Investors may be ‘losing their appetite’ for young companies

By
April 26, 2017 19:46

In the first quarter of 2017, only 37 seed investment rounds and 40 A rounds closed, bringing in a total of $247 million – 8% less than the money raised in the previous quarter.

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Tel Aviv Stock Exchange

An electronic board displaying market data is seen at the entrance to the Tel Aviv Stock Exchange. (photo credit: REUTERS)

Start-ups that continue to emerge on Israel’s hi-tech scene could see a funding crunch, with capital increasingly flowing to larger companies, a survey revealed on Wednesday.

In the first quarter of 2017, Israeli hi-tech raised a total of $1.03 billion in 155 transactions – a 4% drop from the capital raised last quarter and an 8% drop in comparison to the same quarter last year, according to a report published by the IVC Research Center and the ZAG-S&W international law firm. Yet while capital acquired in early seed and “A” investment rounds plummeted, funds raised by established firms in more advanced rounds grew, the report indicated.

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“The fact that most of the capital goes into mature companies currently reflects, on the one hand, the maturity of companies today, but also the low appetite of investors for young companies, which embody greater risk,” said Shmulik Zysman, founding partner of ZAGS& W. “If it continues, this trend is liable to harm young companies’ ability to realize their potential.”

In the first quarter of 2017, only 37 seed investment rounds and 40 A rounds closed, bringing in a total of $247 million – 8% less than the money raised in the previous quarter and 23% less than in the corresponding quarter last year.

On the other hand, much later-stage “C” investment rounds brought in $285m.

in 17 deals, in comparison to raising only $100m. in the previous quarter and $234m.

in the first quarter last year.

Looking specifically at venture capitalist backed deals, the IVC and ZAG-S&W report found that such transactions were at their lowest this quarter in three years, accounting for only 56% of all capital raised.

“Although 2017 started as a strong and stable year for Israeli hi-tech capital raising, with figures similar to previous quarters, the number of financing rounds in the first quarter was the lowest since the corresponding quarter in 2012, while the number of new start-ups continued to grow,” Zysman said.

Nonetheless, Zysman expressed confidence in the future of the country’s hi-tech sector, especially in light of Intel’s recent $15b.

decision to acquire Mobileye.

“We expect the Mobileye deal – which shifted paradigms regarding valuations of Israeli companies – to have future impact on the industry in terms of growth in capital raising volumes,” he said. “The deal is yet another proof of the high quality and standards of Israeli companies.”


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