Last year will be remembered as a challenging period for global business, and for the Israeli tech ecosystem. While established market giants tapped into their endless bag of resources to whether through the uncertainty storm in 2020, it was the young startups who were challenged more than all. Ground Up Ventures released a new survey, based on answers from dozens of Seed focused venture capital firms, that aims to shed some light on the year that passed and the one that waits ahead.
Most investments - done over Zoom
From the answers of the 37 VC funds that participated in Ground Up Ventures’ research, once again it seems as if Israeli high-tech writes its own rules. In total in 2020, VCs laid out 145 Seed and Pre-Seed investments, with the average check hitting $1.77 million. This marks a 20%-25% increase when comparing to 2019 numbers.
In comparison to 2019, both the number of investments and total capital invested significantly increased, with 61% of the funds reporting a rise in investment volume and 39% reported also reported rise in investment quality. According to the research, the most active Seed funds in Israel are the American-Israeli firm F2 Capital, NFX, and veteran investor Pitango.
Meeting free investments
Prior to COVID reality, only 33% of investors had financed a company without meeting the founding team face-to-face. However, in 2020, on the other hand, that number doubled itself. Perhaps, now that investors aren’t rotting around the world from meeting to meeting, the time between the initial investment pitch and term sheet has been significantly accelerated: With a general standard of only 26% of funds closing investments within a month since first contact, in 2020 that number grew to 43%. In addition, 56% of the VC funds noted that there is “too much” capital available for Seed investments, but 41% of the funds claimed that they intend to raise more funds by year’s end. Entrepreneurs, you know what that means.
The on-off quarantines and transition to work-from-home should have turned opportunity for startups outside of the central Israeli tech hub, but still a major chunk of investments landed on startups in Tel Aviv, and the greater Tel Aviv area. Coming in second place were startups based outside of Israel, with Jerusalem based startups landing in third. Coming as no surprise, funds were targeted largely at B2B SaaS platforms, cyber, and MedTech - proper for pandemic riddled year.
Two year Runway
Another interesting figure from the survey covers how long the investments last for Israeli startups - the Runway. The survey tells that 5% of reported investments lasted for less than 12 months; and almost 50% of funded startups plan their Runway for the next 19-24 months. 41% of startup’s capital Runway lasted between 12-18 months, and 5% of the investments will support companies for over 25 months.
Another angle revealed from the survey shows which industries will struggle to recover from COVID and which will star in a post pandemic reality. Coming at no surprise, first place is held by the Travel-Tech industry, with in-store retail settling in second place, and real estate nesting in third. The sectors that investors think will most benefit from the Coronavirus are eCommerce, digital healthcare, and remote work.
The VCs were also asked for their 2021 predictions, with the data showing between 6-10 new Unicorns joining the club this year. Remember, just in January, we witnessed 4 startups blossom into new Unicorns.
We want to see Bessemer Venture Partners on the ticket
The funds also expect that at least 1 out of every 5 portfolio companies will transition to a fully remote model during 2021. When the Seed investors were asked about future funding rounds, most of them noted that they expect to invest between 1-4 times in Pre-A rounds during 2021, and very few from the group plan go through with between 9-12 investments.
The VC funds were also asked to state which other investors they would like to see in later rounds. Here - for the third year running - Bessemer Venture Partners once again takes gold, with Insight Partners coming in second.
Finally, the subjects were asked which tech news source was their favorite? Coming in first place, and rightfully so, Geektime (Thanks!), and CTech English.
In reference to the data from the survey, General Partner at Ground Up Ventures, David Stark said: “Clearly, it’s the perfect time found a company. Despite the global pandemic, there are still many VCs looking to invest in the right entrepreneur. Investors plan for an active 2021, with the eCommerce, digital health, and remote work sectors garnering the bulk of the effort.”