The celebration in the Israeli high-tech industry is going on, marking a record quarter: The first half of the year was the best ever in the history of Israeli high-tech, with fundraising rounds amounting to as much as $1.6 billion.

In the second quarter of the year, Israeli start-up companies raised a total of $930 million — the highest quarterly amount raised since 2000. The fundraising rounds were conducted by 175 Israeli high-tech companies. This represents an increase of 38%, compared with the first quarter of 2014 — with fundraising rounds totaling $673 million — and an upsurge of 109% in comparison with the corresponding quarter of last year, in which fundraising rounds amounted to more than $446 million.

The total capital raised in the second quarter of 2014 comprises an investment of $135 million in Benny Landa’s Landa Digital Printing (LDP), made by [the specialty chemicals] Group ALTANA. However, even without this single major transaction, the second quarter of the year ended with an impressive investment volume amounting to $795 million. This represents an increase of 18% in comparison with the total amount raised in the previous quarter, and a boost of 78% compared with the corresponding quarter of last year. The average investment in the recent fundraising rounds — not counting the Landa deal — stood at $4.57 million per company.

Of the total number of fundraising deals in the second quarter of the year, 108 deals backed by venture capital firms attracted $ 572 million, representing 62% of the total amount raised in this quarter. The share of venture capital-backed investments thus dropped, compared with an average of 77% in the last five years. Yet, the total amount raised represents an increase of 29% compared with the quarterly average of $444 million, recorded since the beginning of 2013.

In the first half of 2014, the Israeli high-tech companies raised $1.6 billion — representing a hike of 81% compared with the $885 million raised in the first half of 2013, and an increase of 67% compared with the $962 million raised in the first half of 2012. This is the highest half-year sum ever raised in the history of the Israeli high-tech industry.

Koby Simana, CEO of the IVC Research Center, says that according to data analysis by fundraising rounds, “We see a consistent increase in the funds raised in the second quarter of 2014 — at all stages, from early-stage seed rounds through to late-stage venture rounds. The increase in the early-stage seed rounds in this [second] quarter may be specifically attributed to the Landa deal, which is the first fundraising round of the company. The increase in the intermediate fundraising rounds was relatively minor [in this quarter], and the boost in the total amount raised in the current second quarter should be credited to the late-stage venture rounds conducted by Israeli high-tech companies in growth stages that completed their fourth or even higher round of fundraising.”

In the first place: Software as a Service (SaaS) ventures

KPMG Somekh Chaikin Technology Group partner Ofer Sela provided the following explanation: “Mature companies that are in growth stages, recording an ongoing increase in revenues, continue to raise significant amounts of capital per company, the way they did in the previous quarter. The US IPO market is seen by venture capital firms as an important factor presenting growth opportunities for their mature portfolio companies — no less lucrative than the option of acquisition of the said companies, which used to be seen as the most likely alternative in the past.”

SaaS companies and other companies operating under the service model [where software is licensed on a subscription basis] are leading the venture capital market — in terms of both the capital they raise and the profile of their investors. A significant number of the companies set up these days position themselves [as SaaS companies] already in the early seed stage, and build their business model on the basis of continuous service from day one. And this, since a later-stage transition from a product selling company to a service providing company is liable to prove highly challenging and most difficult.”

In the second quarter of 2014, Israeli venture capital firms invested $153 million in Israeli high-tech companies — an increase of 44% and 40% in comparison with the first quarter of 2014 and the second quarter of 2013, respectively. Seed investments in the second quarter of 2014 added up to $52 million, which constitute 34% of the total investments of Israeli venture capital firms [in this quarter] — more or less the same as the average percentage of seed investments in 2013, which stood at 33%.


Author: Meir Orbach Publisher: AL Monitor URL: http://www.al-monitor.com/pulse/business/2014/07/high-tech-fund-raising-venture-capital-landa-somekh-chaikin.html#