IVC Research Center and ZAG/Sullivan: Israeli High-Tech Companies Raised $1.6 Billion in 131 Deals in Q3/2018
29.10.2018 | IVC Research Center
- Capital raising in Q1-Q3/2018 – equaled 82% of the total capital raised in 2017
- The number of Artificial Intelligence deals grew 15% compared with Q3/2017
- $1.1 billion was raised in deals larger than $20 million in Q3/2018
- Only 21 seed deals were recorded in Q3/2018 – the lowest since 2013
Tel Aviv, Israel, October 29, 2018. In Q3/2018, Israeli high-tech companies raised $1.6 billion in 131 deals. While the amount invested was comparably high, there were fewer deals compared with the last quarters. Only one mega-deal was recorded in Q3/2018 – Trax Solutions raised $125 million, equal to 8% of the total amount raised in the third quarter.
In Q1-Q3/2018, Israeli high-tech companies raised $4.5 billion. The number of deals matched 68% of the total number of deals in 2017. Yet, in the first nine months of 2018, Israeli high-tech capital raising equaled 82% of the total raised in 2017.
Following an uplift of seed capital raising in H1/2018, only 21 seed deals were recorded in Q3/2018, the lowest number since 2013 and below the ranges of the last five years. The number of mid and late financing rounds (B and Later rounds) was in the range of the previous years, while A rounds decreased in Q1-Q3/2018. According to IVC analysis, median numbers at all stages continued to increase.
Chart 1: Israeli High-Tech Capital Raising Q1/2013-Q3/2018
Capital Raising by Deal Size and Type
In Q3/2018, deals above $20 million reached a record level of $1.1 billion. While the number of deals under $5 million decreased, the number of deals larger than $10 million continued to rise.
Marianna Shapira, research director at IVC Research Center points out: “Investors preference for mature companies has negatively affected the levels of seed financing, which continues to shrink similar to US patterns.” Shapira added, “Nevertheless, we expect capital raising in 2018 to achieve the levels of 2017. According to the investment patterns in Israeli high-tech from the last years, it seems the third quarter marked a bottom for the latest period.”
In Q3/2018, VC-backed capital raising deals totaled $1.3 billion in 67 deals. The number of VC-backed deals dropped 34% compared with Q3/2017. Non-VC-backed deals accounted for $285 million, at the lower end of the last three years.
Chart 2: Israeli High-Tech Capital Raising by Deal Size Q1/15-Q3/18
Capital Raising by Stages and Selected Clusters
In Q3/2018, mature-stage companies raised almost six times more capital compared with early-stage companies. In terms of number of deals, IVC found that, through 2016, investors favored seed and R&D stages. Since 2017 and even more in 2018, the trend shifted, as investors turned to more mature companies (initial growth + revenue growth stages).
In Q3/2018, software companies raised $760 million mainly due to 12 deals, each larger than $20 million. Artificial Intelligence (AI) companies were the main attraction for financing deals in the last quarter. The number of deals grew 15% in Q3/2018, compared with the corresponding quarter last year. The number of AI deals in Q1-Q3/2018 rose steadily – 17 companies attracted more than $20 million each.
In Q3/2018, IVC analysis found that the share of corporate VCs grew to 14% of total capital invested. An increase was noted in VC funds’ investments, following a slowdown that started in Q1/2017. In Q3/2018, VC funds’ investments accounted for 42% of total capital invested.
“Despite the vacations in the third quarter, Israeli high-tech was able to withstand this period,” said Shmulik Zysman, managing partner at Zysman, Aharoni, Gayer & Co. (ZAG/Sullivan): “More importantly, the total amount raised was similar to the total amount raised in the corresponding quarter of last year, one of the highest in the past six years, indicating the stability of the market.”
Zysman notes that, “Although the number of companies that raised capital this quarter declined, the amount of capital grew. Some would see it as a lack of confidence in the Israeli high-tech industry, we believe it is another evidence of the vitality of the Israeli high-tech.”
According to Zysman, the volume of capital raised from foreign investors continues to be particularly high: “This is in spite of the fact that Israeli companies that have benefited from Chinese investors are now encountering much more sophisticated and selective Chinese investors. This increase can also be credited to European venture capital funds that started investing in Israel.”
Chart 3: Israeli High-Tech Investments by Investor Type ($M)
This Survey reviews capital raised by Israeli high-tech companies from Israeli and foreign venture capital funds as well as other investors, such as investment companies, corporate investors, incubators and angels. The Survey is based on reports from 437 investors of which 43 were Israeli VC management companies and 394 were other entities. The term “R&D companies” refers to high-tech companies in the process of development and not yet offering products to the market.
The survey covered total capital raised in Israeli high-tech sector, including VC-backed rounds, where at least one VC fund participated in the round, as well as deals not backed by venture capital funds. The survey includes amounts received by each company directly and does not count direct transactions performed between company shareholders. Each company belongs to more than one cluster, therefore the data regarding clusters should be viewed separately per cluster. For more on our methodology, please click here.
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About the authors of this report:
IVC Research Center is the leading online provider of data and analyses on Israel’s high-tech, venture capital, and private equity industries. Its information is used by all key decision-makers, strategic and financial investors, government agencies, and academic and research institutions in Israel.
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ZAG/Sullivan (Zysman, Aharoni, Gayer & Co.) is an international law firm with offices in Israel, the United States, China, and the United Kingdom. The firm’s attorneys specialize in all disciplines of commercial law for both publicly held and private companies, with particular expertise in hi-tech, life science, international transactions, and capital markets. ZAG-S&W provides result-driven legal and business advice to its clients, addressing all aspects of the clients’ business activities, including penetration into new markets in strategic locations. In recent years, the firm has acted on a majority of the equity and debt financing transactions by Israeli technology companies on the NASDAQ. It has been the firm’s experience that the best results, those that give our clients the competitive advantage they need, are attained by coupling professional experience, global presence, and connections with the investor communities in Israel and abroad.