IVC Research Center and ZAG/Sullivan Q3/2019 Israeli High-Tech Capital Raising Report
Tel Aviv, Israel. Israeli high-tech companies raised $2.24 billion in the third quarter of 2019, the highest quarterly amount since 2013. While the amount raised in Q3 kept pace with amounts raised in Q2/2019, deal numbers increased compared to the previous quarter (128 deals) and Q3/2018 (119 deals).
- $2.24 billion raised in 142 deals—highest amount and number of deals in any quarter since 2013
- Amount raised in Q3 up 37% compared to $1.63 billion in Q3/2018
- 13 deals over $50m captured 57% of total capital raised in Q3/2019
- VC-backed deals raised $4.68 billion in Q1–Q3/2019 nearing $4.76 billion raised over 2018
Chart 1: Israeli High-Tech Capital Raising Q1/2013–Q3/2019
Like previous quarters, in Q3/2019, IVC Research Center noted a high number of large deals, each over $50 million. These 13 large deals attracted 57% of the total capital raised this quarter.
The six largest Q3 deals totaled $841 million (over $100m each):
According to IVC’s findings, in Q3/2019, VC-backed deals raised $1.6 billion in 81 deals compared to $1.31 in 72 deals in Q3/2018. During the first three quarters of the year, VC-backed deals raised $4.68 billion, almost the same amount raised for all of 2018.
Revenue growth companies led capital raising in Q1–Q3/2019, with $2.58 billion in 48 deals, an increase of 65% in capital and 23% in number of deals from the annual figures of 2018, which was more favorable for companies at initial revenues stages.
Shmulik Zysman, Managing Partner & high-tech industry leader at ZAG/Sullivan, said: "As a former athlete, I know that once you reach first place, the real difficulty is holding on to it. After seeing record-breaking numbers in the previous quarter, the third quarter even surpassed it, with this year's recruitment record breaking compared to every previous quarter. The record was recorded both for the Israeli funds whose total borrowing remains high and stable, and for the total capital, which climbed by 45% in the corresponding quarter last year and last quarter."
According to Zysman: "The data suggests that changing investor preferences may constitute a warning sign previously pointed out by us - 'less risky venture capital.' The proportion of total capital invested in early-stage companies relative to the total capital invested has been declining over the past year, with the lowest rate recorded this quarter. In contrast to the first three quarters of 2018, the total capital raising of early-stage companies in the first three quarters of 2019 has been relatively stable. Therefore, we have hope that this is not an unequivocal trend but only a warning sign."
Capital Raising by Stage
The number of deals in early stage maturity level (Seed and R&D) grew 30% compared to Q3/2018. The amount raised by revenue growth companies in Q1–Q3/2019 reached $3.26 billion in 63 deals. This was due mostly to the increase in the number of deals over $50 million in this stage—23 deals in the current period.
Chart 2: Israeli High-Tech Capital Raising by Stage Q1/2013–Q3/2019
Capital Raising by Sector
As in previous quarters, the software sector continued to lead with almost $1.4 billion raised in 52 deals. This was due to 10 deals over $50 million each, which captured 73% of the total raised by software companies. Life sciences also attracted more capital in Q3, raising $350 million in 38 deals compared to $239 million in 29 deals in Q3/2018. Capital raising by Cleantech companies also grew in number of deals (10) and amount ($85 million).
Marianna Shapira, Research Director at IVC Research Center: "The increase in capital raising activity in Israel recorded during the first three quarters of 2019 is in line with the global trend in the high-tech industry. One notable trend expected to continue during the fourth quarter of this year is the rapid growth of fast-growing software companies, especially in the artificial intelligence and cyber verticals. According to IVC's data, over the last five years there has been a continuous increase in capital raising and exits in these technology verticals, and more than 70% of active companies are in sales stages. Moreover, even though there has been no increase in the capital raising in the early stages, IVC expects the rate of funding for these companies might increase in the last quarter of this year, in accord with the trend observed in previous years."
Israeli Venture Capital Funds
In Q3/2019, Israeli VC funds invested a total of $280 million in 56 deals (out of $1.02 billion raised in total by those deals). Most of the capital (49%), was invested in companies in the initial revenue stage.
Israeli VCs have accelerated their involvement in local companies in Q1–Q3/2019, with 267 investments, a growth of 18% compared to 226 investments in Q1–Q3/2018.
This survey reviewed capital raised by Israeli high-tech companies from Israeli and foreign venture capital funds as well as other sources, such as investment companies, corporate investors, incubators, and angels. The survey is based on reports from 482 investors, of which 58 were Israeli VC funds and 424 were other entities. The term "early stage" refers to high-tech companies in the Seed and R&D stages, not yet offering products to the market.
The survey covered the total capital raised throughout the Israeli high-tech sector, deals with participation of at least one VC fund, as well as deals not including venture capital funds. The survey includes amounts received by each company directly, including direct transactions performed between company shareholders. Many companies belong to more than one cluster, therefore the data regarding clusters should be viewed separately per cluster.
For additional information:
About the authors of this report:
IVC Research Center is the leading online provider of data and analysis on Israel’s high-tech & venture capital industries. Its information is used by key decision-makers, strategic and financial investors, government agencies, and academic and research institutions in Israel.
- IVC-Online Database (ivc-online.com) showcases over 8,600 Israeli technology startups, and includes information on private companies, investors, venture capital and private equity funds, angel groups, incubators, accelerators, investment firms, professional service providers, investments, financings, exits, acquisitions, founders, key executives, and Multinational Corporations.
- Publications include newsletters; Daily Alerts; the IVC Magazine; surveys; research papers and reports; and interactive dashboards.
- IVC Industry Analytics – analysis, research and insights into the status, main trends, and opportunities related to exits, investments, investors, sectors, and stages.
ZAG/Sullivan 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/Sullivan 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.