IVC-ZAG: Israeli startups raised record $6.4b in 2018

In the dollar we trust

In the final three months of 2018, Israeli startups raised $1.82 billion, a record quarterly amount.

In 2018, Israeli high-tech companies raised a record $6.4 billion in 623 deals, according to the latest report by IVC Research Center - ZAG S&W. The total capital raised in 2018 was 17% higher than in 2017, and 120% higher than 2013. The amount raised has risen for the past six consecutive years although the number of deals decreased slightly in 2018.

In the fourth quarter of 2018, Israeli startups raised a record $1.82 billion, up 8% from the preceding quarter. However, there were 140 deals in the fourth quarter of 2018, down from 163 deals in the corresponding quarter of 2017.

The number of deals below $5 million continued to shrink in 2018, while deals above $20 million kept growing. According to IVC’s analysis, the amounts of larger deals almost quadrupled from 2013 to 2018, capturing 63% of the total amount in 2018. The number of smaller deals (below $5m) has declined by 23% since 2015. The fourth quarter of 2018 saw a record 34 deals over $20 million each. Those larger deals raised a total of $1.3 billion in the fourth quarter and $4.1 billion in 2018 due to five mega deals: Landa Corp. ($300m), Jfrog ($165m) Insightec ($150m), Trax ($125m), and eToro ($100m).

In 2018, venture capital-backed deals totaled $4.7 billion, however, the number of venture capital-backed deals dropped for the first time since 2014 to 327. The average of venture capital-backed deals soared to $14.4 million in 2018, almost double from 2014 and 36% higher than the 2017 average.

For the first time since 2015, IVC data has recorded an increase in seed financing deals to 175 in 2018. Following a decrease of 27% from 2015 to 2017, seed deals increased 18% in 2018. Investors’ preference to focus on fewer deals drove down the median seed round to $0.68 million, while other median financing rounds more than doubled in 2013 - 2018.

In 2018, Israeli software company capital raising grew over 50% from 2015 and six-times from 2013. Thirteen mega software deals (above $50 million) over the past year totaled more than $1 billion. In the fourth quarter of 2018, software companies raised $1.01 billion as a result of 19 large deals (above $20 million each).

In 2018, life sciences capital raising was stable, $1.2 billion in 126 deals. Medical devices companies attracted 50% of the total sector capital and deals over $20 million captured more than 70% of the amount in this sector.

Fintech companies attracted the highest amounts in 2018 compared with 2013-2017 due to mega-deals: eToro ($100m), Next Insurance ($83m), and Hippo Insurance ($95m).

2018 was the strongest year for Israeli cybersecurity companies, which raised $1.08 billion in 89 deals, higher than 2017. Companies with AI characteristics continued the uptrend in valuation reaching $1.89 billion in 2018.

IVC Research Center research director Marianna Shapira said, "2018 was a busy year for Israeli high-tech capital raising. Most of the capital was raised by well-established software companies with annual revenues of up to $10m in the verticals of AI and cyber security. The term ‘wealth attracts money’ describes the continued investment trend in Israel, as in the US. A number of other signs hint that the Israeli technology market will enter 2019 as an attractive target for global investments: more companies (43% of all active) have reached mature stages, a desirable goal for investors concentrating on quality rather than quantity."

She added that foreign investors were more involved in the local venture market, boosting capital volume, as their average and follow-on investments increased. "In addition, as the number of seed transactions has grown in 2018, and venture capital allocation to current portfolios continues to flow, these major trends in Israeli high-tech capital raising will continue in the beginning of 2019."

Venture capital funds captured the largest investment share (34%) of total capital raised in 2018, reflecting a decrease compared to their historical share. Investment companies more than doubled the capital inflow compared with 2017. According to IVC’s data, the share of corporate VC capital investments has gradually grown over the years, reaching 9% of total capital invested in 2018, same as in 2017.

Zysman, Aharoni, Gayer & Co. (ZAG-S & W) managing partner Shmulik Zysman said, "The last quarter of 2018, in which high-tech companies in Israel raised $1.815 billion, a quarterly record sum, actually sums up the clear and consistent trend of Israeli high-tech - a consistent and steady rise for the last 6 years. Over the course of 2018, there was a noticeable trend of foreign funds and investors, whose investments in Israel rose by more than $1 billion compared to last year."

He added, "A surprising and different factor is the trade war between China and the US: when those two are quarreling, Israeli companies are the ones that profit. Israeli high-tech companies have become the indirect route of Americans to China, and of the Chinese to the US."

Zysman continued, "In recent years we have witnessed a decline in the share of seed and early stage companies in percentage of total investments in Israeli high-tech. Ostensibly, some will interpret this as a dangerous trend, since a tree will not grow without its roots; however, an in-depth analysis of this trend shows a steady increase of capital invested in these companies over the past six years. For example, the capital invested in these companies in 2018 is about 60% higher than the capital invested in early stages in 2013. In our view, this is excellent news."

Israeli venture capital funds slowed their activity during 2018, both in new and follow-on investments. For the first time since 2013, the number of follow-on investments has exceeded the number of first investments for Israeli venture capital funds. A slowdown was also noted in the relatively low share of Israeli venture capital funds compared with the overall amount - just 12%, the lowest in 6 years.

Published by Globes, Israel business news - en.globes.co.il - on January 9, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

In the dollar we trust
In the dollar we trust
Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018