Israeli hi-tech companies have enjoyed a decade of soaring growth, pulling in a grand total of $39.1 billion since 2010, according to a joint report by the IVC Research Center and the ZAG-S&W international law firm.Since 2010, capital raising by Israeli companies has skyrocketed 400%, while the number of deals has increased 64%.
In 2019, $8.3b. was raised in 522 deals, representing an increase of 30% compared with 2018, cementing the exponential upward growth trend. Venture capitalists underwrote a record $6.4b., or 77%, of the total raised in 2019 in dollar volume. However, the number of deals declined somewhat from 532 in 2018. Sixty percent of deals in 2019 were venture-capitalist funded.“2019 marked a record year, capping a decade of successive increases in capital invested in the Israeli hi-tech industry,” said attorney Shmulik Zysman, a founding partner of ZAG-S&W. “The final quarter of 2019, and the entire year of 2019, symbolize the clear and consistent trend of the Israeli hi-tech industry: tremendous growth and frequent record breaking.”“An interesting characteristic of the boost is the annual increase of tens of percent in capital raising in a wide range of fields, from software and the Internet through life sciences to semiconductors,” he said.According to Zysman, the growth trend is in part due to the popularity of Israeli tech with foreign investors. However, domestic funds are also taking an interest, with total investments by these funds rising 30% in 2019. Over the decade, investment by Israeli venture-capitalist funds rose in both dollar volume and number of deals: 134 deals were domestically funded in 2010; by 2019 this figure had increased to 212, while the dollar amount invested ballooned from $295 million at the start of the decade to $1.106b. last year.
“The share of Israeli VC-based deals out of the total in 2019 remains in the mid-range numbers for the period 2010-2019,” the report said.The software sector lead capital raising in 2019 with $4.4b., an increase of nearly 50% compared with 2018. The significant increase was largely due to 26 deals that each raised more than $50m., accounting for 58% of all funds raised by software companies.
Life sciences also posted an increase, rising from $1.17b. and 102 deals in 2018 to $1.37b. and 121 deals last year. Meanwhile, cybersecurity tech attracted $1.88b. in funding, with the number of deals remaining stable from 2018. Fintech raised $1.7b.
Artificial intelligence was another high-growth sector, with $3.7b. and 199 deals last year. Eighteen of those deals accounted for 55% of the total amount.The weighting toward larger deals is indicative of the picture as a whole.Mega rounds, defined as deals that raised over $50m., peaked in 2019, with 41 deals having 50% of the capital inflow. Twenty of those deals managed to bring in more than $100m. each, and each one was in the growth stage.“More Israeli companies in the growth stage aim to become their market’s leader,” IVC CEO Guy Holzman said. “The continual increase in the amounts invested in mature start-ups is due to new investors, such as Israeli and foreign private-equity funds. Furthermore, IVC noticed a decline in the number of newly established companies. We believe that both trends will continue in 2020.”Mid-sized deals of $10m.-$50m. also did well. But smaller, typically early-stage deals of under $1m. were the only metric to post a declining trend, shrinking to 17% of the total number of deals brokered, compared with 24% in 2018.“In terms of the number of deals and dollar amounts, it appears that the financial community’s interest in seed rounds peaked during 2017-2018,” the report said, adding: “Seed investment patterns remained volatile across all of the last eight years’ quarters. The slowdown in 2018-2019 could therefore be just local, temporary, minimal. However, trends in the other round types have signaled a more profound shift in investor preferences, and not just in Israel.“The change in investor preferences over the decade is visible in the distribution of deals of early- and growth-stage companies. The change became apparent in 2017-2018, when the number of deals for the growth companies outnumbered deals in early stages.”
Commenting on the findings, Zysman said: “The phenomenon of venture capital with less risk, which we pointed out last year and throughout this past year, has unfortunately turned from a warning sign into a real, alarming trend. In the past year, not only has the relative share out of total investment in early stage companies declined, but also the total capital invested in these companies has decreased.”“It’s easy to remain optimistic, however, when in the last year the total capital raised by the Israeli hi-tech industry was more than 30% higher than in 2018,” he said. “Another reason for optimism is that we have recently noticed many investors dedicated to investment in early-stage companies. These are positive signs that we hope to see in the coming quarters.”Looking to the future, the report’s authors foresee continued growth in Israeli tech funding, particularly in capital allocated to larger, more established companies. The slowdown in funding for smaller, earlier stage companies is not expected to reverse in 2020, the report said. Early stage in this case was defined as hi-tech companies in the seed and research-and-development stages, which weren’t yet offering products to the market.In terms of sector, AI and cybersecurity were tipped by the authors to be the most attractive to investors.The report was based on a survey of reports from 443 investors, of which 61 were Israeli VC funds and 382 were other entities.
