Young Startups Miss Out as Tech Fundraising in Israel Hits Record High

Companies raised combined $5.24 billion in 2017, marking fifth year of increases

A high-tech park in Ra'anana, November 14, 2017.
Tomer Appelbaum

Israeli high-tech companies marked their fifth straight year of increasing fundraising to reach a record in 2017, but early-stage companies still developing a product missed out on the boom, the IVC Research Center said in a survey conducted with the law firm Zysman Aharoni Gayer & Company.

Startups raised a combined $5.24 billion last year, an increase of 9% over 2017 and a nearly three-fold increase from 2012, the survey released on Wednesday found. In the fourth quarter, the level of fundraising shot up 34% from a year earlier to $1.44 billion, IVC said.

The full-year total was augmented by three especially large deals – $250 million raised by the ride-sharing startup Via from Mercedes Benz, $125 million by the online insurer Lemonade and $100 million by Cybereason. Softbank, the giant Japanese tech investor, was the sole or lead investor in the latter two deals.

However, the number of fundraising deals was down, dropping a sharp 17% to 620 from 673 the year before and a record 706 in 2015. Marianna Shapira, IVC research center’s research director, said investors showed a preference for putting more money into fewer companies.

As a result, mid-to late-stage startups raised a combined $3.9 billion in 2017, up $500 million from the year before, while seed and early-stage companies raised about 5% less, or $1.36 billion. The three classes of investors most likely to invest in the youngest startups – incubators, accelerators and angel investors – pared back their investing 49% last year compared to 2016, IVC said.

Startup, up and up
Fundraising by Israeli high-tech companies,
$ billions

Venture capital funds, too, were also investing less in early-stage companies, with the level falling 40% from 2013, it said.

Shapira and Shmulik Zysman, managing partner for ZAG’s high-tech practice, said that despite five years of steady growth they remained bullish about 2018’s prospects for further increases in fundraising.

Israeli venture capital funds, which have long since ceded most of the investing to other classes of investors, stepped up their pace of investment sharply last year. They put $814 million into startups in 2017, a 25% increase over 2016 and the most in four years. In the fourth quarter, they were especially active, boosting investment 64% to $211 million.

Shapira said Israeli VCs still had about $3 billion available for future investment, noting that the funds had raised an additional $1.3 billion last year and that four more should complete fundraising for $550 million in 2018.

Zysman said he also expected investment from China, which has developed into a major source of Israeli tech financing, to continue growing — this, after a a period of uncertainty regarding Beijing’s policy of foreign investment.

“The lack of clarity in regulations prevailing in China in 2017 was often exploited by Chinese investors to withdraw from investment agreements,” he said. “Close to the end of this year, the Chinese regulators established clear investment rules/regulations, among them recommendations to make investments in the [global] technology industry.”

Among sectors, artificial intelligence was the hands down winner for fundraising, taking in $1.14 billion in 2017, a rise of 17% over the year before. Cybersecurity grew the most, a 33% rise to $791 million, while automotive tech grew 26% to $810 million, IVC said.