IVC: 170 start ups raised $701 million, the best third quarter figure ever.
In the third quarter of 2014, 170 Israeli high-tech companies attracted $701 million, the IVC Research Center and accounting firm KPMG Somekh Chaikin report today. This is 6% above the $661 million of the third quarter of 2013, but down 24% from the exceptionally high $928 million raised in the previous quarter. The third quarter 2014 amount was 29% above the $545 million average of the last three years.
The average company financing round was $4.12 million, compared with $4.08 million in the third quarter of 2013, and $5.33 million in the second quarter of 2014.
IVC Research Center CEO Koby Simana said, “We have been asked repeatedly about the effect of Operation Protective Edge on the local high-tech industry and on capital raising in particular. Examining the data now, we are pleased to note that the Gaza conflict barely impacted high-tech capital raising. Traditionally, the third quarter tends to be the weakest for capital raising in any given year, but the third quarter of 2014 ranked as the third best quarter ever, and one of the top three quarters in the past decade.”
98 VC-backed deals in the third quarter of 2014 accounted for $476 million or 68% of total capital invested. This was an improvement from 61% in the second quarter of 2014, and just short of the 70% of the third quarter of 2013.
In the first three quarters of 2014, 504 Israeli high-tech companies raised $2.3 billion, just 1% short of the $2.33 billion raised in all of 2013, and 50% more than the $1.5 billion attracted in the first-to-third quarters of 2013.
“We’ve seen an increase of $800 million in capital raising in the first three quarters of 2014 over the same period in 2013,” said Simana, “This increase is mostly explained by an upsurge in the number of large financing rounds above $20 million and the accumulated capital generated by such deals. Some $868 million was raised in deals above $20 million in the first three quarters, an increase of more than 200% from the $276 million of the corresponding year-earlier period. Consequently, three quarters of the 2014 increase resulted from capital raised in deals above $20 million”
In the first three quarters of 2014, 282 VC-backed companies accounted for $1.5 billion, more than that of any 9-month period in the last six years. This compares with $1.2 billion raised in the first three quarters of 2013 and $984 million in the first three quarters of 2012.
In the third quarter of 2014, Israeli VC fund activity remained moderate, with $130 million invested in Israeli high-tech companies. The amount was down 14% from $152 million invested in the second quarter of 2014, and was 19% below $161 million (the largest amount in three years) invested in the third quarter of 2013.
At the same time, the 19% share of Israeli VC fund investments was low in comparison with the 30% average of the past six years, but it did show a slight improvement from the prior three quarters when the average share was 16%.
In the third quarter of 2014, first investments accounted for 43% of total Israeli VC investments, compared with 27% in the third quarter of 2013 and 35% in the second quarter of 2014.
In the first three quarters of 2014, Israeli VC funds invested $383 million (17%) in Israeli high-tech companies, down 9% from $421 million (27%) in the first three quarters of 2013. The Israeli VC fund share of 17% was the lowest in a decade and compared with an average of 32% for the January through September period in the past six years.
Ofer Sela, a partner in KPMG Somekh Chaikin’s Technology group, said, “The US capital markets continue to be a major driver of greater venture capital investment, with substantial funds being directed to revenue growth companies. Financing rounds are being led by foreign investors including corporate VCs from the US and China, which are evaluating investments on strategic as well as financial levels. Locally based VCs are focusing on early-stage companies, playing a major role in defining products and solutions. This role continues to be a critical one in the local eco-system.
“Transaction volume in 2014 is a strong indicator of the maturity and global interest in Israel’s technology industry. In order to maintain this trend, we believe that the Israeli Government should intervene in order to allow Israeli institutional investors to participate in the technology industry as limited partners in local venture capital funds.”
“In the third quarter of 2014, the Internet sector led investments with 40 companies accounting for $213 million, or 30% of total capital raised. This was the second largest amount raised by Internet companies in six years and significantly higher than the $149 million (16%) attracted by 49 companies in the second quarter of 2014 and the $181 million (27%) raised by 47 companies in the third quarter of 2013.
In the first three quarters of 2014, Internet companies continued to lead capital raising and accounted for $622 million (27%), the largest amount raised by the Internet sector in a three-quarter period since 2009. This compared with $337 million raised in the first three quarters of 2013 (when the sector led all investments with a 22% share) and $258 million (19%) in the first three quarters of 2012.
In the third quarter of 2014, seed companies attracted $60 million or 9% of capital raised, a welcome increase from the 4% and 3% in the second quarter of 2014 and the third quarter of 2013, respectively.
In the first three quarters of 2014, late stage companies accounted for $954 million or 41% of total capital raised, while seed companies raised $135 million or 6% of capital.
The survey reviews capital raised by Israeli high-tech companies from Israeli and foreign venture capital funds as well as other investors, such as investment companies, corporate investors, incubators and angels. It is based on reports from 93 investors, of which 40 were Israeli VC management companies and 53 were other entities.
The survey covered total investment in the Israeli venture capital sector, including both VC-backed rounds where at least one investor participating in the round was a VC fund, as well as deals not backed by venture capital funds.