PE Tech Report


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USD994 million raised by Israeli high-tech companies in Q1 2015

In the first quarter of 2015, 166 Israeli high-tech companies raised USD994 million – the second highest quarterly amount in the last decade and just 10 per cent below the record high USD1.1 billion invested in 184 companies in the previous quarter. 

The Q1/2015 amount was 48 per cent above the USD673 million attracted by 160 companies in the first quarter of 2014. 

The average company financing round reached USD6 million, equal to the previous quarter’s average, and well above USD4.2 million of Q1/2014. 

In Q1/2015, 91 VC-backed deals accounted for USD832 million – 84 per cent of total capital invested. The average VC-backed deal peaked at USD9.1 million, compared to USD7.7 million and USD6.1 million in Q4/2014 and Q1/2014, respectively.

Ofer Sela, partner in KPMG Somekh Chaikin's Technology group, says: "As can be seen from Q1 2015 results, the level of investment activity in Israeli companies is on the rise. This trend is being fuelled by higher revenues, improved business results and other key performance indicators. However, the returns from the appreciation in value of VC-backed Israeli companies are mostly enjoyed by foreign investors. The majority of Israeli institutional investors, and through them the Israeli general public, is not participating in venture capital investments.

“The Israeli government should consider actions that encourage and facilitate Israeli institutional investment at a much higher level than currently. By doing so, global and local momentum could enable Israel's technology industry to expand and become a global technology superpower in absolute numbers, not just relative to its size." 

Israeli venture capital funds invested USD180 million in Israeli high-tech companies or 18 per cent of all investments in Q1/2015. The amount was down 6 per cent from USD192 million (17 per cent of total) invested in Q4/2014, but 80 per cent higher than the USD100 million (15 per cent of total) invested in Q1/2014.

First investments by Israeli VC funds accounted for 31 per cent in Q1/2015, a marked improvement, 55 per cent above the 20 per cent of the previous quarter although still below the 43 per cent of Q1/2014.  

The Internet sector experienced its best quarter ever with USD343 million (35 per cent) raised by 44 companies, and the sector continued to lead capital raising as in the two previous quarters. The life sciences and software followed, accounting for 22 per cent and 19 per cent of total capital raised, respectively. 

“The increase in high-tech capital raising is not coincidental, but directly reflects the trend toward growth company investments and higher valuations of mid and late stage companies,” says Koby Simana, CEO of IVC Research Center.  “Up to a year ago we were accustomed to seeing average financing rounds of USD3 million to USD4 million, in the Internet sector. 

“In recent quarters though, we've been observing a distinct rise in the average Internet financing round. This trend is even more evident among growth stage Internet companies for which the average deal jumped from USD6 million about a year ago to USD16.3 million in the first quarter of 2015. Even though exceptionally large financing rounds of Taboola and Quixey (led by Alibaba) were responsible for the jump in Q1, our analysis shows that these were not special or unique events. They fit in well with the activity surrounding the Internet sector and the rise in the number of early stage investments. These parallel trends mostly feed each other as the increase in growth stage Internet companies attracts more entrepreneurs and investors into the sector. We believe that Internet success stories will drive the volume of growth deals as well as contribute to increase seed stage investments, which up until last quarter, were on the decline.”

Another emerging trend is the increase in growth stage deals, which was accelerated in Q1/2015, when initial revenue companies led all investments for the first time since 2013 with 47 firms raising USD319 million (32 per cent). Early stage companies attracted USD315 million (32 per cent), a decrease of 14 per cent from the especially strong previous quarter, when early stage firms led capital raising. Late stage companies followed closely with a 31 per cent share of total investments.

Additionally, Q1/2015 demonstrated escalation in deals above USD20 million, a trend pointed out in the previous quarter’s IVC-KPMG Survey. In Q1/2015, deals above USD20 million reached record levels, with 16 deals that accounted for 55 per cent of total investments. In comparison, there were 13 deals (42 per cent) and six deals (27 per cent) in Q4/2014 and Q1/2014, respectively. 

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