In the first quarter of 2016, 173 Israeli high-tech companies raised $1.09 billion in private financing rounds, up 8% from the corresponding quarter of 2015 when 162 companies raised $1 billion, according to the latest IVC-KPMG Israeli high-tech capital raising survey.
The survey notes that the first quarter 2016 figure is 105 down from the $1.2 billion raised by 201 companies in the fourth quarter of 2015, which was a record quarter. According to the survey editors, fourth quarters typically exhibit the highest amounts in capital raising, and a five-year trend suggests an average 12% fall in investments between the last quarter of the year and the ensuing first quarter.
IVC Research Center CEO Koby Simana said, “Despite the slowdown reported in high-tech capital raising and venture capital investments in the US, and until now - despite of various forecasts published lately regarding the industry in Israel - the results of the first quarter of 2016 indicate stability. The capital volume, the number of quarterly deals, and the mix of deals by size, are very similar to the averages of 2015, which was considered very successful. The following quarters will determine if the slowdown trend which began in the US will take hold in Israel as well, or perhaps the fact that the Israeli market didn’t experience the same peak as Silicon Valley and China in the past years indicates lower local volatility overall."
The average company financing round in the first quarter stood at $6.3 million, up from $6.1 million and $6.2 million the preceding quarter and corresponding quarter, respectively.
96 VC-backed deals amounted to $744 million in the first quarter of 2016, down 19% from $915 million raised in 108 deals in the fourth quarter of 2015, and down 12% percent from the $849 million in 91 deals in the first quarter of 2015.
The share of VC-backed deals shrunk to 68% in the first quarter of 2016, down from 75% in the preceding quarter, and 84% in the corresponding quarter of 2015. However, VC-backed deals maintained their share out of the total number of deals, with 55%, in keeping with the two-year 56% average.
KPMG Somekh Chaikin's Technology group partner Ofer Sela said, "This quarter is quite interesting, as there is still much available cash around, ready to be invested, and a significant number of interesting companies that are good candidates for investments. On the other hand, there is fear that the global technology market is about to shrink. Nevertheless, the amount of available cash and attractive companies have their pull as can be seen from the total volume of investments this quarter, the industry is hard at work and the investors are still in the game."
Israeli VC Fund Investment Activity
Israeli venture capital funds invested $130 million in Israeli high-tech companies, just 12% of all investments in the first quarter of 2016. This figure represents a 40% drop from the $217 million (18%) raised in the fourth quarter of 2015, and a 23% drop from $168 million (17%) in the corresponding quarter of 2015.
The fourth quarter of 2015 was exceptionally strong for first investments by Israeli VC funds, with 47% of investments directed into new portfolio companies. In the first quarter of 2016, first investments by Israeli VCs declined to 30%, below the 33% five-year average.
Capital Raised by Sector, Stage and Deal Size
Software companies raised a total of $392 million in the first quarter of 2016, ranking the sector first with 36% of total capital, a up from 32% in the fourth quarter of 2015, and 19% the first quarter of 2015. The life science sector placed second with 30%, up from 21% in the preceding quarter, and 22% in the first quarter of 2015.
The Internet sector experienced its weakest quarter since 2013, with only $100 million raised by 37 companies or 9%. This was down from the previous quarter's best ever record, at $389 million (32%), and down 34% from $339 million in the first quarter of 2015.
Sela said, “A significant portion of the investments in mature companies is led and driven by private equity funds focusing on growth, and mature entrepreneurs that have made exits back in 2013-2014 are starting new ventures based on money from investors which deem them trustworthy. It seems that the industry is far from a crisis, although some shrinkage is expected in the near future."
Published by Globes [online], Israel business news - www.globes-online.com - on April 19, 2016
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