UpWest Labs, Singulariteam and OurCrowd Funds were the most active venture capital funds in Israel during 2016, according to a report from IVC Research Center, in cooperation with Israeli law firm APM & Co.
All three completed eight first investments in 2016, and while considered early stage, low-placement, small funds, their new portfolio strategies in 2016 were varied.
UpWest Labs, a micro VC with approximately USD9 million under management, performed six first investments in seed rounds, in addition to two A rounds.
Singulariteam, managing a total of USD152 million in three funds, evenly split its eight first investments of 2016 between seed and A rounds.
OurCrowd Funds, managing a total of USD20 million in two funds – OurCrowd First and OurCrowd Qure – tended to invest in relatively later rounds, placing first investments in seed (3), A (4) and B (1) rounds.
Since all three funds placed relatively small amounts and chose mostly early stage deals, it is no surprise all three ranked among the Most Active Funds in 2015. However, the volume of first investment activity by the top three funds in 2016 was rather different.
UpWest Labs ranked second in 2015 with 12 first investment deals and Singulariteam placed first, with 14 new deals made in 2015, compared to eight each in 2016. OurCrowd funds were able to climb from fifth place overall in 2015 with seven first investments, to the top of the list in 2016 with eight first investments. These differences represent an industry-wide phenomenon characteristic of 2016 – a decrease in the number of first investments, as VC funds focused on portfolio maintenance by shifting efforts towards follow-on deals.
The total number of first investments decreased from 440 in 2015 to 341 in 2016, a 23 per cent drop. Israeli VC funds made 146 first investments, 30 per cent down from the 210 first investments made in 2015, while first investments by foreign VCs dropped 15 per cent, from 230 in 2015 to 195 new deals in 2016. The decrease represents both a decline in the number of funds placing first investments to begin with, as well as a decrease in the average number of first investments per fund for both Israeli and foreign funds to 2.7 and 1.5, respectively, lower than the five-year average.
APM’s chairman Yonatan Altman says: “The report is somewhat of a 'graduate certificate' for the Israeli high-tech ecosystem. The decrease in the number of first investments in 2016 compared to 2015 is similar to what we see in the US market (where there is stability, and even a decrease, in prices). Despite the decrease in the number of investments, the distribution is wider. Investors in Israel – whether Israeli or foreign – made investments not only in companies that are in their R&D stages, but also in companies that have a viable product and a clear business model, with funds designated for growth: sales, marketing and market penetration. This, without a doubt, also present the VC funds with the need to create value for the companies in a variety of subjects that will call for consideration and investment.”
The IVC-APM Most Active Venture Capital Funds 2016 Report suggests a weak correlation between a fund’s ranking and the stage of investment, as measured by the first investment rounds. While it is tempting to assume that, as a whole, early stage funds can place more new deals than late-stage ones, or that small funds only make seed rounds, our data show it is not necessarily the case.
While most VC funds ranked in 2016’s report invested in a mix of stages – from seed to late rounds – some funds’ adherence to a stricter stage-specific strategy did not necessarily affect their placement. Thus, for example, the fourth place features late stage investor Vintage, seed investor Terra, as well as four other funds – each with five first investments in 2016.
Koby Simana, CEO of IVC Research Center, says: “Different VCs apply different strategies to the Israeli market. Some funds tend to be stage-focused – typically late or early stages– while others are stage-agnostic. That being said, declaring a fund to be stage-specific does not necessarily make it so.
“One of the unique characteristics of the Israeli high-tech market is that stages do not conform to the typical cookie-cutter rounds the VC industry expects. On the one hand, we see Israeli high-tech companies waiving seed rounds altogether and going for earlier A rounds, while on the other hand, we see some companies taking their time with A rounds, getting to them at the growth stages, in which they raise more substantial amounts. The bottom line is, there is no ‘typical A round’ in Israel as there is in the US, for instance, and the VC funds that are most active in this ecosystem adapt rather than stick to any particular pattern.”