In 2019, $8.3b. was raised in 522 deals, representing an increase of 30% compared with 2018, cementing the exponential upward growth trend. Venture capitalists underwrote a record $6.4b., or 77%, of the total raised in 2019 in dollar volume. However, the number of deals declined somewhat from 532 in 2018. Sixty percent of deals in 2019 were venture-capitalist funded.“2019 marked a record year, capping a decade of successive increases in capital invested in the Israeli hi-tech industry,” said attorney Shmulik Zysman, a founding partner of ZAG-S&W. “The final quarter of 2019, and the entire year of 2019, symbolize the clear and consistent trend of the Israeli hi-tech industry: tremendous growth and frequent record breaking.”“An interesting characteristic of the boost is the annual increase of tens of percent in capital raising in a wide range of fields, from software and the Internet through life sciences to semiconductors,” he said.According to Zysman, the growth trend is in part due to the popularity of Israeli tech with foreign investors. However, domestic funds are also taking an interest, with total investments by these funds rising 30% in 2019. Over the decade, investment by Israeli venture-capitalist funds rose in both dollar volume and number of deals: 134 deals were domestically funded in 2010; by 2019 this figure had increased to 212, while the dollar amount invested ballooned from $295 million at the start of the decade to $1.106b. last year.
“The share of Israeli VC-based deals out of the total in 2019 remains in the mid-range numbers for the period 2010-2019,” the report said.The software sector lead capital raising in 2019 with $4.4b., an increase of nearly 50% compared with 2018. The significant increase was largely due to 26 deals that each raised more than $50m., accounting for 58% of all funds raised by software companies.
Life sciences also posted an increase, rising from $1.17b. and 102 deals in 2018 to $1.37b. and 121 deals last year. Meanwhile, cybersecurity tech attracted $1.88b. in funding, with the number of deals remaining stable from 2018. Fintech raised $1.7b.
Artificial intelligence was another high-growth sector, with $3.7b. and 199 deals last year. Eighteen of those deals accounted for 55% of the total amount.The weighting toward larger deals is indicative of the picture as a whole.Mega rounds, defined as deals that raised over $50m., peaked in 2019, with 41 deals having 50% of the capital inflow. Twenty of those deals managed to bring in more than $100m. each, and each one was in the growth stage.“More Israeli companies in the growth stage aim to become their market’s leader,” IVC CEO Guy Holzman said. “The continual increase in the amounts invested in mature start-ups is due to new investors, such as Israeli and foreign private-equity funds. Furthermore, IVC noticed a decline in the number of newly established companies. We believe that both trends will continue in 2020.”Mid-sized deals of $10m.-$50m. also did well. But smaller, typically early-stage deals of under $1m. were the only metric to post a declining trend, shrinking to 17% of the total number of deals brokered, compared with 24% in 2018.“In terms of the number of deals and dollar amounts, it appears that the financial community’s interest in seed rounds peaked during 2017-2018,” the report said, adding: “Seed investment patterns remained volatile across all of the last eight years’ quarters. The slowdown in 2018-2019 could therefore be just local, temporary, minimal. However, trends in the other round types have signaled a more profound shift in investor preferences, and not just in Israel.“The change in investor preferences over the decade is visible in the distribution of deals of early- and growth-stage companies. The change became apparent in 2017-2018, when the number of deals for the growth companies outnumbered deals in early stages.”
Commenting on the findings, Zysman said: “The phenomenon of venture capital with less risk, which we pointed out last year and throughout this past year, has unfortunately turned from a warning sign into a real, alarming trend. In the past year, not only has the relative share out of total investment in early stage companies declined, but also the total capital invested in these companies has decreased.”“It’s easy to remain optimistic, however, when in the last year the total capital raised by the Israeli hi-tech industry was more than 30% higher than in 2018,” he said. “Another reason for optimism is that we have recently noticed many investors dedicated to investment in early-stage companies. These are positive signs that we hope to see in the coming quarters.”Looking to the future, the report’s authors foresee continued growth in Israeli tech funding, particularly in capital allocated to larger, more established companies. The slowdown in funding for smaller, earlier stage companies is not expected to reverse in 2020, the report said. Early stage in this case was defined as hi-tech companies in the seed and research-and-development stages, which weren’t yet offering products to the market.In terms of sector, AI and cybersecurity were tipped by the authors to be the most attractive to investors.The report was based on a survey of reports from 443 investors, of which 61 were Israeli VC funds and 382 were other entities.
