Israeli High-tech Likely Headed for Record Fundraising Year

Third-quarter figure up 12 percent from a year earlier in Israel - even as U.S. capital raising is in a funk.

Young employees working at a high-tech company.
Bloomberg

Is Israeli high-tech on its way to a record year of fundraising? Based on figures released on Wednesday by the IVC Research Center, the chances are good even as tech investing in the United States is in a slump.

Israeli high-tech companies raised about $1.19 billion in the third quarter, up 12 percent from a year earlier and the second-highest quarter in a decade — bested only by the first quarter’s $1.7 billion, IVC said. That brought the total for the first nine months of the year to $3.8 billion, a 21 percent rise over 2015.

The figures come two weeks after KPMG International and CB Insights reported that tech funding in the U.S. dropped 29 percent from a year earlier to $14.4 billion, reflecting what it said was uncertainty in the market around the presidential election and interest rates.

“We don’t believe that the local ecosystem is going to be dramatically impacted by the global downtrend in the long run, since the flow of quality deals continues to be strong and new growth investors are investing in these deals,” said Ofer Sela, a partner at KPMG Somekh Chaikin’s Technology group, which conducted the survey with IVC.

He said he expected the market for initial public offerings in the U.S. to be “much stronger” at the beginning of 2017, which will encourage investors and venture capital-backed companies.

Startups on a roll
Haaretz

Still, there were some clouds on the horizon. The third quarter total was boosted by one exceptionally big investment, the $204-million Ormat PIPE deal. Excluding the Ormat transaction, IVC said, quarterly fundraising was $982 million, slightly below the $1 billion average of the past three years.

Moreover, Israeli venture capital funds and foreign investment dropped, it said. Israeli funds’ share of total investments amounted to just 11 percent in the quarter, down from 13 percent a year ago and a drop of 45 percent from the second quarter.

Koby Simana, CEO of IVC Research Center, said foreign investment also declined, although he didn’t cite figures. He attributed the drop to the tepid tech investing climate in the U.S., which has fallen for five quarters in a row.

“We need to wait for the fourth-quarter results in order to determine that Israeli market is indeed following the global trend. In any case, we expect 2016 to close as a record year in terms of capital raising, so short of a dramatic surprise in the coming months, we are still far from declaring that the global crisis has hit Israel,” Simana said.

VC funds, which have traditionally been the dominant force in high-tech finance, are ceding share to new categories of investors, including high-tech accelerators, angels, investment clubs, family offices and crowdfunding platforms, especially for seed and early stage funding, IVC noted.

In the third quarter, private investors accounted for 21 percent of total investing, compared with 30 percent for VC funds, IVC figures showed.