IVC-KPMG: Summary of Israeli High-Tech Company Capital Raising Q4/2014

Summary of Israeli High-Tech Company Capital Raising Q4/2014

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IVC and KPMG report:

2014 Israeli high-tech capital raising hits $3.4 billion – a record high

Key facts:

  • All time high in large deals, above $20 million
  • Internet companies led capital raising in Q4/2014 with $320 million – 29% of total
  • VC-backed deals climbed to $845 million in Q4/2014 – the highest amount for a quarter in six years

Tel Aviv, Israel, January 21, 2014. In 2014, Israeli high-tech capital raising set an all-time record as 688 companies attracted $3.4 billion. The amount was up 46 percent from $2.3 billion raised by 659 companies in 2013.

In Q4/2014, 184 Israeli high-tech companies raised a whopping $1.1 billion – the most raised in one quarter since 1999. The amount was up 58 percent from the $701 million raised by 170 companies in Q3/2014 and ahead 39 percent from the $795 million attracted by 190 companies in Q4/2013. In comparison, the past decade's quarterly average was just $470 million. The average company financing round increased to $6.0 million in Q4/2014 from $4.12 million in Q3/2014 and $4.18 million in Q4/2013. (Chart 1)

Koby Simana, CEO of IVC Research Center, remarked, "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 percent 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," observed Simana.

Ofer Sela, partner in KPMG Somekh Chaikin's Technology group commented that "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."

Simana addresses the findings, saying "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," he concluded. (Chart 2)

In Q4/2014, 110 VC-backed deals attracted more capital than in any previous quarter in the last six years – $845 million or 76 percent of total capital invested. The amount soared 78 percent from that of the Q3/2014 and 41 percent from Q4/2013. The average VC-backed deal reached $7.7 million, which compared with a six-year $4.3 million average.

In 2014, 392 VC-backed deals totaled $2.36 billion or 69 percent of total capital invested. This compared to $1.7 billion (75 percent) in 2013 and $1.3 billion (73 percent) in 2012. The average VC-backed deal size reached $6 million, well above the six-year $4.3 million average. Ofer 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 VC Fund Investment Activity

In Q4/2014, Israeli VC funds invested $192 million in Israeli high-tech companies, a 48 percent increase from $130 million invested in Q3/2014 and 37 percent above the $140 million invested in Q3/2013. Israeli VC funds accounted for 17 percent of all investments, equal to their average throughout 2014, but slightly under the 19 percent share of the previous quarter and 18 percent of Q4/2013.

First investments by Israeli VCs in Q4/2014 slipped to 20 percent from 43 percent in the previous quarter, but rose slightly from 19 percent in Q4/2013. First investments, however, remained well below the 30 percent quarterly average of the last six years.

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

Capital Raised by Sector and Stage

In Q4/2014, 36 Internet companies led capital raising, as in the previous quarter, with $320 million or 29 percent of total capital raised. This was the largest amount ever raised by the sector in one quarter and compared to $212 million (30 percent) attracted by 39 companies in Q3/2014 and $178 million (22 percent) invested in 61 Internet companies in Q4/2013. The life sciences followed with $250 million (23 percent) and software with $230 million (21 percent).

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

In Q4/2014, 22 late stage companies continued to lead all investments – as they did throughout 2014 – with $381 million (34 percent). Fifty-seven early stage companies raised $366 million (33 percent), while seed investments attracted 4 percent, in contrast to the unusually strong previous quarter when seed accounted for a 9 percent share of total capital raised.

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

Methodology

This 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. The Survey is based on reports from 92 investors of which 39 wereIsraeli 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. For more on our methodology, please click here.


For additional information:

Marianna Shapira, Research Manager, IVC +972-73-212-2339 marianna@ivc-online.com

About the authors of this report:

IVC Research Center is the leading online provider of data and analyses on Israel's high-tech, venture capital and private equity industries. Its information is used by all key decision-makers, strategic and financial investors, government agencies and academic and research institutions in Israel.

  • IVC-Online Database (www.ivc-online.com) showcases over 11,000 Israeli technology startups, and includes information on private companies, investors, venture capital and private equity funds, angel groups, incubators, accelerators, investment firms, professional service providers, investments, financings, exits, acquisitions, founders, key executives and R&D centers.

  • Publications include newsletters; Daily Alerts; the IVC High-Tech Yearbookthe Israel High-Tech, Venture Capital, Startup and Private Equity Directory; surveys; research papers and reports; and interactive dashboards.

  • IVC Industry Analytics – analysis, research and insights into the status, main trends and opportunities related to exits, investments, investors, sectors and stages

KPMG Somekh Chaikin's technology professionals offer insights and experience accumulated from a long history of work with technology and life science companies. Through a global network of highly qualified professionals in Israel, the Americas, Europe, the Middle East, Africa and Asia-Pacific, KPMG helps clients address the opportunities and challenges driven by new business models such as cloud computing, mobile services and others. KPMG is a global network of professional firms providing Audit, Tax and Advisory services. KPMG operates in 146 countries and has 140,000 people working in member firms throughout the world.

Material in this work is for general educational purposes only, and should not be construed as legal advice or legal opinion on any specific facts or circumstances, and reflects personal views of the authors and not necessarily those of their firm or any of its clients. For legal advice, please consult your personal lawyer or other appropriate professional. Reproduced with permission from IVC Research Center. This work reflects the law at the time of writing in January 2015.

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