By Lee Moser, Managing Partner and Co-Founder of AnD Ventures
Not just in the history books, but the current global circumstances show as well, perhaps counterintuitively, that crises periods hold a great opportunity for investors. Several major firms were first established during crises, including General Motors, Trader Joe’s, Microsoft, and Apple. Tech Unicorns also embarked during crises, such as WhatsApp, Uber, Airbnb, Cloudera, and Spotify which were founded during the 2007 financial crisis. These startups are amongst 10 global tech firms founded in crises that we collected data on, which shows that their current average valuation stands at an astonishing $31.7B.
Despite the hardships crises' entail, global trends in successful ventures during crises are also evident on the Israeli front. Three out of ten of the largest exits in Israel are firms that were founded during a crisis. Mellanox and Mobileye were founded in 1999 before the dot com crisis and Waze was founded during the 2008 recession.
The 2020 pandemic year did not slow down the Israeli investment front, as a record breaking figure of roughly $10B was invested in Israeli tech firms in 2020 compared to $7.8B in 2019. The number of Israeli Unicorns also increased from 20 in 2019 to 45 in 2020 and currently stands at 60, demonstrating a strong start for 2021. Entrepreneurs are not letting the 2020 pandemic hold them back either, as in the US, roughly 67,000 applications were filed to set up new companies in the last week of May of 2020, official figures show.
Despite the unforeseen and challenging 2020 pandemic year, we are witnessing significant developments in the Israeli tech ecosystem in the beginning of 2021. eToro, a social trading investment platform announced in march 2021 it will go public via a merger with SPAC, and expects a $10.4B valuation. Hippo, an InsurTech company that automates the process and modernizes coverage for homeowners, announced in march 2021 that they were going public in a $5B merger.
Another two huge deals that were closed this year, K Health and Papaya Global. K health, an AI personal health assistant powered by millions of real medical charts, notes, and labs, raised $134M at a company valuation of $1.4B making it one of Israel’s few healthcare Unicorn. Papaya Global, provides a cloud-based HR and payroll platform for global workforce management, currently valued at over $1B. These are just a few examples of the ground breaking activities during the first quarter of 2021, which only increase the anticipation and excitement for the rest of the upcoming year.
From our own research at AnD Ventures we noticed that the time to exit and/or time to Unicorn status, is beginning to drop significantly in recent years. Looking at the summary of 2020 in the Israeli tech ecosystems, it seems that the pandemic might have also contributed to shortening the above times. It seems like 2021 is already on track to break the 2020 record, as Israeli startups raised $1.4B in January, more than any other single month in Israel’s history. This start to the 2021 year shows that we are living in an unprecedented time to invest towards our future.
Yet, the Bank of Israel reports that although the number of venture capital investments in the first quarter of 2020 was high, the combination of investments was exceptionally different from the past. There was a significant decline in the number of transactions and a 35% decrease in the amount of funds invested into early stage startups, compared to the increasing trend of investments made into late-stage companies. It is reasonable to assume that this change in the composition of investments is due to concern for what the future of the pandemic holds, and investors’ incline towards preparing for that possible future risk.
As we have witnessed and learned, history tends to repeat itself, and those who have the ability to adapt and innovate and do not suffer from balance sheet issues will be the big winners of the current global pandemic.