from the September 2014 issue

IVC: Israeli start-ups raising record amounts

IVC: Israeli high-tech exits totaled $6.64b in 2013

The average company financing round reached $5.3 million in the second quarter of 2014, up from $4.2 million in the preceding quarter and $3.2 million in the corresponding quarter.

The quarterly figures include a $135 million investment in Landa Digital Printing by Germany's Altana Group. However, even excluding this deal, the quarter's investments reached an exceptionally high $795 million, 18% more than the previous quarter, and 78% more than the corresponding quarter. The average company financing, excluding the Landa deal, reached $4.57 million.

108 venture capital backed deals accounted for $572 million or 62% of total capital raised. While this was well below the five year average of 77%, the amount was 29% above the $444 million quarterly average since the start of 2013.

The average VC-backed financing round was $5.3 million, down from $6.1 million in the preceding quarter and up from $4.2 million in the corresponding quarter.

In the first half of 2014, 335 Israeli high-tech companies raised $1.6 billion, an increase of 81% from $885 million in the first half of last year, and 67% from $962 million in the first half in 2012. This was the strongest capital raising period on record for Israel's high-tech industry.

KPMG Somekh Chaikin's Technology Group Partner Ofer Sela said, "Mature, revenue growth companies are continuing to raise significant capital. While in the past, venture capital funds saw the M&A route as providing the best opportunity for revenue growth company exits, potential NASDAQ IPOs are now a major driver of VC investment."

He added, "SaaS and other companies operating in a recurring revenue model are dominating VC-backed investment. We are seeing a significant number of seed stage firms positioning themselves as recurring revenue model companies as the transition from a product company to a service company is very challenging at a later stage."

First investments accounted for $52 million or 34% of total Israeli VC investments - slightly above the 33% 2013 quarterly average. This compared with 37% and 25% in the preceding quarter and corresponding quarter respectively.

In the second quarter of 2014, the life sciences stood out as the sector attracting the most investment. 44 companies raised $251 million or 27% of total capital raised, up 83% on the $137 million invested in the preceding quarter and up 156% on the $98 million raised in the corresponding quarter of 2013.

IVC Research Center CEO Koby Simana said, "In the second quarter of 2014, we saw consistent increases in capital raised at all stages, from early rounds - such as seed and A-round - to later rounds. The increase in early rounds is explained by the Landa deal, which was an A-round for the company. The rise in mid-stage rounds is relatively minor, which means most of the increase in capital raised in the second quarter is a result of more late stage deals from D-round and up."

He added, "We found a direct correlation between deal size and round type. It seems a sizable portion of the late-round hike is a direct result of the increase in the number of deals above $20 million. In the first six months of 2014, we counted 15 deals above $20 million, nearly equal to the number of such deals for the entire 2013."

Reprinted from the Israel High-Tech & Investment Report September 2014

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