Israeli tech firms raise record $6.52b in Q2, led by fintech and cybersecurity
IVC-Meitar report shows that in H1, tech firms raised a whopping $11.9 billion, higher than full year 2020; firms now need to justify their high valuations
Shoshanna Solomon was The Times of Israel's Startups and Business reporter
Israeli high-tech companies saw a surge in investments in the second quarter of the year, raising a record $6.52 billion triple the amount raised in the same quarter the previous year.
In the first half of 2021, the amount of capital raised by Israeli high-tech companies — $11.9 billion — was also a record, and surpassed the $10.3 billion raised in the full year of 2020, according to data released Wednesday by the Israeli IVC-Meitar Tech Review, published by IVC Research Center and the law firm Meitar. In the second quarter of 2020, Israeli tech firms raised some $2.2 billion.
The findings show that “the Israeli high-tech industry continues to be a strategic target for foreign venture capital investors, with technology companies benefiting from generous investments at every stage, with serious investors participating in earlier stages, which is reflected in greater fundraising volumes, and leads to increased chances of survival,” said Mariana Shapira, senior analyst at IVC, in a statement. “The fact that Israeli investors have expanded their activities, as well as high company valuations, indicate the availability of capital, and a positive trend in the flow of funds to the high-tech industry is expected to continue in the course of 2021.”
The record funding in the quarter is in line with what is happening globally: according to a report by New York City-based data firm CB Insights, global funding to startups in the second quarter of this year totaled a record $156 billion, up 157% compared to the second quarter of 2020. The 2021 quarterly figure marks “the biggest quarter for dollars raised in the last decade,” the report said. There were 136 new unicorns born in the second quarter of 2021 worldwide, a record high and nearly six times the 23 unicorns born in the same period a year earlier. Unicorns are privately held firms valued at over $1 billion.
According to Tech Aviv, which tracks the industry, Israel has a total of 71 tech unicorns founded by Israelis, 35 of which were formed this year.
Globally, one out of every five dollars invested in tech firms went to financial technology firms, the CB Insights report said. The number of global exits (IPOs and M&As) increased 109% year on year, reaching an all-time high of 2,893 deals.
Back to Israel
In the second quarter of this year, 230 fundraising transactions were completed in Israel, according to IVC.
In the first half of the year there were 38 transactions of over $100 million each, accounting for approximately 50% of all fundraising during that period. The number of transactions completed in the first half of 2021 was equal to 66% of all transactions completed in 2020.
Israeli high-tech fundraising records were registered in all rounds during the second quarter of 2021. Investments in early rounds (seed and A round) continued to climb during the second quarter — both in terms of number of transactions and in dollar volume — reaching 126 transactions with $1.04 billion raised. In the same quarter a year earlier, there were 91 deals that raised a total of $415 million.
Investments in more advanced rounds (B rounds and above) also continued to increase in the second quarter of 2021: $5.48 billion was raised, compared to $1.76 billion in the same period a year earlier and $4.66 billion in the first quarter of 2021.
In the first half of 2021, $50 million or more were invested per deal in 79 deals, compared to 47 such transactions in 2020 and 39 in 2019.
Investors’ preferences remained stable in the first half of 2021, with the majority of capital flowing toward companies in the fintech and cybersecurity tech sectors. There were 57 transactions in fintech compared to 26 deals in the corresponding period last year. Cybersecurity companies raised $2.9 billion in the first six months of 2021, almost 25% of the total amount raised in this period, and more than the total capital this area raised in 2020, the data showed.
Israeli tech activity in the US, Israel and other public capital markets increased significantly in the first half of 2021, which was reflected in the record number of
initial public offerings (IPOs), special purpose acquisition company (SPAC) transactions, and follow-on offerings, the report said. Seven deals were accomplished through a merger with SPAC companies in which a total amount of $2.41 billion was raised.
In total there were 48 IPOs and SPAC deals in the first half of this year, limited to those that raised funds on the market below $5 billion, to exclude outliers. These 48 deals raised a total of $8.42 billion compared to 20 IPOs in the same period of last year that raised $1.61 billion in the capital markets.
The Tel Aviv Stock Exchange (TASE) attracted the largest number of IPOs during this period (35 deals), which accounted for approximately 12% of the total amount raised through the 48 IPOs during the first half of 2021.
This figure indicates that TASE has become a valid platform for technology companies of certain valuations to go public, the report said.
Valuations surge
The valuations of tech firms after their IPOs and SPAC mergers surged to a whopping $62.3 billion in the first half of the year, compared to $8.32 billion for the full year 2020 and $1.91 billion in full year 2019, the data showed.
“Since 2013-2014, we have not seen such a large number of Israeli high-tech companies go public in such a short period of time,” said Mike Rimon, a partner at Meitar, in the statement. “In the first half of 2021, public offerings of 48 Israeli companies were completed either by way of a ‘regular’ offering or by way of a merger with a SPAC – of which 35 were completed in Tel Aviv, 12 in the US and one in London.
“These companies, especially those that went public in the US, completed their IPO at very high valuations, and most raised their valuation following the IPO. We
anticipate this trend to continue in the near future, albeit possibly more moderately than in the first half of 2021.”
Mergers with SPACs will be considered, among other things, Rimon said, in light of US and Israeli regulators’ concerns regarding such transactions, as well as the performance of such companies following their de-SPACs, which were significantly lower than the “traditional” IPOs in the first quarter of 2021.
Israeli high-tech M&A deals in the first half of 2021 amounted to about $4 billion, a rate that was similar to 2020, which also experienced a decline. The three big acquisitions were: MyHeritage acquired by Francisco Partners for $600 million, and Prospera acquired by Valmont and VDOO acquired by JFrog for $300 million per transaction.
The lower number of exits is also a sign of the maturity of the tech ecosystem, said Shira Azran, a partner at Meitar, in the statement. It shows that “companies are able to raise significant capital at high valuations and prefer this over a sale,” she said. US VC and private equity funds are growing their share in tech investments in Israel, she said, “deploying significant capital amounts into companies.”
In addition, these investors are more patient and trust the “ability of companies to reach high valuations and realize their investment in the capital markets and not necessarily through M&As.”
M&A transactions are now also used by Israeli firms that have grown significantly through the amounts raised to buy companies both in Israel and abroad. “We are seeing more transactions of this type, and we believe this trend will increase in the future,” she said.
Stand by their valuations
Itay Frishman, a partner at Meitar, sounded a warning, however, saying the massive new companies will have to prove they deserve their high valuations. “The Startup Nation wants to be a scale-up nation,” he said. “Companies in Israel try to match their counterparts in Silicon Valley. All those unicorn companies, including those that went public, will have to prove they deserve their high valuation.
“Until recently most Israeli companies were sold or evaluated based on dreams and promises. Today, the Israeli high-tech market is ready for the next phase. The final outcome will be tested in the coming years. The words will remain on paper and the market will focus on revenues and continued accelerated growth. The future will determine if what we see is the real thing. “
