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Israeli tech firms raise record $9.93 billion in 2020 but M&A deals plunge

IVC and Meitar’s 2020 tech review shows cybersecurity, fintech and internet of things sectors nabbed the most funding; IPOs up both on TASE and in the US

Shoshanna Solomon is The Times of Israel's Startups and Business reporter

Illustrative. A pile of $100 bills. (choness, iStock by Getty Images)
Illustrative. A pile of $100 bills. (choness, iStock by Getty Images)

Israeli tech firms raised a combined record amount of money in a record number of investment deals, according to a report by IVC Research Center, which tracks the industry, and Meitar Law Offices.

Some $9.93 billion was invested in privately held Israeli tech firms in 2020, up 27% year on year, in 578 transactions, the Israeli Tech Review 2020 said. In 2019, Israeli tech firms raised $7.8 billion in 506 transactions, the data showed.

Mergers and acquisitions in 2020 suffered a hit, though, as economies globally were hobbled by the coronavirus pandemic. These transactions generated just $7.8 billion this year in 93 deals, compared to over $14.2 billion in 143 M&A deals last year (excluding the value of the Mellanox Technologies Ltd. deal in 2019).

In 2020, Israeli companies made 121 funding deals on the Tel Aviv Stock Exchange and global capital markets, raising a total of $6.55 billion in initial public offerings, follow-on offerings and other capital market transactions covering both equity and debt through primary and secondary offerings. This compares to just $1.95 billion in funds raised in capital markets in Israel and abroad in 2019.

A stock market ticker in the lobby of the Tel Aviv Stock Exchange, March 15, 2020. (Flash90)

“We estimate that after a challenging but very successful year for Israeli start-ups, Israeli high-tech will continue to be a source of attraction for leading international, financial and strategic players,” said Guy Holtzman, the CEO of IVC, in a statement.

Early round investments (Seed + A Rounds) took a “temporary blow” during the first and second quarters of the year, due to pandemic-caused uncertainty in the financial markets. However, third and fourth-quarter activity compensated for that, posting a rise in the number of investments, both in number and in value, the report said.

Contrary to previous years, IPOs became an attractive exit alternative for growth companies, signaling another step in the maturity of the Israeli high-tech industry and presenting an “impressive crop of unicorns,” or companies valued at over $1 billion, the report said.

The IPO pipeline for 2021 continues to be “strong, across multiple tech verticals,” the report said.

During the year, VC firms preferred to stay focused on existing portfolio companies, providing portfolio startups with follow-on investments and making slightly fewer first-time investments. There were 765 follow-on investments to date this year, compared with 557 in 2019. First-time investments declined to 378 deals, from 415 last year.

Mega deals

In 2020, the amount invested in late-stage companies increased substantially to $8.33 billion, from $6.51 billion last year, compared to investments in early-stage companies, which was just $1.6 billion vs $1.3 billion in 2019. “Mega deals” of over $100 million were common in 2020, making up nearly one-third of the total amount, the data showed.

There were 20 deals worth over $100 million this year, totaling $3.26 billion, compared to 18 such deals totaling $2.62 billion last year and just four totaling $640 million in 2018.

The sectors that got the biggest checks this year were cybersecurity, fintech and internet of things. Cybersecurity firms raised $2.58 billion, fintech firms raised $1.48 billion, and IoT firms raised $1.5 billion.

Food tech firms raised $318 million in 37 deals this year.

The Moovit app in use in Washington, US (Courtesy)

Top merger and acquisition deals this year included the acquisition of Forescout Technologies by Advent International for $1.9 billion, the Checkmarx acquisition by Hellman & Friedman for $1.15 billion, the acquisition of cybersecurity firm Armis by CapitalG and Insight Partners for $1.1 billion, and the $1 billion acquisition of smart transit startup Moovit by Intel Corp.

In 2020, nine companies held IPOs on the TASE, raising an aggregate of $345 million, compared to none in 2019 and 2018; in 2020, seven companies held IPOs in the US, raising an aggregate of $1.2 billion, compared to five companies that raised $407 million in 2019.

Top initial public offerings this year included those of JFrog, an IT and enterprise software firm, on the Nasdaq; Lemonade, an AI-based insurance firm, on the New York Stock Exchange; and life sciences firm Nanox which raised $165 million on the Nasdaq. Two cleantech firms, Ecoppia and GenCell, held initial public offering of shares, raising $82 million and $61 million on the TASE this year.

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