Key facts:
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$1.52 billion was raised in 181 deals—an increase in the number of deals and the total sum
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A rounds captured a third of the total amount raised
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Capital raising by companies in R&D stage leapt 60%, raising $451 million compared to the quarterly averages in 2017
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Cyber security companies keep growing—number of deals doubled compared to Q4/2017
Tel Aviv, Israel, May 7, 2018. The first quarter of 2018 continues the positive trends in Israeli high-tech industry—$1.52 billion was raised in 181 deals. Both the number and the amount of deals grew compared to the previous quarter ($1.46 billion, 161 deals) and to the first quarter of 2017 ($1.06 billion, 155 deals). In the first quarter, VC-backed deals caught 72% of the total amount raised and 61% of the total number of deals. (Chart 1) Three deals, each over $100 million, accounted for 23% of total capital raised in Q1/2018. The increase in the number of deals was characterized by the increase in deals ranging less than $5 million (13% up) and in deals above $20 million (44% up), compared with the corresponding quarter year earlier.
Mr. Shmulik Zysman, Attorney at Law, Managing Partner leading the high-tech sector at ZAG S&W Zysman, Aharoni, Gayer & Co, said: "Israeli high-tech opened this year with a strong momentum. The significant trend this quarter were investments from foreign VC funds, which almost doubled, compared to the same quarter past year. Among other reasons, we refer the increase in foreign investments to regulatory changes in China, among other reasons, which defined clear investment rules, and the recommendation to invest in technology industry, which is really strong in Israel. This increase is in line with our previous predictions, and currently we start seeing the effect of these investments, together with the capital regularly invested in Israeli technology industry. It seems that Israeli high-tech continues to be the focus of growing attraction to the investors worldwide."
Mr. Zysman added: "There is a reason for optimism! In the past years, the first quarter was regularly weaker in relation to other quarters of the same year, mostly in the lower amount of capital raised in the first quarter. In this light, if judged by the numbers, it looks like we might see an interesting and prolific year ahead of us."
Chart 1: Total Capital Raised by Israeli High-Tech Companies, Q1/2012–Q1/2018
According to IVC’s findings, A rounds captured 36% of the total capital raised—$549 million in 57 deals. The total amount is considerably higher compared to previous quarters. Seventeen deals, each above $10 million, captured 77% of the total capital raised in A rounds. While the amount raised in A rounds is by far the highest since 2012, the number of deals remains unchanged compared with Q4/2017 and higher compared with the first quarter of 2017 (42 deals). (Chart 2)
Marianna Shapira, Research Director at IVC Research Center, explained: "The first quarter of 2018 continued the upward trend in capital raising, while demonstrating a renewed growth in number of deals. This can be explained by the increase in VC-backed deals, by more foreign VC funds active in Israel and by Israeli VC funds making more first investments.” According to Shapira, this last trend continues from 2017, mostly due to Israeli VC fundraising efforts in this period. Shapira added: “In Q1/2018, IVC noticed a continuous course, started in Q4/2017 – an increase in first investments done by foreign corporate investors in Israeli high-tech companies. In addition, the beginning of 2018 was prolific for early stage companies, following a period of decline in capital inflow. These findings might indicate a positive start of a new year for Israeli technology market."
Chart 2: Israeli High-Tech Capital Raising by Round Q1/2013–Q1/2018
Capital raising by stages
Capital raising by companies in R&D stage totaled $451 million, a leap of 60% in capital volume compared with the 2017 quarterly average. The number of deals increased as well in Q1/2018
The number of deals of companies with initial revenues (up to $10 million) in Q1/2018 soared to 77, compared to 66 and 60 (Q1 and Q4/2017). The total amount, however, dropped to $609 million from $705 million in the previous quarter, but more than doubled from the quarterly averages in the last six years.
The surge in capital raising in initial revenues and R&D stages was clearly demonstrated in Q1/2018 by the large increase of capital raised in A round. This indicates the change of the role in the A financing round in Israeli high-tech industry.
After two feeble years for seed stage companies, in Q1/2018, the number of deals grew to 45, up from previous quarters, raising $57 million.
Meanwhile, the number of deals in companies at revenue growth stage (above $10 million) decreased to 11 (from 15 and 18 in Q4 and Q1/2017), and the amount raised remained stable, $408 million compared with $393 million and $348 million in Q4 and Q1/2017.
Capital raising by sector and selected clusters
Sectorial analysis shows that by the end of Q1/2018, software companies continued to attract more capital and raised $754 million, much higher than the $592 million and $411 million in Q4 and Q1/2017.
IVC technology cluster analysis revealed that fintech companies raised $328 million in Q1/2018, 141% more compared with the same quarter in 2017. Most of the capital was raised in later rounds. More cyber security companies raised capital in the first quarter of the year—34 deals were done in the cluster, almost double the number of deals (18) in Q4/2017. Those investments were made mostly in the A and seed financing rounds, and might imply that a new cyber wave is on the raise. IoT (Internet of Things) number of deals grew to 29 deals raising $265 million — the highest in the last five years. (Chart 3)
Chart 3: Number of Israeli High-Tech Capital Raising by Selected Clusters and Financing Rounds Q1/2012–Q1/2018
US Capital raising by high-tech companies – Q1/2018
More than $28 billion was raised by 1,693 high-tech companies in the US in Q1/2018, according to PitchBook-NVCA report. Like previous quarters, the amount has risen considerably, but the number of deals has fallen. Angel/seed deals attracted $1.5 billion, the fifteenth consecutive quarter with a similar amount. Early stage companies raised more than $9 billion in Q1, the same as in the previous quarter.
According to Venture Monitor’s Q1/2018 report, it’s the highest amount ever raised by early stage companies. Capital raising by US late stage companies in the first quarter soared to a total of $16.7 billion in more than 400 deals compared with approximately $10 billion in Q4 and Q1/2017.
Source: Venture Monitor Q1/2018 report
