A report from the IVC Research Center and KPMG breaksdown investment totals from this quarter. Companies are raising more, but Israeli VC’s seem to be holding onto their cash
Israeli high-tech companies raised $673 million in the first quarter of 2014, which is about 53% higher than the amount raised in the same quarter last year, according to a report by the IVC Research Center and KPMG Somekh Chaikin’s Technology group.
“This is the third quarter in a row that capital raising exceeded $650 million,” Koby Simana, IVC Research Center’s CEO, said in an April 29 statement. “These are great figures that show a sustained, positive momentum for the Israeli high-tech industry.”
The report analyzed investments made in this last quarter, noting that 160 Israeli high-tech companies received $673 million in investments, up from $439 million in the first quarter in 2013. The amount this quarter however represents a decrease from $801 million raised in the previous quarter (Q4/2013). While the total investment amount dropped slightly since last quarter, the average of individual rounds jumped to $4.2 million, up from a $3.46 million two-year average. The average VC-backed financing round was even higher, reaching $6.13 million, up from the $4.19 million two-year average.
Confidence in Israeli companies
According to the report, 70% of the deals this quarter were VC-backed, with 77 deals valued at $472 million, compared with 75% of deals being VC-backed in Q1/2013 and Q4/2013.
“Venture-backed revenue stage growth companies are raising substantially higher amounts of capital on average than in the past, positioning themselves for continued market expansion and significant acquisition and/or NASDAQ IPO,” Ofer Sela, partner in KPMG Somekh Chaikin’s Technology group, said in the statement. “This is an indicator of the maturity of the Israeli technology market and signifies that Israeli VC-backed companies are market leaders, providing more than just a ‘great technology solution.’ These later stage rounds are being led by investors who tend not to be venture capital investors. They are bestowing significantly higher valuations and lower risk to deals, similar to the private equity industry.”
What about the Israeli VC industry?
While Israeli companies are getting significantly more money, Israeli VC funds have been investing less. In this quarter, Israeli VC funds invested just $106 million, down 25% from the $142 million invested in Q4/2013 and the $144 million invested in Q1/2013.
“While foreign VC participation in Israel is a positive development for the high-tech industry, it is important to understand that at the core of the process lies a clear food chain,” Simana said. “Without funds raised by local VCs, there won’t be sufficient capital for early stage investments. Without early stage financing, there won’t be late stage investments. Therefore, it is critical to understand that prolonged absence of Israeli VC funds threatens high-tech industry growth in the longer run.”
IVC and KPMG release surveys quarterly based on questionnaires distributed to more than 150 investors. IVC and KPMG request data and cross reference data with additional sources to compile their reports.
Photo credit: Shutterstock, investing