Fewer Israeli startups opening, more closing down

As of now, the ratio of startups founded to startups closed down in 2017 was the lowest during the examined period.

By TAL SHAHAF/GLOBES
August 16, 2018 14:58
3 minute read.
A cityscape of Tel Aviv

A cityscape of Tel Aviv. (photo credit: REUTERS/AMIR COHEN)

 
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(TNS) -A report by Startup Nation Central (SNC) reveals that the number of startups being founded annually has been falling in recent years, while the number of companies closing down is increasing.

The number of startups opening in Israel has gone from over 1,000 in 2014 to 943 in 2015, 932 in 2016, and a mere 700 in 2017. The writers of the report say that it is possible that some companies were registered late and will be added to the list retroactively, but this will not change the general downtrend.

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The number of startups that closed down has gone from 221 in 2014 to 376 in 2015 and 468 in 2016. 408 startups closed down in 2017, but it is possible that additional companies will be added later to this list. As of now, the ratio of startups founded to startups closed down in 2017 was the lowest during the examined period.

Figures for this year are still incomplete. 187 startups have been identified as founded so far this year, compared with 88 that closed down. The ratio of startups founded to startups closed is slightly higher than in the two preceding years, but given that these data are only partial, they do not really indicate a real change in trend.

Promising entrepreneurs have already received financing

SNC senior analyst Meir Valman told "Globes" that the organization began gather data in 2014, which may have been a particularly good year. At the same time, he proposed an explanation for the trend in the report. He says that the economic crises in 2008 and 2011-2014 reduced the volume of capital available to entrepreneurs. As a result, the number of entrepreneurs with excellent ideas increased, but they were unable to raise the capital they needed.

Large amounts of capital became available again in 2014. The entrepreneurs obtain money and founded companies, which explains the jump in the number of startups founded in 2014 and the two following years. This is also probably the reason for the low number of companies closed that year: relatively few companies were founded in the preceding years.

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What has happened since then? Valman says, "My feeling is that there were fewer new companies in 2017 than in earlier years because many of the good ideas already received financing and companies were founded, and the good entrepreneurs are active in the already existing companies."

A period of scale-up

Another indication of the cyclical trend in Israeli high tech is the data assembled by SNC for financing rounds in the first half of 2018, when a total of $2.4 billion was raised. According to IVC, another research concern, the amount will be higher - $3.2 billion. The different is probably due to the dates on which the money was raised. Regardless, however, this amount is on an uptrend, while the total number of financing rounds is on a downtrend.

A full picture can be obtained by segmenting the data according to type of financing round. While the number of initial financing rounds (up to $5 million) has been declining consistently since 2015, the number of medium-sized financing rounds ($5-10 million) has been consistently increasing. According to SNC, it reached 95 in the first half of 2018, compared with 59 in the first half of 2015 and 79 in the first half of 2016, which was a year replete with investments. The number of financing rounds in excess of $20 million has remained stable over the years, reaching 31 in the first half of 2018.

SNC calls this a period of "scale-up" financing rounds, in which companies raise money in order to increase their independent sources of revenue. The trend in the size of investments in all types of rounds is upward, with the median round rising from $2 million in mid-2015 to $5 million in mid-2018. The sole exception to this trend is the median size of C and later rounds, which fell in the first half of 2018 to below the level that had prevailed since 2015.

SNC's figures show that 17% of the companies were founded from the founder's independent resources (bootstrap companies), only 3% managed to raise pre-seed capital, and the largest proportion of the companies examined - 26% - raised money at the seed stage.

Some of the companies subsequently ground to a half: only 10% of them reached an A round, 3% reached a B round, and only 0.3% reached a C or later round. 1% of the companies reached a share offering on the stock exchange and 6% achieved an exit in the form of a merger or acquisition.

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©2018 the Globes (Tel Aviv, Israel). Distributed by Tribune Content Agency, LLC.

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