IVC-ZAG: Israeli startups raised $1.6b in Q2

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Israeli high-tech startups have raised a record $3.2 billion the first half of 2018.

Israeli high-tech startups raised $1.61 billion in 170 deals in the second quarter of 2018, according to a report published today by IVC - ZAG-S&W. This sum included $300 million raised by Landa Digital Printing - 19% of the total raised in the second quarter of 2018.

Israeli high-tech companies raised a record $3.2 billion the first half of 2018, which was higher than the annual total capital raised in 2010-2013. Excluding the Landa financing round, the overall amount raised in the first half of the year is still the highest since the beginning of the decade.

IVC found that in the second quarter of 2018, 94 venture capital-backed deals accounted for 55% of the total deals with $841 million raised, while non-venture capital-backed capital raising reached $765 million. Due to the Landa financing round, the capital share of the non-venture capital backed rounds soared to 48% of capital raised, higher compared with the historical quarterly benchmark.

Following a remarkable first quarter for series A rounds financing rounds, $200 million was raised in 39 deals in the second quarter of 2018. Medium range rounds (B and C) attracted $857 million in 47 deals, 53% of the capital raised. The C financing round increase was the result of the large round by Landa ($300 million). Excluding this deal, the amount raised in C round decreased dramatically to $117 million. The notable increase in capital raised by B rounds was attributable to several high-value deals as well as the increase in number of transactions. According to IVC, companies with revenues (initial revenue and revenue growth levels) accounted for $1.3 billion (81%) of all the capital raised in this period.

Zysman, Aharoni, Gayer & Co. (ZAG-S & W) managing partner Adv. Shmulik Zysman said, "The trend of growth in investments in Israeli high-tech continues to stand out. After a particularly strong first quarter, the amount of capital raised in the second quarter of 2018 continues to rise. With the exception of the second quarter of 2016, this quarter represents the most successful quarter in the last six years. We are also seeing an increase in capital raised from foreign investors. In our opinion, this growth is also due to an increase in investments from China, as well as from European investors who are interested, among other things, in automotive technology."

He added: "This quarter, along with a certain decline in the volume of investment in companies in the early maturity stages (Seed and R&D) compared to the previous quarter, we saw the continued increase in the amount of investment in late stage companies. Our optimism continues at the start of the second half of the year. Following the breaking of records in the first quarter, the amounts of capital raised in the second quarter of 2018 increased. We expect these trends to continue, both in terms of capital raising and foreign investors entering into the Israeli high-tech industry."

After a year of steep declines in early stage deals, IVC data indicates the trend is changing - 186 early stage deals (seed and A rounds) took place in the first half of 2018. The number of early stage deals peaked in 2016 at 384 transactions before dropping nearly 18% in 2017. If the capital raising activity will continue in the same levels, 2018 forecasted to end as a good year for early stage capital raising.

IVC Research Center research director Marianna Shapira said, “Since 2012, the number of investors involved in the Israeli high-tech market, has grown exponentially, reaching a peak in 2017. In the first half of 2018, the number has already reached 60% of this number.”

She added, “IVC findings showed that 65% of the investors in the first half of 2018 were venture capital funds and corporate investors. The number of investment companies has also increased over the past four years. Lately, we have seen a wider variety of investors actively taking part in the Israeli high-tech industry, enlarging their portfolios with innovative Israeli companies. Israeli startups have never enjoyed such a vibrant and diverse investor community as it is right now.”

Capital raising by sector and industry verticals

In the second quarter of 2018, life science deals amounted to $267 million in 39 deals. The capital raised by life science companies decreased slightly compared to the previous and corresponding last year’s quarter. Software companies led capital raising in the second quarter of 2018 with $584 million in 65 transactions, 36% of the total capital raised in the second quarter.

Looking at the industry verticals, artificial intelligence (AI) companies headed the leading verticals in the second quarter of 2018, raising $426 million in 45 deals. Cybersecurity capital raising remained high with 30 deals accounting for $394 million. In the second quarter of 2018, the number of cyber security deals in B round peaked, and attracted most of the capital, soaring to 62% of all capital raised by cyber companies. As a result, the cyber vertical contributed to the notable rise of B round amounts. Both IoT ($214 million) and fintech ($150 million) capital raising slowed down this quarter, following a hefty first quarter in 2018.

Published by Globes [online], Israel business news - www.globes-online.com - on July 24, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

Dollars Photo: Shutterstock
Dollars Photo: Shutterstock
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