Israeli high-tech raising down 8% in Q1 2017

27 April, 2017

Younger startups face new challenges: Early rounds raising dropped 16% and seed raising dropped staggering 31% in the first quarter

In the first quarter of 2017, Israeli high-tech companies raised a total of $1.03 billion in 155 transactions, a 4% decrease from the $1.07 billion raised in 165 deals in the previous quarter and 8% lower than the $1.11 billion raised in Q1/2016.

The number of transactions was down 10% in Q1 compared to the quarterly average of 172 deals in the previous three years. The average financing round rose to $6.6 million, compared to $6.4 million in Q1/2016. According to the research made by IVC Research Center and the law firm ZAG-S&W, there is a sharp drop in early stages investments.

It’s better to be bigger

Early rounds raising dropped 16% and seed raising dropped staggering 31%, with only 37 seed rounds and 40 A rounds closing in Q1, at a total of $247 million. The first quarter of 2017 was the weakest for early stage rounds in three years, with 41 companies raising only $199 million, or 19 percent of total capital. Capital raised by stage Mid-stage companies continued to lead quarterly capital raising in Q1/2017, with $478 million

In terms of capital raising, only C rounds managed to top their previous record, with $285 million raised in 17 deals, compared to $234 million in Q1/2016. Shmulik Zysman, founding partner of ZAG-S&W (Zysman, Aharoni, Gayer & Co.), said that the number of financing rounds in the first quarter was the lowest since 2012, while the number of new startups continued to grow.

“We expect the Mobileye deal – which shifted paradigms regarding valuations of Israeli companies – to have future impact on the industry in terms of growth in capital raising volumes. The fact that most of the capital goes into mature companies reflects the maturity of companies today, but also the low appetite of investors for young companies. If it continues, this trend is liable to harm young companies’ ability to realize their potential.”

“Void in the early stages”

Koby Simana, CEO of IVC Research Center, noticed: “Our analysis shows that venture capital funds, both Israeli and foreign, are shifting their activity focus to investments in later stages – in terms of companies’ product development stage, financing stage or capital raising round. This change creates a void in the early stages that is not fully met by other investors, such as accelerators or private investors.

“But on the one hand, this move creates an opportunity for new investors willing to focus on young startups and early stage companies without much competition. If VC funds pass up the opportunity to join at early stages and hold the majority of shares in a company, they will have less control over their deal-flows. If there are no investments in early stages and early rounds now, two years down the line there could be a shortage of promising late stage companies.”

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Posted in: Deals and Investments , News