Tel Aviv, Israel, January 25, 2016. 2015 was the most prolific for Israeli high-tech capital raising activity – 708 deals accounted for an exceptional $4.43 billion – the highest annual amount or number of financing rounds ever recorded. The amount reflected a 30 percent increase from the previous record in 2014, when 690 deals attracted $3.42 billion. The average deal peaked as well, with $6.3 million in 2015, compared with the previous year's $5 million average round and a $4 million average deal in the past 10 years. (Chart 1)
In the fourth quarter of 2015, 202 Israeli high-tech deals reached a record quarterly amount of $1.2 billion, an increase of 11 percent and 10 percent from the $1.1 billion raised by 165 companies in Q3/2015 and by 185 companies in Q4/2014, respectively. However, the average deal decreased slightly from its peak of $6.6 million in the previous quarter to $6 million in Q4/2015, in line with the $6 million average of Q4/2014.
VC-backed deals accounted for 72 percent of capital raised in 2015, with an outstanding $3.2 billion closed in 397 deals, or only 56 percent of deals. In general, the past three years have demonstrated a continuous 30 percent annual growth in capital raising in VC-backed deals. The 2015 amount was up 36 percent from the $2.3 billion raised in 392 VC-backed deals in 2014, and 84 percent above the $1.7 billion raised in 393 VC-backed deals in 2013.
It seems the increase in VC-backed capital raising is therefore mostly explained by the increase in the size of the average financing round where VC funds participated. The acreage VC-backed deal in 2015 reached nearly $8 million, an unprecedented record, well above the $5.9 million average in 2014, and much higher than the $4.4 million average VC-backed deal in 2013.
Ofer Sela, partner at KPMG Somekh Chaikin's Technology Group, pointed out a worldwide trend: "As 2015 demonstrated globally, venture capital investments have become stronger throughout this year, including in Israel and The United States. This is a result of a number of factors, one of which is the 48 percent increase in the number of mega-deals ($100 million of more) in The US and a 62 percent increase in large deals ($20 million or more) in Israel. However," says Sela, "in the last quarter of 2015, the trend Israel ran contrary to that of the rest of the world. While global markets were affected by the slowdown in the Chinese stock market, an unstable global economy and the interest rate hike in The US, Israel remained untouched by this global wariness. We expect the Israeli market to slow down if the bear market persists. The general current sentiment in the Israeli market is that 'winter is coming'," Sela concludes.
The year 2015 was marked by an increase in both the number and capital proceeds from large deals ($20 million or more) – 63 deals accounted for $2.3 billion, capturing 53 percent of total capital raised during the year. The number of deals was up 62 percent from 39 large deals closed in 2014, which amounted to $1.3 billion, making up 39 percent of the total capital raised in 2014. (Chart 2)
Koby Simana, CEO of IVC Research Center indicated: "As of the second quarter of 2014 and throughout the past year, we have repeatedly pointed to the uptrend in the number of large deals and their sizes. We’ve seen growth stage companies raising substantial capital to boost their growth rates and grab larger market shares. The trend was largely fueled by the influx of capital from foreign investors, and a shift in market trends may indeed cause a slowdown on that front. However," Simana contends, "there’s still room for Israeli high-tech companies to find both organic and non-organic growth, and materialize their full potential. We’ve seen in the past year a 25 percent hike in the number of Israeli growth stage companies, and the numbers keep growing. At the same time, there’s an increase in the capital dedicated to growth investments by late stage and growth focused VC funds, which are expected to continue investing even if the market slows, or even capitalize on the slight decline in valuations that a possible slowdown may cause."
Israeli Venture Capital Fund Investment Activity
Israeli venture capital funds have accelerated their activity in 2015, investing $653 million, an increase compared with 2014's $568 million. The amount was however, below the all-time Israeli VC fund investment record set in 2008 with $780 million invested. Looking at the share Israeli VC funds placed in total capital raising by Israeli high-tech companies, it has clearly been decreasing in the past decade, reaching its lowest point of 15 percent in 2015, compared to a 17 percent share in 2014 and a 30 percent 10-year average share. The increase in capital invested is a direct result of the increase in capital available to investments by local funds, and is also demonstrated in first investments made by Israeli VC funds in 2015. Israeli VC funds placed a total of $236 million ib first investments, which accounted for 36 percent of their total placements, up from the 30 percent share recorded in both 2014 and 2013.
In Q4/2015, Israeli VC funds invested $212 million – 32 percent of their annual investments. The amount was 59 percent up from the $133 million invested in Q3/2015, and slightly above the $201 million invested in Q4/2014. The Israeli VC fund share in the fourth quarter of 2015 increased to 17 percent of total investments, compared to a 12 percent share in Q3/2015, just short of the 18 percent share in the last quarter the year before.
Capital Raised by Sector and Stage
In 2015, 181 software companies led all capital raising with $1.3 billion or 29 percent of the total capital, followed closely by Internet, with 172 deals having raised just under $1.3 billion. Both sectors excelled in the number of large deals – of $20 million or more – with 12 percent of deals in software and 11 percent of Internet deals, together capturing 62 percent of large deals performed across all sectors in 2015. The life science sector followed, with 22 percent of the total capital raised in 2015.
Seed stage deals have attracted more attention from investors in 2015, with 194 seed companies (27 percent of deals) bringing in a total of $269 million (6 percent of the total capital), an increase in both compared to 2014's 179 seed deals, which totaled $178 million (5 percent of the total capital). However, with the increase in large deals, it was 78 late stage companies that led capital raising in 2015, with almost $1.7 billion, an exceptional amount for this stage – a 23 percent increase from 2014. Mid-stage companies also attracted an unusually high amount in 2015 – $1.5 billion, as compared with $884 million the stage attracted in 2014.
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 204 investors of which 41 were Israeli VC management companies and 163 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.