IVC-KPMG: Israeli startups raise record $1.7b in Q2

Startups

In the first half of 2016, Israeli high-tech capital raising reached $2.8 billion, up 35% from the first half of 2015.

Israeli technology startups raised a record $1.7 billion in the second quarter of 2016 in 187 financing deals, IVC-KPMG reports. The amount was 55% up from the preceding quarter when $1.1 billion was raised in 174 high-tech financing rounds.

The largest deal in the second quarter, $300 million raised by mobile app company Gett, accounted for 18% of the total proceeds. Even without the Gett deal, capital raised in the second quarter reflects a 27% increase from the preceding quarter. The average company financing round was a record $9.2 million, higher than the $6.5 million and $6.7 million averages of the preceding and corresponding quarters respectively.

In the first half of 2016, Israeli high-tech capital raising reached $2.8 billion in 361 deals, 35% above the $2.1 billion raised in 327 deals in the first six months of 2015.

KPMG Somekh Chaikin Technology group partner Ofer sela said, "All indicators point to a healthy and vibrant ecosystem that continues to mature and generate new companies. We are in the middle of the summer, and it seems that economic winter is not quite around the corner. Having said that, there is no doubt a significant portion of the growth capital recently raised was induced by the need to prepare for a rainy day."

The IVC-KPMG Survey reveals a number of trends leading to the exceptionally high quarterly results, the most prominent of which is the continued increase in deals above $20 million. With $1.1 billion closed in 25 deals (including the Gett round), large deals above $20 million increased both in number (39%) and total capital raised (88%) compared to the first quarter of 2016.

IVC Research Center CEO Koby Simana said, "The clear increase in large deals is driven by the enhanced activity of foreign investors - primarily corporate investors and VC funds - in growth-stage companies. However, the increase is not limited to top-tier deals. We are also seeing an increase in low to mid-range deals, with those between $5 million and $10 million jumping 50%, to a record $234 million. This across-the-board trend leads us to believe 2016 will continue to be strong in capital raising, with a projected 20% year-on-year increase, or about $5.3 billion in total to be raised by the end of the year."

In the second quarter of 2016, 117 VC-backed deals accounted for a record $1.1 billion, or 63% of total capital raised, and reflecting a 37% increase from $782 million invested in 97 deals in the previous quarter.

The IVC-KPMG Survey also indicates an increase in the number of deals involving foreign venture capital funds. In the first six months of the year, some 57% of the deals included at least one foreign venture capital investor, compared to a 32% average in the first half of the previous two years.

Israeli VC fund investment activity

In the second quarter of 2016, Israeli venture capital funds invested $222 million in Israeli high-tech companies, a record amount accounting for a modest 13 percent of total investments. The amount was 43% above the $155 million average quarterly investment of the previous two years, while slightly below the two-year average quarterly share of 15% out of total dollar proceeds. First investments by Israeli venture capital funds increased in the second quarter of 2016, reaching 41% of their total capital investments, up from 29% and 36% directed into new portfolio companies in the preceding and corresponding quarters respectively.

Capital Raised by Sector

The communications sector led capital raising in the second quarter of 2016, with 35% of the capital. While the $592 million raised by the sector was driven up by the Gett deal, it reflects a 180% increase in capital raising even without that mega-deal.

Three other major sectors saw an increase in capital raising, including software, at 28% over the previous quarter, with a record 63 deals raking in $472 million - a 20% increase from the preceding quarter. Internet capital raising was up 179%, with $392 million raised, after a slump in the first quarter, when only $140 million was raised by the sector, the lowest amount in the past two years.

Sela observed, "The Israeli fintech industry is accelerating and has been raising increasing amounts for lending and other fintech platforms."

Published by Globes [online], Israel business news - www.globes-online.com - on July 13, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

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