IVC-ZAG: Israeli tech cos raised record $2.74b in Q1 2020

dollars  picture: Thinkstock
dollars picture: Thinkstock

IVC Research Center CEO Guy Holtzman: The strength of Israeli high-tech will be tested in 2020.

Israeli tech companies raised an all-time record $2.74 billion in the first quarter of 2020, IVC Research Center - ZAG S&W law firm reports, up from $1.557 billion in the first quarter of 2019 and $2.362 billion in the fourth quarter of 2019. The money was raised in 139 deals including the $400 million raised by smart ridesharing company Via Transportation at the end of the quarter.

IVC Research Center CEO Guy Holtzman noted, "The figures presented in the first quarter of 2020 continue the trends from 2019, and do not point on a similar trend in 2020. The strength of Israeli high-tech will be tested in 2020. This time around, it is a completely different industry from the previous crisis, and even though many companies will suffer, IVC believes that overall, the Israeli tech industry will emerge strengthened from this challenge. In the long run, the crisis will create an opportunity for international corporations, corporate venture capital funds and venture capital funds to increase their involvement in Israeli investments and acquisitions."

Following the growth trend of 2019, capital raised in venture capital-backed deals peaked in the first quarter of 2020 - climbing to $2.43 billion - 89% share of total dollar volume - an all-time record. The number of venture capital-backed deals stood at 84 and captured a 60% share of total transactions in this quarter, in line with the quarterly averages of past years. The impact of coronavirus led to a substantial decrease in deal making throughout March of this year - only 17 VC-backed deals were registered, down almost 50% from the numbers in the other months of this year.

Israeli venture capital funds’ share continued to decline, reaching all-time low of just 7% of capital raised in the first quarter of 2020, with $201 million. This was down 28% from the previous quarter ($279 million) and the corresponding quarter of 2019 ($278 million).

ZAG-S&W (Zysman, Aharoni, Gayer & Co. (ZAG-S&W) founding partner and high-tech department head Adv. Shmulik Zysman said, After 2019 peaked at impressive highs, came the first quarter of 2020 and within it - the month of March. The first quarter of 2020 marked a record quarter in the past 6 years in terms of fundraising, thanks to only two and a half months! In my day, kids used to say, ‘They broke the rules and stopped playing.’ Looking at the next quarters, this record does not mean much."

"Two weeks into the month of March, the market stopped all at once. Most investors at various stages of negotiations simply backed out. Indeed, when it rains, everyone gets wet - even the best. It is clear by now that the high-tech industry, along with others, will not manage to avoid the effects of the corona virus."

He added, "Case in point, the total amount of funds raised in the Life Sciences domain over this quarter is 200% higher than the average fundraising in the sector recorded over the past six years. However, we are experiencing a dramatic halt in this area, given the fact that all the resources of the world's public medical systems are being invested in coping with the virus."

"It is already clear that the aggregate amount of transactions in the second quarter of 2020 will be significantly lower than what we have become accustomed to in the past few years. The recovery will not be easy; the psychological blowback of the Corona virus crisis is entwined with investment psychology and the herd behavior principle; a repetitive phenomenon in every crisis."

"A reason for optimism is China's recovery. On the other hand, the US is moving toward the peak of the pandemic, and the assessment is that it will have a short-term impact on Israel's high-tech sector. Nevertheless, we are confident that the Israeli high-tech industry will return to its glory; the only question is how fast. This is unlikely to happen in the upcoming quarter, yet first signs will appear in the third quarter. Certainly, we will warmly embrace every positive surprise."

In the first quarter of 2020, seed financing rounds showed a drastic decrease to 24 deals, compared with the quarterly averages of 32 seed rounds in the years since 2013. With the advent of the crisis further into the first quarter, capital raising in seed rounds has almost completely ceased, with a minimal two deals in both February and March. The number of early stage rounds (Seed + A rounds) in the first quarter of 2020 shrank to 63 deals, a decrease of 17% from 2019 averages.

In the first quarter of 2020, later rounds (C rounds and later) continued to lead capital raising, with 47 deals raising $1.92 billion. Some 37% of the total capital volume was raised in March, mostly due to the mega-deals of Via ($400 million) and Insightec ($150 million).

Capital Raising by Deal Size

The first quarter of 2020 saw 43 deals in the $5m to $20m range, down 12% from the preceding quarter and last year’s corresponding quarter, with 49 deals each.

Israeli tech continued to see deals over $50 million in the first quarter of 2020, with 11 deals accounting for $1.5 billion, or 55% of total capital raised this quarter. These included six mega-deals that attracted over $100 million each. Interestingly, out of all these deals in the first quarter, four were closed during March, including Via’s $400 million mega-round.

The first quarter of 2020 continued the previous years’ trends, but no conclusions can be drawn from these figures for the near future.

Published by Globes, Israel business news - www.globes-online.com - on April 5, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

dollars  picture: Thinkstock
dollars picture: Thinkstock
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