Tel Aviv skyline .
(photo credit: REUTERS)
Israeli hi-tech companies raised $1.6 billion in 131 deals in the third quarter of 2018, according to a report published this week by IVC Research Center and law firm ZAG-S&W.
During this period, the largest deal saw Israeli start-up Trax Image Recognition close a $125m. investment round led by Chinese private equity investment firm Boyu Capital.
A total of $4.5 billion of capital finance has been raised so far this year, equaling 82% of the total capital raised in 2017 but only 68% of the number of deals.
Only 21 seed deals (typically the first investment of funds) were recorded in the third quarter. This signified the lowest number since 2013, while mid-to-late financing rounds remained steady.
Since 2017, IVC research has found that investors have shifted from favoring investment in seed and development stages to preferring more mature companies. In the third quarter, mature-stage companies raised nearly six times more capital than early-stage companies.
“Investors’ preference for mature companies has negatively affected the levels of seed financing, which continues to shrink similar to US patterns,” said Marianna Shapira, research director at IVC. “Nevertheless, we expect capital raising in 2018 to achieve the levels of 2017. According to the investment patterns in Israeli high-tech from the last years, it seems the third quarter marked a bottom for the latest period,” she said.
The most recent quarter saw venture capital financing account for 42% of total capital invested, reversing a slowdown in venture capital fund investments since the first quarter of 2017. “Despite the vacations in the third quarter, Israeli hi-tech was able to withstand this period,” said Shmulik Zysman, managing partner at ZAGS&W.
“More importantly, the total amount raised was similar to the total amount raised in the corresponding quarter of last year, one of the highest in the past six years, indicating the stability of the market. Although the number of companies that raised capital this quarter declined, the amount of capital grew. Some would see it as a lack of confidence in the Israeli hi-tech industry; we believe it is evidence of the vitality of Israeli hi-tech,” Zysman said.
The report also noted the particularly high and increasing volume of capital raised from foreign investors, primarily due to Chinese investment and the growing interest of European venture capital funds in Israeli innovation.
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