IVC-KPMG: Israeli start-ups raised record $3.4b in 2014

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688 companies raised 46% more capital than in 2013, with $1.1 billion raised in the fourth quarter of 2014.

In 2014, Israeli high-tech and life sciences capital raising set an all-time record as 688 companies raised $3.4 billion, IVC and KPMG report. This amount was 46% higher than 2013, when 659 companies raised $2.3 billion.

In the fourth quarter of 2014 alone, 184 Israeli high-tech companies raised a massive $1.1 billion - the most raised in one quarter since 1999. The amount was 58% higher than the $701 million raised by 170 companies in the third quarter of 2014, and 39% higher than the $795 million raised by 190 companies in the corresponding quarter of 2013. For the sake of comparison, the past decade’s quarterly average was just $470 million. The average company financing round increased to $6 million in the fourth quarter of 2014 from $4.12 million in the preceding quarter and $4.18 million in the corresponding quarter.

Koby Simana, CEO of IVC Research Center CEO Koby Simana said, "The hike in capital raised by Israeli high-tech companies directly reflects the continuing increase in the number of large deals, which we described a few months ago. Our annual review of the findings shows that large deals accounted for 3% of total deals, at most, until 2014, while in 2014 the share doubled. Capital raised in large deals more than doubled in 2014, totaling over $1.3 billion. This demonstrates that not only is the number of large deals growing, but their size is increasing as well, with a number of very prominent deals reflecting the trend, such as the Landa Corp., IronSource and Kaminario extra-large rounds."

KPMG Somekh Chaikin's Technology group partner Ofer Sela said, "During 2014, some 39 companies completed financing rounds exceeding $20 million, positioning these companies to continue their market expansion. We believe that the maturity level of Israel-based companies in 2015 will attract private equity investors, resulting in even higher amounts raised per revenue-growth company.”

He added, “The fact that the number of deals in the $5 million to $20 million range increased consistently throughout the past year shows the ability of Israeli technology companies to attract capital. It has been said by some that you raise money whenever it’s possible. It certainly looks like Israeli entrepreneurs are learning the lesson well, using the opportunity to raise more capital whenever the market allows the, which also explains why the relative number of small deals below $5 million has somewhat declined, though they still constitute the largest portion of deals."

In the fourth quarter of 2014, 110 venture capital-backed deals attracted more capital than in any previous quarter in the last six years - $845 million or 76% of total capital invested. The amount soared 78% from that of the the third quarter of 2013 and 41% from the corresponding quarter. The average venture capital-backed deal reached $7.7 million, which compared with a six-year $4.3 million average.

In 2014, 392 venture capital-backed deals totaled $2.36 billion or 69% of total capital invested. This compared to $1.7 billion (75%) in 2013 and $1.3 billion (73%) in 2012. The average venture capital-backed deal size reached $6 million, well above the six-year $4.3 million average. Sela believes this trend will persist, saying “with the strong positive sentiment in US public markets and current economic conditions, we expect 2015 to be a robust year for VC-backed Israeli companies.”

Israeli venture capital fund investment activity

In the fourth quarter of 2014, Israeli venture capital funds invested $192 million in Israeli high-tech companies, 48% higher than $130 million invested in the preceding quarter and 37% higher than the $140 million invested in the corresponding quarter. Israeli venture capital funds accounted for 17% of all investments, equal to their average throughout 2014, but slightly under the 19% share of the preceding quarter and 18% of the corresponding quarter.

First investments by Israeli venture capital funds in Q4/2014 slipped to 20% from 43% in the preceding quarter, but rose slightly from 19% in the corresponding quarter of 2013. First investments, however, remained well below the 30% quarterly average of the last six years.

In 2014, Israeli venture capital funds invested $574 million (17%) in Israeli high-tech companies, just 2% more than the $561 million (24%) invested in 2013, but up 11% from $515 million (29%) invested in 2012. First investments in 2014 accounted for 33% of total Israeli venture capital investments, slightly above the 31% of 2013, but lower than the 37% of 2012.

Capital Raised by Sector and Stage

In the fourth quarter of 2014, 36 Internet companies led capital raising, as in the previous quarter, with $320 million or 29% of total capital raised. This was the largest amount ever raised by the sector in one quarter and compared to $212 million (30%) attracted by 39 companies in the third quarter of 2014 and $178 million (22%) invested in 61 Internet companies in the fourth quarter of 2013. The life sciences followed with $250 million (23%) and software with $230 million (21%).

The Internet, the life sciences and software were the leading sectors in 2014, attracting 28, 24 and 22% of capital raised, respectively. The previous year differed only slightly as both the life sciences and the Internet attracted 22%, followed by software with 21%.

In the fourth quarter of 2014, 22 late stage companies continued to lead all investments - as they did throughout 2014 - with $381 million (34%). Fifty-seven early stage companies raised $366 million (33%), while seed investments attracted 4%, in contrast to the unusually strong previous quarter when seed accounted for a 9% share of total capital raised.

The share accounted for by firms in the initial revenue stage in 2014 dropped to 26% from 47% in 2013, when the stage led all investments. At the same time, capital raised from late stage companies accounted for 39%, compared with just 20% in 2013. Seed companies maintained their 5% share over the two last years.

Published by Globes [online], Israel business news - www.globes-online.com - on January 21, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

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dollars  picture: Thinkstock
dollars picture: Thinkstock
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