from the January 2017 issue

IVC-KPMG: Israeli startups raise record $1.7b in Q2

IVC Research Center CEO Koby Simana says, "VC funds managed to raise a considerable amount in 2016, surpassing expectations. This echoes the oversubscription reported by the VC industry in the US, which was arguably the strongest year ever in VC fund raising. More capital will be raised in 2017 for new and existing funds, so with all this capital available, we expect local VCs to shift their primary focus in 2017 to making new investments, which will hopefully have a positive impact on the local high-tech ecosystem."

In 2016, four Israeli venture capital funds raised more than $100 million each. OrbiMed Israel Partners closed its second fund with $307 million. Vintage's ninth fund raised $200 million, having closed its $125 million eighth fund just a year earlier, followed by Aleph's second fund, with $180 million raised, after its first fund was closed in 2013. Last on the list was Red Dot Capital Partners, a first-time growth fund which raised $150 million and was closed in early 2016.

Growth funds drive the seventh fundraising cycle, with identical shares of 46% in both the 2015 and 2016 vintage years, although the number of players decreased - only four growth funds in the 2016 vintage year compared to nine new growth funds in 2015. The average 2016 vintage growth fund is thus the largest, at $157 million, and is expected to increase to as much as $164 million when targets are reached by the funds still raising further capital.

The micro venture capital fund trend also received a boost, doubling from seven funds in 2015 to 15 micro funds raised in 2016, accounting for 15% of total capital raised by venture capital funds in 2016, compared to 10% in the 2015 vintage.

As 2017 begins, more than $3.5 billion is available for investment by Israeli venture capital funds. Of this amount, over $1.1 billion is earmarked for first investments, with the remainder reserved for follow-on investments. There are currently 49 venture capital funds that are still in the process of raising funds, 25 of which have made first closings. The other 24 venture capital funds have not made any investments yet, with half being brand new funds. With nearly $1 billion expected to be raised in 2017, we believe that as much as $500,000 will be available for first investments over the coming year.

An IVC-ZAG report noted that Israeli venture capital funds invested a total of $634 million in Israeli high-tech companies in 2016, slightly up from $627 million invested in 2015. In the past five years, Israeli venture capital fund investments steadily increased, from $482 million in 2012 to the current level. At the same time, their share of total capital invested has been decreasing gradually, from 26% in 2012 down to 13% in 2016, the lowest yet.

Reprinted from the Israel High-Tech & Investment Report January 2017

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