At the end of May, the Israeli high-tech industry hit a significant milestone: Israeli start-ups raised as much money in the first five months of 2021 as they had throughout all of 2020, which was a record-breaking year to begin with. The pace hasn’t slowed, and by the end of the year, investments are expected to reach between $26 billion and $27 billion.
According to Start-Up Nation Central, between the start of the year and December 8, high-tech has raised $25.4 billion. For comparison’s sake, in 2020, high-tech raised $10.8 billion, in the private market alone, not including secondary deals (in which the investment doesn’t go into the company’s coffers, but is used to purchase stock from early investors, company founders and employees).
The data in the report by Start-Up Nation Central, which is a non-profit founded in 2013 to promote Israeli high-tech and is now headed by Avi Hasson, highlights the following trends:
The past two years have seen two ongoing processes – the growth of large fundraising rounds and the growth of companies’ income. This is mainly positive, as it increases the chances that Israeli companies can remain independent. In case of a crisis, these companies have a cushion. On the other hand, it can’t be ignored that a large share of the money goes to “safe” investments, meaning that risk-capital investors are taking less risks.
So, while the number of investment rounds has been steady between 2020 and 2021, remaining at about 790, the rate of mega-rounds (which bring in over $100 million) spiked from 2.7 percent to 9.4 percent. The total amount represented by mega-rounds reached $14 billion, 56 percent of all the money raised. In 2020, mega-rounds contributed about $4 billion, amounting to 37 percent of the money raised. Taking into account only the investment rounds that garnered less than $100 million, investments increased by 68 percent to $11 billion.
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The major players in the start-up field over the last year are not the entrepreneurs, but large investment firms like Softbank, Tiger Global and Insight Partners. These firms invest large sums in diverse companies at fairly high valuations.
Start-Up Nation Central’s figures show that InSight and Tiger Global have tripled the number of funding rounds in which they participated this year – from 20 to 65. Insight is responsible for the lion’s share of the deals, and has been very dominant in local high-tech for years now. It has invested in the software company Monday, the video and image-editing app developer Lightricks, the software update release developer JFrog, the cybersecurity firm SentinelOne, and others.
Both Insight and Tiger Global have billions to spend and can invest $100-$200 million per company. Their strategy is to enter at a fairly early stage, and identify the winning horses before they take off. According to Start-Up Nation Central, these firms indeed have begun investing earlier, especially Insight. In 2020, Insight made five Series A rounds and five Series B rounds. This year, those numbers spiked to 13 and 12 rounds respectively. Tiger Global did not invest in any companies at such an early stage last year. This year, it invested in two Series B round.
Fintech takes off
The coronavirus pandemic and subsequent lockdowns helped grow many areas of industry – online commerce, fintech, cyber security, organizational software and other areas involved in the digital transformation. 2020 saw major investments in health and life science technology, due to the global medical crisis.
So it’s interesting to see the breakdown according to various sectors. The medical sector saw a 37 percent jump in investments, but its share of the overall investment pie shrunk significantly – from about 17 percent in 2020 to about 10 percent. Cybersecurity has always been important in Israeli high-tech, and accounts for about 25 percent of all investments. But two other areas saw significant spikes: Technology for organizations (from 17 percent to 23.5 percent) and fintech (from 12 percent to 17 percent).
The global flourishing of the high-tech industry has had a relatively minor influence on the number of acquisitions. Large sums flowing in from investors can “resuscitate” companies in crisis, or at least give them some room to prove themselves. At the same time, the valuation of these companies is high, leaving potential buyers wondering if it will be worth the money.
What does encourage acquisitions is the companies’ obligation to show growth. This is true in the case of unicorns, which raise large sums of money due to their high valuation, and now need to justify the funding. One way to do this is to make acquisitions that add new technologies, clients or both. Over the past year, the number of Israeli start-ups acquired by other Israeli companies has grown – from 21 to 39. This testifies to a maturing of the Israeli high-tech ecosystem.