IVC-ZAG: Israel tech cos raised record $8.3b in 2019

Israeli tech companies raised $39.1 billion over the past decade. Investment is soaring in growth startups but declining in early stage startups, IVC-ZAG reports.

In 2019, Israeli tech companies raised a record $8.3 billion in 522 deals up 30% from $6.35 billion in 2018 in 532 deals, IVC-Research Center – ZAG-SW law firm reports. The trend of recent years has continued in which the total amount of capital raised has grown much faster compared with the number of deals.

Since 2010, capital raising by Israeli tech companies has grown by 400% and the number of deals by 64%. Israeli high-tech companies raised $39.1 billion in 2010-2019, IVC-ZAG found.

In the fourth quarter of 2019, Israeli tech companies raised $2.29 billion and while the total amount raised in the fourth quarter was the highest since 2012, the number of deals declined to 122.

Marking a decade of extensive growth, venture capital-backed deals raised a record $6.4 billion in 2019 compared with $4.75 billion in 2018 and $1.13 billion in 2010. The number of deals with venture capital participation was 60% of all deals in 2019. The dollar volume of deals in which venture capital funds took part was 77% of the total raised in 2019.

Adv. Shmulik Zysman, Managing Partner & high-tech industry leader at Zysman, Aharoni, Gayer & Co. (ZAG-S&W), said, “2019 marked a record year, capping a decade of successive increases in capital invested in the Israeli high-tech industry. The final quarter of 2019, and the entire year of 2019, symbolize the clear and consistent trend of the Israeli high-tech industry: tremendous growth and frequent record breaking. This growth is partly due to the growing foreign capital invested in the Israeli high-tech industry. Israeli funds are also taking part, with total investments of these funds in 2019 more than 30% higher than in 2018. An interesting characteristic of the boost is the annual increase of tens of percent in capital raising in a wide range of fields, from software and the internet through life sciences to semiconductors.”

He added, “Venture capital with less risk, which we pointed out last year and throughout this past year, has unfortunately turned from a warning sign into a real, alarming trend. In the past year, not only has the relative share out of total investment in early stage companies declined, but also the total capital invested in these companies has decreased.”

Zysman continued, “It’s easy to remain optimistic, however, when in the last year the total capital raised by the Israeli high-tech industry was more than 30% higher than in 2018. Another reason for optimism is that we have recently noticed many investors dedicated to investment in early stage companies. These are positive signs that we hope to see in the coming quarters.”

Capital raising by rounds

Seed is the only type of round that has shown a decline in recent years, in both amounts and number of deals. Seed round amounts shrank in 2019 to $148 million compared with $169 million in 2018. The number of Series A deals jumped by 300% during 2010-2019, while the capital raised by them soared eight-fold compared to 2010. In 2019, later rounds continued to attract large amounts of capital, raising $2.87 billion compared to $1.91 billion in 2018.

Mega rounds (more than $50m) peaked in 2019 with 41 deals capturing 50% of the annual capital inflow. All companies that attracted more than $100m each – 20 deals overall in 2019 – were in growth stages, mostly in the software sector. Mid-size deals ($10m-$50m) also stood out. The number of smaller deals (up to $1m) fell to 17% of all deals in 2019, compared with 24% in 2010.

IVC CEO Guy Holzman said, “More Israeli companies in the growth stage aim to become their market’s leader. The continual increase in the amounts invested in mature start-ups is due to new investors, such as Israeli and foreign Private Equity funds. Furthermore, IVC noticed a decline in the number of newly established companies. We believe that both trends will continue in 2020”.

Capital raising by sector and selected clusters

Artificial intelligence companies’ capital raising has soared over the past decade, reaching $3.7 billion in 199 deals in 2019. Eighteen deals, each over $50 million, accounted for 55% of the amount.

Cybersecurity tech companies raised $1.88 billion. Deal numbers retained 2018 levels. Fintech companies attracted $1.7 billion. The number of deals kept the five-year average. The software sector continued to lead capital raising in 2019, reaching $4.4 billion in 2019, an increase of almost 50% compared to 2018. The increase was due to 26 deals, each over $50 million, that captured 58% of the total amount raised in the software sector. Life sciences companies raised $1.37 billion in 121 deals in 2019 compared to $1.17 in 102 deals in 2018.

Looking ahead to 2020

Barring any dramatic changes in the macroeconomics conditions, IVC sees continued growth in 2020. The number of first investments is expected to continue the slowdown. This trend, first recognized in 2018, expanded in 2019 and will not change course in the coming year.

AI and cybersecurity tech companies will continue to be the most attractive for investors. Several Israeli startups made IPOs in 2019, and the pre-IPO rounds in 2019 suggest that more companies will explore the IPO option in 2020.

Published by Globes, Israel business news – en.globes.co.il – on January 8, 2020

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