from the May 2015 issue

Israeli VC Fund Investment Activity

Israeli venture capital funds invested $180 million in Israeli high-tech companies or 18 percent of all investments in Q1/2015. The amount was down 6 percent from $192 million (17 percent of total) invested in Q4/2014, but 80 percent higher than the $100 million (15 percent of total) invested in Q1/2014.

First investments by Israeli VC funds accounted for 31 percent in Q1/2015, a marked improvement, 55 percent above the 20 percent of the previous quarter although still below the 43 percent of Q1/2014.

Capital Raised by Sector, Stage and Deal Size
The Internet sector experienced its best quarter ever with $343 million (35 percent) raised by 44 companies, and the sector continued to lead capital raising as in the two previous quarters. The life sciences and software followed, accounting for 22 percent and 19 percent of total capital raised, respectively.

"The increase in high-tech capital raising is not coincidental, but directly reflects the trend toward growth company investments and higher valuations of mid and late stage companies," noted Koby Simana, CEO of IVC Research Center.

"Up to a year ago we were accustomed to seeing average financing rounds of $3 million to $4 million, in the Internet sector. In recent quarters though, we've been observing a distinct rise in the average Internet financing round. This trend is even more evident among growth stage Internet companies for which the average deal jumped from $6 million about a year ago to $16.3 million in the first quarter of 2015. Even though exceptionally large financing rounds of Taboola and Quixey (led by Alibaba) were responsible for the jump in Q1, our analysis shows that these were not special or unique events. They fit in well with the activity surrounding the Internet sector and the rise in the number of early stage investments. These parallel trends mostly feed each other as the increase in growth stage Internet companies attracts more entrepreneurs and investors into the sector. We believe that Internet success stories will drive the volume of growth deals as well as contribute to increase seed stage investments, which up until last quarter, were on the decline, "concluded Simana.

Another emerging trend is the increase in growth stage deals, which was accelerated in Q1/2015, when initial revenue companies led all investments for the first time since 2013 with 47 firms raising $319 million (32 percent). Early stage companies attracted $315 million (32 percent), a decrease of 14 percent from the especially strong previous quarter, when early stage firms led capital raising. Late stage companies followed closely with a 31 percent share of total investments.

Additionally, Q1/2015 demonstrated escalation in deals above $20 million, a trend pointed out in the previous quarter's IVC-KPMG Survey. In Q1/2015, deals above $20 million reached record levels, with 16 deals that accounted for 55 percent of total investments. In comparison, there were 13 deals (42 percent) and six deals (27 percent) in Q4/2014 and Q1/2014, respectively.

Infinity Fund to hold $100m stake in Baozun after IPO
Two years ago, the Chinese-Israeli fund invested only a few million dollars in e-commerce company Baozun.

Chinese-Israeli fund Infinity Private Equity is on to a very good thing. At the end of last week, Chinese company Baozun filed a revised prospectus for a Nasdaq IPO. The company is seeking a company value of $1.8-2.1 billion for the issue, at a share price of $12-14.

Two years ago, Infinity invested a few million dollars in the Chinese company at a company value of only $100 million, and currently holds 6.6% of its shares. At the price range being sought, Infinity's shares are worth $89-104 million.

Baozun is planning on raising $132-177 million, depending on the share price and whether the underwriters exercise their option to buy shares after the offering. The underwriters for the issue are Morgan Stanley, Credit Suissse, and Bank of America-Merrill Lynch. According to figures from Nasdaq, the Baozun IPO is slated to take place next week, probably on Thursday. Following the offering, the company share will be traded under the BZUN ticker symbol.

Shareholders in Infinity include Clal Industries and Investments Ltd. (TASE: CII), formerly of the IDB group, and currently controlled by businessman Len Blavatnik. Amir Gal-Or is a founding and managing partner.

Infinity invests in companies that it believes have potential for becoming market leaders in China by leveraging their technological knowhow. Last year, the fund scored a success when Wafer Level Chip Scale Package (WLCSP), a subsidiary of Chinese-Israeli company Shellcase (in which the fund is a key investor) dealing in chip protection, held an offering on the Shanghai exchange at a company value of $780 million.

Reprinted from the Israel High-Tech & Investment Report May 2015

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