IVC-KPMG: Israeli Q2 startup financing hits new record

dollars  picture: Thinkstock
dollars picture: Thinkstock

179 companies raised $1.12 billion in the second quarter just beating former record $1.11 billion in the fourth quarter of 2014.

179 Israeli high-tech companies raised $1.12 billion in the second quarter just surpassing the former record high $1.11 billion invested in the fourth quarter of 2014, according to the latest IVC-KPMG Israeli High-Tech Capital Raising Survey for the second quarter of 2015. This was 12% up from the $997 million raised by 163 companies in the first quarter of 2015, and 20% more than the $928 million raised by 174 companies in the corresponding quarter of 2014.

In the first half of 2015, 342 Israeli high-tech companies raised $2.1 billion, up from $1.6 billion raised by 334 companies in the corresponding period of 2014, and $878 million invested in 307 companies in the corresponding period of 2013.

The average financing round in the first half of 2015 was $6.2 million, up from $4.8 million last year, and $2.9 million in the first half of 2013.

KPMG Somekh Chaikin's technology group partner Ofer Sela said, "50% of the amount raised during this quarter, and even more since the beginning of 2015, results from large deals of $20 million or more raised per round. The overall number of growth companies attracting investments continues to increase quarter over quarter, reflecting the health of the venture-backed ecosystem in Israel and the patience of investors supporting their portfolio companies to complete homeruns and grow into Unicorns that are substantial and mature."

In the second quarter of 2015, investments in venture capital-backed deals decreased significantly, with 99 deals totaling $486 million - the lowest share for venture capital-backed deals in six years, at 44%. The amount fell 42% from the $838 million raised in 92 venture capital-backed deals in the first quarter of 2015, and was 9% below the $533 million invested in 107 deals in the corresponding quarter last year.

The average venture capital-backed deal dropped to $4.9 million, compared with the previous quarters record of $9.1 million, back to the second quarter 2014 level, which stood at $5 million.

In the first half of 2015, 191 venture capital-backed deals accounted for $1.3 billion, or 63%, of total investments in the period. The amount was 33% up from $1 billion (62% of total) invested in 183 deals in the first half of 2014, and 97% above the $672 million (77% of total) raised in 182 deals in the first half of 2013.

IVC-KPMG's analysis of investors by type revealed that foreign private equity funds and corporate investors were responsible for $477 million or nearly 43% of the total investments in the second quarter of 2015.

IVC Research Center CEO Koby Simana said, "Most of the increase in capital raising in the second quarter can be attributed to two exceptionally large deals, where private equity funds invested in growth-stage companies. Moreover, an investor profile analysis we conducted shows an impressive increase in the number of foreign private equity funds investing directly in Israeli technology companies - i.e., in deals where the equity capital is placed directly in the company, rather than shareholder equity changing hands."

Simana believes that the interest shown by private equity investors in growth stage companies is yet another indicator of the Israeli technology- and venture capital industrys evolvement and maturity. If we want the local high-tech industry to continue growing and see more large-scale, mature companies emerge, there is room for technology investments from more than just venture capital funds - local or foreign. The industry needs a variety of investors and investment models to support companies throughout various stages. Private equity funds and international conglomerates are the kind of investors we want to see supporting growth companies, and we have lately found that, indeed, the number of growth stage technology companies in Israel is rapidly increasing. As the number of high growth companies and company valuations climb even further, we expect to see a more diverse investor mix," Simana said.

Sela added: "Investors from Asia are investing in an increasing number of Israeli growth companies, adding to the overall amount of cash available for market expansion. Overall, Israeli portfolio companies are priced much more reasonably than Silicon Valley companies, making Israel an attractive location for both investments and acquisitions."

Israeli venture capital fund investment activity

In the second quarter of 2015, Israeli venture capital funds invested $117 million in Israeli high-tech companies - just 10% of all capital investments. The amount was 35% below the $180 million (18% of total) invested in the first quarter of 2015, and 23% down from the $152 million (16% of total) invested in the second quarter of 2014.

First investments by Israeli venture capital funds have slightly increased in the second quarter of 2015, and accounted for 38%, compared with 31% in the previous quarter and 35% in the corresponding quarter of 2014.

Capital raised by sector, stage

The software industry led capital raising in the second quarter of 2015, for the first time since the first quarter of 2013, with $487 million (44%) invested in 50 companies. The amount was the largest for the sector, almost triple the last two-years' average. Internet and life science investments, which led all sectors in the first quarter of 2015, decreased reaching 21% and 13%, respectively.

In the second quarter of 2015, late stage companies accounted for the majority of investments, with $480 million, followed by mid-stage companies with $379 million. Together, growth stage deals accounted for 77% of all quarterly investments, a noticeable increase compared to the 63% they reached together in each of the last three quarters. Early stage companies followed, with 19%, while seed investments accounted for 4% of the capital, though constituting a quarter of all the deals.

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

Copyright of Globes Publisher Itonut (1983) Ltd. 2015

 
dollars  picture: Thinkstock
dollars picture: Thinkstock
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