Tel Aviv, Israel, October 21, 2015. The third quarter of 2015 concluded with $1.1 billion raised by 165 Israeli high-tech companies. The amount was marginally below $1.14 billion raised by 181 companies in Q2/2015, yet extremely high at 55 percent above $703 million attracted by 170 companies in the third quarter of 2014. (Chart 1)
In the first three quarters of 2015, a total of 506 Israeli high-tech companies raised a phenomenal $3.2 billion, reaching in nine months, nearly 95 percent of the entire 2014’s record capital raising. In the first three quarters of 2014. $2.3 billion were raised by 504 companies and $1.5 billion were closed in 469 financing rounds in 2013’s respective period.
Koby Simana, CEO of IVC Research Center is not surprised by the numbers, he says: "The third quarter of the year tends traditionally to be on the slow side for capital raising, so we expected to see a slight drop from the previous quarter’s records, yet capital raising is still going exceptionally strong, which is why this drop is marginal at best. We expect the fourth quarter trend to go up again, and believe 2015 may end with as much as $4.4 billion in total capital raising by high-tech companies."
In Q3/2015, VC-backed deals reached a record $908 million (83 percent) invested in 100 deals. The amount was 70 percent above the $534 million raised in 101 VC-backed deals in Q2/2015 which was at an all-time low - 47 percent of high-tech capital raising, and 92 percent more than $474 million or 67 percent of total, closed in 97 deals in Q3/2014.
The average VC-backed deal in the third quarter was $9.1 million, close to the $9.3 million record average in Q1/2015, and much higher than $5.3 million and $4.9 million average VC-backed deals in Q2/2015 and Q3/2014, respectively.
One of the continuing trends the IVC-KPMG Survey points to is the
ever-increasing prominence of large deals of $20 million or more. There was a significant increase in the number of such deals in Q3/2015, with 20 deals
reaching a staggering total of $703 million, making up 64 percent of the total capital raised in the third quarter. (Chart 2)
According to Koby Simana, IVC’s CEO: "The fact that an average
Israeli large financing accounted for the $35 million in the previous quarter,
reveals that even Israeli growth-stage companies are priced well within the
lower range of growth deals in comparison with other countries. We are far from Silicon Valley’s $0.5 billion financing rounds, even while we do find the
occasional $100 million round here as well, but in general large deals in Israel are affordably-priced, reflecting real, rather than speculative, valuations."
Israeli Venture Capital Fund Investment Activity
In Q3/2015, Israeli venture capital funds invested $133 million, just 12
percent of the total capital raised by Israeli high-tech companies in the
quarter, no change from $132 million (12 percent) placed by Israeli VC funds in the previous quarter, and just under the five-year average of $136 million placed by Israeli VC funds quarterly. First investments by Israeli VCs in Q3/2015 accounted for 29 percent, down from 34 percent in the previous quarter and 42 percent in Q3/2014.
Israeli VC funds invested $443 million, a 21 percent increase from $367 million invested in Q1-Q3/2014. The Israeli VC fund share in the first three quarters of 2015 diminished slightly to 14 percent of total investments, compared to 16 percent share in the corresponding period of 2014.
Capital Raised by Sector
In Q3/2015, 33 life science companies raised a total of $327 million, leading capital raising ahead of all sector with 30 percent of total capital. Internet companies followed with 26 percent of total investments, while the software sector’s share fell back to the average 24 percent, from an exceptionally high 44 percent share in Q2/2015, when the sector led all investments.
Ofer Sela, partner at KPMG Somekh Chaikin's Technology Group, commented: "While 2015 is in the process of becoming a record year in terms of the dollar amount invested, the proportion of investments made in software companies out of the overall VC investments is a reason for concern in comparison with the US market, where software takes up a much larger share of total investments. The unavailability of sufficient private equity for this segment in Israel is one of the main causes for the shortage of Israeli software companies gearing up to get listed on NASDAQ, resulting in a local "glass ceiling" in terms of the size of companies established locally."
The solution, says Sela, "should focus on local institutional investors, who should ‘get off the fence’ and step into the technology market as participating investors, especially in companies that are at the expansion stage. The benefit to the overall Israeli high-tech ecosystem will be dramatic and long-lasting. The Israeli government should consider adopting regulations that will encourage this change," concluded Sela.
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 180 investors of which 44 were Israeli VC management companies and 136 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.