IVC-ZAG: Record investment in Israeli tech cos in Q3

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Israeli tech companies are on course for another record capital raising year in 2020 but seed funding for early stage startups is drying up.

In the third quarter of 2020, Israeli tech companies raised a record quarterly figure of $2.74 billion in 151 deals, up 26% from the preceding quarter and up 24% from the corresponding quarter of 2019, IVC-ZAG reports. Israeli tech companies have raised $8 billion in the first nine months of the year, close to the record $8.3 billion raised in 2019.

But while the Covid-19 pandemic and the shift to online operations is assisting Israel's tech startups in raising money, early stage startups are struggling with seed funding crashing, IVC-ZAG says.

ZAG-S&W (Zysman, Aharoni, Gayer & Co.) law firm high-tech department head Adv. Shmulik Zysman said, While the data for the second quarter hinted at a possible slowdown, the third quarter proved the exceptional strength of the Israeli high-tech industry. The Covid-19 pandemic is still here, but so is the high-tech industry. Total investment in the third quarter was the highest ever. This quarter we saw an increase of about 24% of the total investment compared to the corresponding quarter last year and about 26% compared to the previous quarter."

Zysman cites two reasons for the increase in investment "This quarter foreign investors allocated the highest amounts of all time. The second: the total capital invested by Israeli funds, is also the highest ever. This phenomenon is particularly interesting, and the question is whether local investors took advantage of 'Closed borders' opportunities. Life sciences sector stood out, especially in the third quarter, as one in four deals was from companies in this sector." However, Zysman adds: "Unfortunately, not everything is wonderful during the pandemic. Companies in the early stages are clearly affected. In conclusion, the third quarter was unusual, continuing the trend of 'less risky venture capital'; big money goes to companies in the late stages. We remain optimistic and hopeful. Even in a prolonged crisis, Israeli high-tech will prove its strength. We believe it will be a key factor in the recovery of the Israeli economy."

Less than $100 million was raised by just 95 seed deals, so far this year, suggesting a significant drop in seed funding amounts during 2020 compared with the previous years’ amounts levels. The seed median investment reflects the change in the last quarters, dropping from $900,000-$1million in 2016-2019 to $150,000 in 2020. This dynamic in the seed investment trend signals a change in the preferences of traditional seed round investors (angels, accelerators, and venture capital funds).

IVC Research Center research director Marianna Shapira said, "The investment data in the first three quarters of 2020 show that there was no change in the venture capital allocation to the Israeli tech companies. Ironically, the large amounts for late stages keep growing. The signs of the Covid-19 pandemic are on the other side of the investment scale in the seed capital investments, where investors’ preferences have changed to the worst through the first three quarters of 2020. In the bottom line, there is still more than enough money at the Israeli dedicated venture capital funds, but their appetite for risks has declined."

Published by Globes, Israel business news - en.globes.co.il - on October 14, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

dollars  picture: Thinkstock
dollars picture: Thinkstock
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