IVC-KPMG: Israeli Q1 start-up financing strong

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Start-ups raised $994 million in the first quarter of 2015, just 10% below the previous quarter's record amount.

In the first quarter of 2015, 166 Israeli high-tech companies raised $994 million, according to the IVC-KPMG Israeli High-Tech Capital Raising Survey for the first quarter of 2015. This is the second highest quarterly amount in the last decade and just 10% below the record high $1.1 billion invested in 184 companies in the previous quarter. The amount raised in the first quarter of 2015 was 48% up from $673 million raised by 160 companies in the corresponding quarter of 2014.

IVC-KPMG found that the average company financing round in the first quarter of 2015 reached $6 million, the same as the previous quarters average, and well above $4.2 million in the corresponding quarter of 2014.

In the first quarter of 2015, 91 VC-backed deals accounted for $832 million - 84% of total capital invested. The average VC-backed deal was $9.1 million, up from $7.7 million and $6.1 million in the preceding and corresponding quarters, respectively.

KPMG Somekh Chaikin's technology group partner Ofer Sela said, "As can be seen from Q1 2015 results, the level of investment activity in Israeli companies is on the rise. This trend is being fueled by higher revenues, improved business results and other key performance indicators. However, the returns from the appreciation in value of VC-backed Israeli companies are mostly enjoyed by foreign investors. The majority of Israeli institutional investors, and through them the Israeli general public, is not participating in venture capital investments. "

Sela added, The Israeli government should consider actions that encourage and facilitate Israeli institutional investment at a much higher level than currently. By doing so, global and local momentum could enable Israel's technology industry to expand and become a global technology superpower in absolute numbers, not just relative to its size."

Israeli VC fund investment activity

Israeli venture capital funds invested $180 million in Israeli high-tech companies or 18% of all investments in the first quarter of 2015. The amount was 6% down from $192 million (17%) invested in the preceding quarter, but 80% higher than the $100 million (15%) invested in the corresponding quarter.

First investments by Israeli venture capital funds accounted for 31% in the first quarter of 2015, 55% above the 20% of the previous quarter but still below the 43% of the corresponding quarter.  

Capital raised by sector, stage and deal size

The Internet sector experienced its best quarter ever with $343 million (35%) raised by 44 companies, and the sector continued to lead capital raising as in the two previous quarters. The life sciences and software sectors followed, accounting for 22% and 19% of capital raised, respectively.

IVC Research Center CEO Koby Simana said, The increase in high-tech capital raising is not coincidental, but directly reflects the trend toward growth company investments and higher valuations of mid and late stage companies."

He added, Up to a year ago we were accustomed to seeing average financing rounds of $3 million to $4 million, in the Internet sector. In recent quarters though, we've been observing a distinct rise in the average Internet financing round. This trend is even more evident among growth stage Internet companies for which the average deal jumped from $6 million about a year ago to $16.3 million in the first quarter of 2015. Even though exceptionally large financing rounds of Taboola and Quixey (led by Alibaba) were responsible for the jump in Q1, our analysis shows that these were not special or unique events. They fit in well with the activity surrounding the Internet sector and the rise in the number of early stage investments. These parallel trends mostly feed each other as the increase in growth stage Internet companies attracts more entrepreneurs and investors into the sector. We believe that Internet success stories will drive the volume of growth deals as well as contribute to increase seed stage investments, which up until last quarter, were on the decline. "

IVC-KPMG found that another emerging trend is the increase in growth stage deals, which was accelerated in the first quarter of 2015, when initial revenue companies led all investments for the first time since 2013 with 47 firms raising $319 million (32%). Early stage companies attracted $315 million (32%), down 14% from the especially strong previous quarter, when early stage firms led capital raising. Late stage companies followed closely with a 31% share of total investments.

The first quarter of 2015 also saw a rise in deals above $20 million, a trend pointed out in the previous quarters IVC-KPMG Survey. In the first quarter of 2015, deals above $20 million reached record levels, with 16 deals that accounted for 55% of total investments. In comparison, there were 13 deals (42%) and six deals (27%) in the preceding and corresponding quarters, respectively.

Published by Globes [online], Israel business news - www.globes-online.com - on April 28, 2015

Copyright of Globes Publisher Itonut (1983) Ltd. 2015

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