157 Israeli startups raised $1.26 billion in the second quarter of 2017, according to the latest report by IVC Research Center - Zysman Aharoni Gayer & Co. (ZAG - S&W) law firm. Although this was down from the $1.7 billion raised by 194 startups in the second quarter of 2016, it was still the second highest quarterly amount in the past five years. The number of deals, even though slightly above the 155 deals reported for the previous quarter, remained 4% below the two-year average of 164 transactions.
The average financing round grew significantly in the second quarter of 2017, reaching $8 million, compared with the $6.8 million average of the previous quarter, and second only to the exceptional $8.8 million average in the corresponding quarter of 2016.
The first half of 2017 was the second highest in terms of capital raising, as 312 Israeli high-tech companies raised $2.3 billion, below the first half of 2016, the strongest-ever, when $2.8 billion was raised in 368 deals. The first half of 2017 saw a slight drop in terms of the number of deals, 8% below the corresponding past four years average.
IVC-ZAG found a 12% increase in capital raised in VC-backed deals in the second quarter of 2017, compared with the $919 million three-year average in deals involving venture capital funds.
IVC Research Center CEO Koby Simana said, "Our data indicate that local investments by venture capital funds have increased in the second quarter, following a series of declines in previous quarters. This growth in the volume of activity by the VC funds reinforces two parallel trends we saw in the last quarter. On the one hand, the number of large deals, of over $20 million each, increased significantly, leading to a rise in the total capital raised in large rounds, although the average amount raised in such deals during the second quarter was no more than $33 million. We also see that the average small financing rounds (under $5 million) was up substantially in the second quarter, despite the fact that the number of such deals declined. Mid-range deals saw a minor increase both in terms of deal number and the average financing round."
Simana added, "The increase in capital raised in the second quarter is not biased due to a number of large deals that distort the average upwards, as was the case in the record quarter last year. Rather, the figures indicate a real change in the way capital is raised in the local market - investors, especially venture capital funds, choose to make fewer investments but are prepared to invest larger amounts per round, at almost any stage."
Capital raising by stage
While mid-stage companies kept their leading position in the second quarter of 2017 for the fourth quarter in a row, raising $462 million (37% of total), 19 late stage companies represented a noticeable improvement this quarter, contributing to the total quarterly increase, according to IVC-ZAG analysis, attracting $428 million (34%), compared to the previous three weak quarters. The amount was still under the exceptional $726 million raised in a remarkable number of 25 late stage deals in the second quarter of 2016, when the stage led Israeli high-tech capital raising with 42% of total capital.
Zysman Aharoni Gayer & Co. (ZAG/S&W) managing partner Adv. Shmuel Zysman said, "Besides the overall increase in capital raising, the most encouraging figure in the present report is the volume of capital that seed companies succeeded to raise, which has doubled compared both to the previous quarter and even to the same quarter last year. These data indicate that our previous forecast - according to which the Mobileye deal will impact the following quarters, driving up capital raising proceeds as an indication and reaffirmation of Israeli companies’ quality - has materialized. The Israeli high-tech industry continues to grow and receive a vote of confidence from foreign investors and VC funds. At the end of the day - despite the high risk they embody, there is no way to ensure the strength and future of the Israeli economy and the high-tech industry other than early stage investments, which offer exceptional returns to those willing to take risks."
In the second quarter of 2017, 38 seed companies raised $65 million, a noticeable increase in comparison to the preceding quarter ($35 million) and and the corresponding quarter of 2016 ($41 million).
Capital raising by sector
Software was the leading sector, with $482 million (38%) in the second quarter of 2017, as in the past four quarters. Life sciences was second, with $387 million, 31% of capital in the second quarter of 2017.
2017 shows signs of being a record year for life science capital raising, with the highest capital amounts raised in both the second quarter and the first half of 2017, when a record amount of $622 million (27%) was attracted by life sciences, 32% up from the $473 million raised in the first half of 2016.
Adv. Zysman said, "This reflects the high level of the life science industry in Israel, as well as the great trust investors place in Israeli companies in this field. I expect investments in this field will continue to grow, as will the average capital financing per company. In addition, if institutional investors were to roll up their sleeves and invest in high-tech through the new dedicated funds currently proposed by the Ministry of Finance, this could lead to a significant increase in funding rounds and real growth for the entire Israeli high-tech industry."
Published by Globes [online], Israel business news - www.globes-online.com - on July 19, 2017
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