Tel Aviv, Israel, April 19, 2016. In Q1/2016, 173 Israeli high-tech companies raised a combined total of $1.09 billion in private financing rounds, a 10 percent decrease from the $1.2 billion attracted by 201 companies in Q4/2015, which was a record quarter. According to the Survey editors, fourth quarters typically exhibit the highest amounts in capital raising, and a five-year trend suggests an average 12 percent decline in investments between the last quarter of the year and the ensuing first quarter. The capital raised in the first quarter of 2016 represented an eight percent year-on-year increase ($1 billion was raised by 162 companies in Q1/2015), and was in keeping with the quarterly average in the five previous quarters ($1.1 billion). (Chart 1)
Koby Simana, CEO of IVC Research Center, explained: “Despite of the slowdown reported in hightech capital raising and venture capital investments in the United States, and until now – despite of various forecasts published lately regarding the industry in Israel – the results of the first quarter of 2016 indicate stability. The capital volume, the number of quarterly deals, and the mix of deals by size, are very similar to the averages of 2015, which was considered very successful. The following quarters will determine if the slowdown trend which began in the United States will take hold in Israel as well, or perhaps the fact that the Israeli market didn’t experience the same peak as Silicon Valley and China in the past years indicates lower local volatility overall.
The average company financing round in the first quarter stood at $6.3 million, slightly above the $6.1 million and $6.2 million averages of Q4/2015 and Q1/2015, respectively.
Ninety six VC-backed deals amounted to $744 million in Q1/2016, a 19 percent plunge from $915 million raised in 108 deals in Q4/2015, and a 12 percent year-on-year decrease from the $849 million attracted by 91 deals a year earlier.
The share of VC-backed deals shrunk to 68 percent in Q1/2016, lower than their 75 percent share in the previous quarter, and far lower than the 84 percent recorded by VC-backed deals in Q1/2015. However, VC-backed deals maintained their share out of the total number of deals, with a steady 55 percent, in keeping with the two-year 56 percent average.
Ofer Sela, Partner in KPMG Somekh Chaikin's Technology group commented, "This quarter is quite interesting, as there is still much available cash around, ready to be invested, and a significant number of interesting companies that are good candidates for investments. On the other hand, there is fear that the global technology market is about to shrink. Nevertheless, the amount of available cash and attractive companies have their pull – as can be seen from the total volume of investments this quarter, the industry is hard at work and the investors are still in the game.
Israeli VC Fund Investment Activity
Israeli venture capital funds invested $130 million in Israeli high-tech companies, just 12 percent of all investments in Q1/2016. This figure represents a whopping 40 percent drop from the $217 million (18 percent of total) raised in Q4/2015, and a 23 percent year-on-year drop ($168 million, (17 percent) in Q1/2015).
The fourth quarter of 2015 was exceptionally strong for first investments by Israeli VC funds, with 47 percent of their total capital investments directed into new portfolio companies. In Q1/2016, first investments by Israeli VCs declined to 30 percent, slightly below the 33 percent five-year average.
Capital Raised by Sector, Stage and Deal Size
Software companies raised a total of $392 million in the first quarter of 2016, ranking the sector first with 36 percent of total capital, a slight increase over the 32 percent attracted in Q4/2015, and well over the 19 percent share in Q1/2015. The life science sector placed second with 30 percent, an increase from 21 percent of total capital in Q4/2015, and 22 percent in Q1/2015.
The Internet sector experienced its weakest quarter since 2013, with only $100 million raised by 37 companies or a mere nine percent of the total capital. This was a plunge from the previous quarter's best ever record, at $389 million (32 percent), as well as a drop from the $339 million (34 percent) raised in Q1/2015. (Chart 2)
Growth stage deals declined in Q1/2016, reaching 26 percent of total capital, down from 41 percent in Q4/2015. At the same time, early stage deal share increased from 20 percent to 30 percent with a total of $322 million raised, while initial revenue (mid-stage) deals grew from 32 percent to 38 percent, placing first in capital raising, with a total of $411 million raised in Q1/2016.
KPMG’s Ofer Sela explains: “A significant portion of the investments in mature companies is led and driven by private equity funds focusing on growth, and mature entrepreneurs that have made exits back in 2013-2014 are starting new ventures based on money from investors which deem them trustworthy. It seems that the industry is far from a crisis, although some shrinkage is expected in the near future."
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 280 investors of which 56 were Israeli VC management companies and 224 were other entities.
The survey covered total investment in the Israeli venture capital sector, including both VC-backed rounds where at least one investor participating in the round was a VC fund, as well as deals not backed by venture capital funds. For more on our methodology, please click here.
For additional information:
Marianna Shapira, Research Manager, IVC +972-73-212 2339 email@example.com
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.
KPMG Somekh Chaikin’s technology professionals offer insights and experience accumulated from a long history of work with technology and life science companies. Through a global network of highly qualified professionals in Israel, the Americas, Europe, the Middle East, Africa and Asia-Pacific, KPMG helps clients address the opportunities and challenges driven by new business models such as cloud computing, mobile services and others.
© 2017 Somekh Chaikin, an Israel Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.