Israeli tech firms raise 54% more funds in 3Q at $1.44 billion

Israeli tech companies raised $1.44 billion in the third quarter of the year, up 54 percent from the $933 million raised in the same period a year earlier, according to a report released by IVC Research Center and the Tel Aviv law firm Zysman Aharoni Gayer & Co. (ZAG S&W).

The number of fundraising deals in the third quarter of the year — 144 — was higher than the 140 deals in the same quarter a year ago, but well below the 202 deals registered in the fourth quarter of 2015. In the second quarter of this year the number of deals totaled 158.

The average financing round for the third quarter was $10 million, the highest amount in five years, compared with an average $6.7 million in the same period a year earlier.

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In the first nine months of 2017, Israeli high-tech companies raised $3.8 billion, equal to the record amount raised in the corresponding period of 2016. The number of deals, however — 457 deals in total — declined to the lowest number in the past five years.

“Most of this decrease stems from seed and early stage deals, a 17% decline compared with the five-year average,” Marianna Shapira, research director of IVC Research Center, said in a phone interview. “Basically, what it means is that a smaller number of startups are getting more money, while others are missing out.”

For additional ventures to succeed, a reversal in this trend is needed in the fourth quarter, she explained.

Deals above $20 million attracted the biggest share of VC capital, the report said, accounting for some 60 percent of the total dollar amount for the nine months.

Israeli VC fund investments increased in the third quarter, with $277 million invested, 16 percent of the total capital, compared with $139 million, 15 percent of the total capital in the same period a year earlier. Israeli VC funds preferred follow-on investments in the quarter, with most of the capital, some 91%, going to mid- and late-stage companies.

“We’re witnessing yet another report proving the confidence in and status of Israeli high tech,” Shmulik Zysman, managing partner at Zysman Aharoni Gayer & Co., said in a statement. The impact of the sale of automotive technology firm Mobileye to Intel Corp. in March for $15.3 billion is still being felt in the market, with regard to increased interest in Israeli technology.

Zysman said that the August directive by the Chinese authorities allowing for investments outside of China in several sectors, including technology, will help “boost Chinese interest in Israeli high-tech companies in the future.”

Almost half, 43 percent, of the total capital raised in the third quarter of 2017 was invested in late-stage companies, reaching a record of $618 million, the report said.

“The trend of investing larger amounts in fewer companies indicates that investors have an appetite for greater risk,” said Zysman.

While software continued to lead capital raising for the quarter, its share shrank to 25 percent of total capital, below the two-year average of 35 percent, followed closely by life sciences with 24 percent, the report said.