Even as Israeli and foreign VC funds reduced their investment activity in Israeli tech firms, crowdfunding platforms and private investors picked up the slack, with the sector raising a total of $1.19 billion in the third quarter of 2016, the second-highest quarterly amount in 10 years, a new report shows.
According to the IVC-KPMG report, by the IVC Research Center and the KPMG auditing company, the quarterly figure was markedly affected by one deal totaling $204 million, which represented 17 percent of total capital raised in the quarter. Excluding that transaction, the quarterly funds raised totaled $982 million, similar to the $1 billion quarterly average raised in the past three years, the report said.
Since the beginning of 2016, Israeli high-tech companies raised a total of $4 billion in 510 deals, 27 percent above the $3.15 billion raised in 491 deals in the first nine months of 2015, and only 7 percent below 2015’s annual record of $4.3 billion. The average transaction reached $7.8 million, a noticeable increase, compared with the $6.4 million average in Q1-Q3/2015. In the third quarter of 2016, the average company financing round stood at $8.4 million, including the one-off $204 million transaction.
Foreign investor participation in financing rounds of Israeli tech companies, particularly by foreign VC funds, declined for the quarter, the report said. “This is a reflection of the global downtrend in VC investment that has been going on for over a year,” Koby Simana, the CEO of Tel Aviv-based IVC Research Center which tracks the industry, said in a statement. Fourth-quarter data needs to be available to determine if the Israeli market is also indeed following the global trend, he said.
“In any case, we expect 2016 to close as a record year in terms of capital raising, so short of a dramatic surprise in the coming months, we are still far from declaring that the global VC crisis has hit Israel,” Simana said.
Reflecting a global trend, foreign and local VC funds investment declined 24 percent year on year, the report said. The funds invested $662 million in 75 deals for the quarter, or 56 percent of total capital. This also reflects a 41 percent decrease from the $1.1 billion invested in 119 deals in the previous quarter. The number of VC-backed deals in the third quarter was the lowest in the past three years, 23 percent below a quarterly average of 97 VC-backed deals, the report said.
Even with the drop in VC investment and as foreign and Israeli VC funds adjust their models to focus on later stage investments, other private investors, angels and crowdfunding platforms and accelerators picked up some of the slack for early stage deals, and Israeli high tech firms witnessed a continued strong “flow of quality deals,” Ofer Sela, partner at KPMG Somekh Chaikin’s technology group, said.
“New growth investors are investing in these deals, providing a wider horizon to such companies, both in terms of the type of potential exit and valuation,” Sela said. These offer alternatives to Israeli high tech companies, the report said.