Israeli hi-tech raises record funds, starts to feel coronavirus slowdown

A dramatic halt has already been witnessed in life science investments as global resources are poured into measures to cope with the virus.

A general view shows the urban landscape of Tel Aviv, Israel May 15, 2019. Picture taken May 15, 2019. (photo credit: CORINNA KERN/REUTERS)
A general view shows the urban landscape of Tel Aviv, Israel May 15, 2019. Picture taken May 15, 2019.
(photo credit: CORINNA KERN/REUTERS)
The Israeli hi-tech sector enjoyed a record-breaking first quarter of investments in 2020, but early signs of the impact of the novel coronavirus were also identified, according to a quarterly report published by IVC Research Center and the international law firm ZAG-S&W.
Hi-tech companies raised $2.74 billion in 139 financing deals during the first quarter, boosted by ridesharing company Via raising $400m. During the fourth quarter of 2019, $2.36b. was raised in 138 deals.
While capital raised in venture capital-backed deals climbed to an all-time record of $2.43b. (89% of total dollar volume) in 84 deals, the impact of the coronavirus outbreak led to a collapse in dealmaking throughout March.
Only 17 venture-backed deals were recorded in March, half the quantity of deals observed in January and February.
"After 2019 peaked at impressive highs, came the first quarter of 2020 and within it – the month of March," said Adv. Shmulik Zysman, founding partner of ZAG-S&W.
"The first quarter of 2020 marked a record quarter in the past 6 years in terms of fundraising, thanks to only two and a half months... Two weeks into the month of March, the market stopped all at once. Most investors at various stages of negotiations simply backed out. Indeed, when it rains, everyone gets wet – even the best."
The aggregate amount of transactions in the second quarter of 2020 will be "significantly lower," Zysman added. A dramatic halt has already been witnessed in life science investments as global resources are poured into measures to cope with the virus.
Seed financing rounds decreased drastically to 24 deals, compared with quarterly averages of 32 seed rounds in quarters since 2013.
As the crisis commenced, capital raising in seed rounds "almost completely ceased," the report stated. Just wo deals were completed in both February and March.
"A reason for optimism is China's recovery. On the other hand, the US is moving toward the peak of the pandemic, and the assessment is that it will have a short-term impact on Israel's high-tech sector," Zysman said.
"Nevertheless, we are confident that the Israeli high-tech industry will return to its glory; the only question is how fast. This is unlikely to happen in the upcoming quarter, yet first signs will appear in the third quarter. Certainly, we will warmly embrace every positive surprise."
No inferences can be drawn from the first quarter's figures for the next period, the report stated. Israeli hi-tech companies in growth stages may have demonstrated their ability to raise capital but will still need to adjust expenditure and growth forecasts.
As capital raising by early-stage companies declines, a decrease in venture capital activity and the establishment of new companies will follow.


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