Start-up investment hits 13-year high

IVC: 162 companies raised $660 million from local and foreign investors in the third quarter, the highest quarterly amount since 2000.

162 Israeli start-ups raised $660 million from local and foreign investors in the third quarter of 2013, the highest quarterly amount since 2000, IVC announced today. Investment was up 34% from the $493 million raised in the preceding quarter and $35% from the $488 million raised in the corresponding quarter of 2012. Investment in start-ups rose 12% to $1.63 billion, raised by 474 companies, in January-September from the $1.45 billion raised by 413 companies in the corresponding period last year.

During the third quarter, five companies each raised more than $20 million, accounting for 25% of the total amount, and nine companies each raised $10-20 million each. The average financing round rose to $4.07 million in the third quarter from $3.45 million in the preceding quarter.

"There has been a continuing rise in the number of seed and first round financing transactions in recent years, resulting in a dramatic increase in the overall number of VC-backed high-tech companies in Israel. We see this trend continuing, leading to record number of deals in 2013 at both stages," said KPMG Somekh Chaikin's Technology Group partner Ofer Sela. "Another encouraging trend reflected in year-to-date results is the growing number of mature companies that are already generating substantial revenue and are focusing their efforts on global expansion through building sales and marketing infrastructure. This trend is going to continue to increase the size and volume of M&As in the Israeli market, as we have recently seen. We are likewise hopeful that some of these firms will continue to expand independently, raising capital through the IPO route."

Israeli venture capital funds invested $151 million in start-ups in the third quarter, 23% of the total, the lowest proportion in ten years. Although Israeli funds' investment rose from $130 million in the corresponding quarter, their proportion of total investment fell from 27%.

"In the first three quarters of 2013, the number of financing deals was substantially larger than the corresponding period in 2012, as a direct result of the increase in mid-stage deals in the software, Internet and communications sectors," says IVC Research Center CEO Koby Simana. "Interestingly, all types of investors have expanded their activity - venture capital funds, investment companies, corporate investors and angels, both Israeli and foreign. However, most of the increased activity stemmed from the stepped-up involvement of foreign venture capital funds."

Internet companies accounted for the bulk of venture capital investment in the third quarter, with 47 start-ups raising $179 million (27% of the total, the largest quarterly amount for the sector since 2000. Life sciences companies were in second place, raising $128 million, 20% of total investment. Investment in seed companies fell 60%, compared with the corresponding quarter, to $17 million, 3% of total venture capital investment in the third quarter.

Published by Globes [online], Israel business news - - on October 15, 2013

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