & Company, which co-sponsored the fundraising survey with IVC, said he believed that the trade war would benefits Israel’s technology sector.

“When [the United States and China] are quarreling, Israeli companies are the ones that profit. Israeli high-tech companies have become the indirect route of Americans to China, and of the Chinese to the United States,” he said.

Other good news for Israel’s tech sector was the growth in investment in the youngest startups, popularly known as seed stage companies. After a sharp drop in the number of investment rounds for the segment from a peak of 202 in 2015, the number rose in 2018 to 175 from 148 in 2017, IVC figures showed.

The IVC report doesn’t break out how much of the fundraising actually went into companies as against buying shares from existing investors. For instance, in the $60 million found by the company Lightricks, an apps developer, $45 million went to buying shares from the founders and employees.

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