Report sees startup investment boom ending

venture capital  image: Shutterstock

Investment in Israeli technology startups hit record levels in the first quarter of 2021, but underlying conditions have changed, IVC says.

The first quarter of 2021 was unprecedented for venture capital investment in Israeli technology companies, but the trend is not expected to continue, according to a report by research company IVC and law firm Meitar Liquornik Geva Leshem Tal.

Funds raised in the first three months of 2021 totaled $5.4 billion, 89% more than in the last quarter of 2020, which itself was a record quarter, and double the amount raised in the first quarter last year.

The leap is only because of the value of deals; the number of deals remained almost the same. There were 172 deals In the first quarter of 2021, and 173 in the final quarter of 2020. The average amount raised in the first quarter was $31 million, and the median amount was $10 million, double the figure for the last quarter of 2020.

Unlike the mature companies, which enjoyed a wave of investment in the wake of the coronavirus pandemic, young companies at the seed stage suffered a slowdown in investment. But since the third quarter of 2020, which saw a low in seed investment, seed rounds have shot up, surpassing their levels before the pandemic.

In the first and third quarters of 2020, seed rounds totaled $38 million and $40 million, but the figures for the final quarter of 2020 and the first quarter of 2021 are $93 million and 101 million. The median seed round size, which was $120,000 in the second quarter of 2020, climbed to $1.85 million in the first quarter of this year.

Alongside the recovery in seed investment, the first quarter of 2021 was a quarter of mega rounds. The total raised in rounds of over $100 million was nearly triple the previous peak and represented 55% of the total amount raised in the first quarter. The number of rounds over $50 million was more than double the number for the previous quarter.

The report warns, however, that the party will not continue. Investment in Israeli technology startups is highly correlated with investment in high-growth companies on Wall Street. Sentiment on Wall Street has changed of late, and some of the most prominent names among the growth companies have lost 30-40% of their market cap, raising the question whether the share prices of listed technology companies are not in bubble territory, the report says. The conclusion that the report draws is that investment in Israeli startups in the second and third quarters of this year is unlikely to break the records set in the first quarter.

The report also points out that a large proportion of the amount raised in the first quarter was by fintech and cybersecurity companies, which accounted for 47% of the total.

The proportion of foreign investment also rose. Since 2019, the number of investment deals from foreign investors has mostly been higher than the number of deals with Israeli investors, by around 20%. In the first quarter of 2021, this gap grew to nearly 50%: 403 "Israeli" deals versus 594 deals by foreign investors.

Published by Globes, Israel business news - en.globes.co.il - on April 12, 2021

© Copyright of Globes Publisher Itonut (1983) Ltd. 2021

venture capital  image: Shutterstock
venture capital image: Shutterstock
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