Israel’s tech sector once again broke capital-funding records, with firms raising a total of $17.78 billion in 575 deals since the start of 2021, almost double the total raised in all of 2020, itself a record year.
In the first three quarters (Q1-Q3) of 2021, the amount of capital raised by Israeli high-tech companies increased by 71 percent over 2020’s annual total of $10.3 billion, according to data released Wednesday by the IVC-Meitar Israel Tech Review, published by the IVC Research Center and the law firm Meitar. The historic amount was due in part to a significant number of funding rounds of over $100 million — 53 such deals — which accounted for a 51% share of the total sum for Q1–Q3, according to the report.
In Q3 alone, Israeli companies raised $5.89 billion in 177 deals, down slightly from the $6.5 billion raised in Q2 but more than the $5.3 billion in Q1.
The number of deals also reached an unprecedented level. According to IVC’s estimation, the projected deal number by the end of the year will reach 1,800, a 33% gain over 2020.
In addition, the value of high-tech exits soared so far this year, reaching $18.92 billion — up 92% from 2020’s annual results. According to the findings, this is mostly due to a surge in IPOs, 65 in total.
“We observed the current upward trend since March 2021, leading monthly averages in Q1–Q3/2021 to $1.98 billion, compared to a $864 million monthly average in 2020, as more mature Israeli companies have established trusted connections with their foreign investors, proving themselves as stable targets for growth investments. We believe that at least for the near term, this trend will continue,” said Mariana Shapira, senior analyst at IVC, in a statement accompanying the report.
Funding rounds of $100 million or more defined the first three quarters of 2021, with an exceptionally high number of such “mega-rounds” accounting for $9 billion of the $17.78 billion in this period. This can be attributed to the growing number of unicorns — private companies valued at over $1 billion — in the Israeli tech industry, the report said.
These rounds include recent investments in fintech startup Melio, which raised $250 million at a $1.4 billion valuation, global payroll and payment management platform Papaya Global with a round of $250 million at a $3.7 billion valuation, and internet of things (IoT) firm Wiliot, which raised $200 million in July with SoftBank.
Funding rounds of $50 million or over were also up this year so far, with 114 such deals in Q1-Q3, compared to 22 in the first three quarters of 2020.
Early rounds (seed and A), meanwhile, reached 293 deals so far, compared to 343 in all of 2020.
Later rounds reached $15.3 billion, or 85% of the total money raised, in 282 deals.
Investments by sector
Cybersecurity companies drew the largest investments in 2021 so far, bringing in over $4.5 billion in funding, with fintech firms not far behind with $4.4 billion.
IoT startups raised over $2 billion in Q1-Q3, and food tech outfits nabbed $480 million so far.
“We see the continued effect of COVID-19 on our lives. The technology sector accelerated with the world digitizing and transitioning to cloud in all areas, along with the increased demand for cyber solutions,” said Shira Azran, a partner in Meitar Law Offices. “In addition to the continued growth of mature companies, we see two main trends – first, the increase in early-stage and seed rounds, and second is the increased participation of US investors, in all stages of investments in Israeli companies. We expect these trends to continue for the remainder of this year and next year.”
Indeed, foreign investors increased their funding in Israeli companies gradually after a slight decrease in participation in the last two quarters of 2020. Foreign investors poured in over $12 billion in Israeli firms so far in 2021, with Israeli investors accounting for the rest.
In Q3 alone, foreign investors put in $4.3 billion, compared to the quarterly average of $1.86 billion in 2020.
Foreign investors were also more involved in later funding round (B and up) with Israeli investors participating in the earlier stages.
Follow-on investments also continued to climb through 2021, reaching record figures of over $8 billion.
This is “evidence of the continuing increase in local start-up valuations and the investors’ belief that these valuations will keep soaring,” according to the report.
So far in 2021, Israeli high-tech exits registered record figures with 180 transactions valued at $18.92 billion, according to the IVC report. A majority of the capital volume was derived from IPOs – 52% of the total amount.
In Q1–Q3 of 2021, 65 Israeli high-tech companies went public on capital markets with a total amount of $9.78 billion, “a 225% increase in number and a 506% increase in capital from 2020’s annual figures,” the report noted. Their overall post-valuation reached $76.4 billion.
The two most prominent IPOs in Q3 were by fraud prevention company Riskified, which went public on the New York Stock Exchange at a $3.3 billion valuation, and automotive company REE Automotive, which completed a merger with a SPAC (Special Purpose Acquisition Company) on the Nasdaq.
Out of the total IPOs numbers, 11 companies went for SPAC IPOs, including four in Q3, raising $2.91 billion or 30% of the total IPO values in this period.
Over 40 Israeli high-tech companies went public on the Tel Aviv Stock Exchange (TASE) so far in 2021, according to the report.
Meanwhile, the capital volume of M&As (mergers and acquisitions) amounted to $9.14 billion and surpassed 2020’s annual $8.2 billion figure.
Mike Rimon, a partner in Meitar Law Offices said, “We expect to continue to see significant equity financing activities as well as growth in M&A transactions due to an increasing number of companies that have raised significant amounts, whether through public markets (including through mergers with SPACs) or through private equity rounds.”
Rimon also noted an uptick in the acquisitions of Israeli companies by other Israeli companies, “which did not constitute a significant exit channel a few years ago.”
“We expect this trend to become more common in the near future,” he added.
Jon Medved, CEO of investment firm OurCrowd said that “these impressive funding numbers are yet more evidence that the transition from ‘Startup Nation’ to scale-up nation is well underway.”
“As Israel’s venture market chases unicorns and decacorns, we must not ignore earlier-stage deal flow so we can continue to grow the ecosystem for the long run,” added Medved in a post on LinkedIn,