Crowdfunding firms fill startups’ early financing needs, report says
In a first survey of the scene, IVC Research Center looks at 9 equity crowdfunding platforms operating in Israel
Shoshanna Solomon was The Times of Israel's Startups and Business reporter
In the five years to the first half of 2017, nine equity crowdfunding platforms, two of them foreign, have invested in 145 Israeli high-tech companies of which 17 have made an exit, Israel’s IVC Research Center, which tracks Israel’s high-tech sector, said in a first report on the crowdfunding sector.
In the first half of the year, ECF portfolio startups raised some $173 million, accounting for 73 percent of the entire amount raised by these companies in 2016.
The most successful year for ECF portfolio companies was 2015, when they raised $298 million from various investors, IVC said. In 2015 crowdfunding platforms invested $57 million, in 50 deals, their largest investment to date.
These funds invested in a variety of sectors, with internet and software companies making up 55% of the total ECF portfolio companies, most of which, 68%, were either in the seed or early stages when these funds invested.
The equity crowdfunding trend first appeared in 2012, following US legislation known as the JOBS act (Jumpstart Our Business Startups). The legislation regulated and authorized funding of small businesses by easing many of the country’s securities regulations.
As the Israeli high-tech market matures, both in number of new companies established and in financing rounds, startups have been demanding larger financing rounds and VC funds have been focusing on growth financing rather than funding early stage companies, Marianna Shapira, research manager at IVC Research Center, said in a statement.
“This transition leaves a void in earlier development stages, which is sorely needed by seed & R&D startups,” she said. “Equity crowdfunding platforms perfectly fit into this niche, answering this financing demand, mostly because of their natural tendency to invest smaller amounts per round.”
The most active equity crowdfunding platforms in the 2012-first half 2017 period were OurCrowd, a Jerusalem-based crowdfunding venture capital firm, both in terms of the number of investments made, 58%, and in terms of capital invested, 81% percent of total capital. IAngels followed with 30% of the total number of investments, accounting for 15% of the total capital invested. ExitValley and Pipelbiz, two other players in the Israeli equity crowdfunding market, jointly accounted for 11% percent of the total number of investments.
Twelve percent of the companies that raised capital from ECF platforms have made an exit, IVC said. ReWalk Robotics, the developer of an exoskeleton system that enables the paralyzed to walk, was the first Israeli ECF portfolio company that held an IPO on the Nasdaq in 2014.
In past four years, two ECF portfolio companies went public and 15 companies were acquired. OurCrowd portfolio companies made up 88% of all ECF portfolio exits. Almost half, 47%, of all ECF merger and acquisition deals were made in 2016. The largest exit was the $175 million acquisition of Replay, an online entertainment company, by Intel.
