Israeli high-tech capital raising soars to $4.43B in 2015
In the fourth quarter of 2015, 202 Israeli high-tech deals reached a record quarterly amount of $1.2 billion, an increase of 11 percent and 10 percent from the $1.1 billion raised by 165 companies in Q3/2015 and by 185 companies in Q4/2014, respectively. However, the average deal decreased slightly from its peak of $6.6 million in the previous quarter to $6 million in Q4/2015, in line with the $6 million average of Q4/2014.
VC-backed deals accounted for 72 percent of capital raised in 2015, with an outstanding $3.2 billion closed in 397 deals, or only 56 percent of deals. In general, the past three years have demonstrated a continuous 30 percent annual growth in capital raising in VC-backed deals. The 2015 amount was up 36 percent from the $2.3 billion raised in 392 VC-backed deals in 2014, and 84 percent above the $1.7 billion raised in 393 VC-backed deals in 2013. It seems the increase in VC-backed capital raising is therefore mostly explained by the increase in the size of the average financing round where VC funds participated. The acreage VC-backed deal in 2015 reached nearly $8 million, an unprecedented record, well above the $5.9 million average in 2014, and much higher than the $4.4 million average VC-backed deal in 2013.
Ofer Sela, partner at KPMG Somekh Chaikin's Technology Group, pointed out a worldwide trend: "As 2015 demonstrated globally, venture capital investments have become stronger throughout this year, including in Israel and The United States. This is a result of a number of factors, one of which is the 48 percent increase in the number of mega-deals ($100 million of more) in The US and a 62 percent increase in large deals ($20 million or more) in Israel. However," says Sela, "in the last quarter of 2015, the trend Israel ran contrary to that of the rest of the world. While global markets were affected by the slowdown in the Chinese stock market, an unstable global economy and the interest rate hike in The US, Israel remained untouched by this global wariness. We expect the Israeli market to slow down if the bear market persists. The general current sentiment in the Israeli market is that 'winter is coming'," Sela concludes.
The year 2015 was marked by an increase in both the number and capital proceeds from large deals ($20 million or more) – 63 deals accounted for $2.3 billion, capturing 53 percent of total capital raised during the year. The number of deals was up 62 percent from 39 large deals closed in 2014, which amounted to $1.3 billion, making up 39 percent of the total capital raised in 2014. (Chart 2) Koby Simana, CEO of IVC Research Center indicated: "As of the second quarter of 2014 and throughout the past year, we have repeatedly pointed to the uptrend in the number of large deals and their sizes. We’ve seen growth stage companies raising substantial capital to boost their growth rates and grab larger market shares. The trend was largely fueled by the influx of capital from foreign investors, and a shift in market trends may indeed cause a slowdown on that front.
However," Simana contends, "there’s still room for Israeli high-tech companies to find both organic and non-organic growth, and materialize their full potential. We’ve seen in the past year a 25 percent hike in the number of Israeli growth stage companies, and the numbers keep growing. At the same time, there’s an increase in the capital dedicated to growth investments by late stage and growth focused VC funds, which are expected to continue investing even if the market slows, or even capitalize on the slight decline in valuations that a possible slowdown may cause."