Startup fundraising swells in first quarter to record $5.4 billion
Israeli high-tech companies raised $5.37 billion in capital in the first quarter, an unprecedented amount and far more than double the pace of previous quarters, the IVC-Meitar Israeli Tech Review said Monday.
The first-quarter figure was not only 89% higher than the previous quarter but equaled the amount raised for all of 2017. IVC noted that the increase was about in line with the surge of publicly traded tech company valuations. It said the correlation suggests that fundraising may decline later this year.
Investment in high-tech has been given a boost by investors seeking bigger returns in an era of low interest rates, and by the transition to a more digital economy, a trend that accelerated during the coronavirus pandemic.
The big increase in fundraising in Israel was due to 20 rounds of $100 million or more each. Together, they accounted for 55% of total first-quarter fundraising. The number of large rounds grew from seven in the fourth quarter of 2020 and six in first-quarter 2020, IVC said.
“This robust quarter was successful mostly for growth-stage, veteran companies that have won global recognition and have strong connections with foreign investors,” said Mariana Shapira, IVC’s research manager. “A different picture emerges at the other end of the Israeli startups scene. Though younger companies enjoyed some increase in fundraising, their numbers didn’t climb, which points to tougher competition among companies seeking capital.”
Among seed-stage companies, the number raising capital was just 30 in the first quarter, unchanged from the average of previous quarters. However, the average amount raised in a seed round jumped to $185 million from $500,000 a year earlier, IVC figures showed.
Venture capital funds were by far the largest investors, accounting for 78% of the quarterly total, the highest in a decade. IVC researchers said other classes of investors, for instance angels, have been deterred from investing by high valuations.
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In addition, foreign VC funds’ share of investment rose to 60% of the total, a bigger share than the traditional approximately 50-50 split between foreign and local funds. That said, Israeli VC funds generally raise their capital from abroad.
Not surprisingly, cybersecurity and financial technology were the leading sectors, with startups in the sectors raising $1.4 billion and $1.1 billion, respectively. The first quarter also saw 33 exits as a combined value of just over $2 billion.