from the May 2017 issue

Israeli venture capital fund investment activity

IVC: Israeli VC fundraising strengthens

Israeli startups raise record $4.8b in 2016
Israeli venture capital funds invested $162 million or 16% of total capital in Israeli high-tech companies in the first quarter of 2017. The amount was 26% above the $129 million invested in the preceding quarter and 17% up from the $138 million invested in the corresponding quarter of 2016. Israeli venture capital funds' share was up in the first quarter of 2017, compared with these two quarters, when their share reached 12% of total capital each.

The IVC-ZAG Survey reveals that this upturn stems from the increase in first investments made by Israeli venture capital funds in the first quarter of 2017 - $87 million, or 54% of their investments. The share of first investments was up, compared with 45% in the fourth quarter of 2016 and 31% in the first quarter of 2016. While Israeli venture capital fund investment in the past tended to lean towards early stage investments, in the first quarter of 2017, 65% of first investments went to late stage companies.

IVC Research Center CEO Koby Simana said, "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. On the one hand, it creates an opportunity for new investors willing to focus on young startups and early stage companies without much competition, but on the other hand - spells danger to the future of the local venture capital model. If venture capital 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 well be a shortage of promising late stage companies."

Capital raised by stage
Mid-stage companies continued to lead quarterly capital raising in the first quarter of 2017, with $478 million (47%), 11% below the $534 million raised in the preceding quarter, the highest quarterly amount for this stage, but 17% above the $409 million raised in the first quarter of 2016.

The first quarter of 2017 was the weakest for early stage rounds in three years, with 41 companies raising only $199 million, or 19% of total capital.

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

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