Israeli startups raised a record $5.24 billion (in 620 deals) in 2017, up 9% from $4.83 billion in 2016 (673 deals), according to the latest IVC - ZAG report.
The amount raised by Israeli high-tech companies has been growing since 2013, the report adds. The increase can be attributed to four large deals of over $100 million each - Cybereason, Via, Lemonade and Skybox. The average financing round has grown from $3.6 million in 2013 to $8.5 million in 2017.
In the fourth quarter of 2017, Israeli startups raised $1.44 billion in 159 deals, up 34% from $1.07 billion raised in 166 transactions in the fourth quarter of 2016. The average financing round in the fourth quarter was $9.1 million, up from $6.5 million in the corresponding period of 2016.
Israeli venture capital funds invested $814 million in 2017, the highest sum since 2013, and up 25% from $651 million in 2016. The rise was a result of the 58% increase in the VC's first investments. The Israeli venture capital funds were very active in the fourth quarter of 2017, investing $211 million, compared with $129 million in the fourth quarter of 2016.
IVC Research Center research director Marianna Shapira said, "According to IVC data, currently there are about $3 billion in capital available for investments (dry powder), as most Israeli VC funds are entering their 4th vintage year. Moreover, quite a few newly raised VCs are ready to enlarge their portfolio at this period. Israeli VC funds raised $1.3 billion in the course of 2017, joined by four additional funds with $550 million under management early in 2018."
She added, "As IVC analysis shows, investors poured more capital into fewer selected companies, providing portfolio companies the necessary means to mature. We expect to see young technology companies enjoying this situation in the course of 2018, yet to develop."
Capital raising by stages
In 2017, as in the past two years, companies in growth stages (mid and late stages) attracted the largest part of capital - raising $3.9 billion, compared with $3.4 billion in 2016. Mid-stage companies increased their share to $2.1 billion in 2017, compared with $1.8 billion in 2016. Seed and early stage companies raised $1.36 billion in total throughout 2017, compared with $1.43 billion attracted in the previous year.
The fourth quarter of 2017 was slow for late stage companies, raising $393 million. However, this period was exceptionally favorable for the mid-stage companies with $698 million, compared with $534 million in the corresponding quarter of 2016. In the fourth quarter of 2017, seed companies raised a total of $92 million, an upsurge from the $42 million raised in the fourth quarter of 2016. The increase was caused by a few larger deals of over $10 million each, attracting 40 percent of the entire seed capital in the last quarter of 2017.
Zysman Aharoni Gayer & Co. (ZAG S&W) managing partner leading the high-tech sector Adv. Shmulik Zysman said, "In 2017, the capital raising volume increased, continuing the consistent growth trend of the past five years. The high-tech industry matures and settles as the source of innovation and interest for investors and entrepreneurs from all over the world. Mid-stage companies led in terms of capital (698 million) in the fourth quarter, presenting the continuous and meaningful increase, both compared to the previous quarters and to previous years. Companies in early seed stage have also seen an increase, raising larger amounts, invested in less companies. This means the average financing round per company has grown. It is an interesting change, possibly increasing the chances for the next Israeli "Mobileye" to flourish. "
He added: "According to my estimation, the positive trend will strengthen in 2018. The lack of clarity in regulations, prevailing in China in 2017, was often exploited by Chinese investors to withdraw from investment agreements. Close to the end of this year, the Chinese Regulator established clear investment rules/regulations, among them a recommendation to perform investments in the technology industry. This addition of Chinese investments to the regular capital intake of Israeli technology market is the major reason for my optimism."
Capital raising by sector
Leading all sectors, software companies raised $1.9 billion in 208 deals in 2017, similar to 2016, which totaled $1.7 billion in 209 deals. Life sciences companies raised $1.2 billion, 41% more compared with $850 million raised in 2016. Semiconductor companies raised $348 million compared to just $124 million in 2016. Communication companies showed a decline in the number of deals and total capital raised - $569 million in 72 deals, compared with the exceptional $872 million in 106 deals in 2016.
Software companies had a fruitful fourth quarter in 2017 raising $588 million (56 deals), 45% more than the $406 million in the same period of 2016. Internet companies raised $328 million in the fourth quarter of 2017, almost twice as much as the $115 million in the fourth quarter of 2016, while the number of deals remained in the range of the past three years.
ICO - Initial Coin Offering 2017
Last year, 10 Israeli companies went through a process of ICO - Initial Coin Offering - in which they raised money in return for its cryptocurrencies. The ICOs have become favorable in 2017 among blockchain companies that wish to get capital and recognition. From a financial perspective, a coin offering is not considered an investment, but has some characteristics of a financial asset. As such, the hype which we witnessed in 2017 can indicate a similar pattern going forward, or a change in the dynamics and a tremendous crash.
Published by Globes [online], Israel business news - www.globes-online.com - on January 17, 2018
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