Although Israeli hi-tech companies raised a record $5.24 billion in 2017, the number deals fell for the second year in a row, according to a report the IVC Research Center and ZAG S&W released on Wednesday.
The number of transactions fell by 8% since 2016. And the number of deals for seed-stage companies also dropped, by 17% compared to the previous year. Both seed and early-stage companies raised less money overall than in 2016.
Investors are pouring more money into fewer companies – a global trend – with fledgling start-ups facing greater difficulty in getting capital.
“We found the number of deals decreased in the seed-round, because natural seed investors performed less deals,” said Marianna Shapira, research director at IVC Research Center who helped write the report.
Typical sources of funding for seed companies – such as business incubators (which tend to take equity in new companies), start-up/seed accelerators (which don’t) and private investors – were involved in 49% fewer deals in 2017 as compared to 2016.
Venture capital funds are also increasingly avoiding R&D-related companies, the IVC report notes. There are some 40% fewer deals involving VC funds, when compared to 2013.
“There are more investors, more types of investors and foreign investors, but I think that they are pickier. And private investors were involved in fewer deals,” Shapira said. “We are having a shift toward larger deals, larger companies, more deals in later stages.”
Amid the conflicting trends, the average financing round for an Israeli company has nearly tripled to $8.5 million since 2013, when they averaged $3.6m.
Part of the 2017 increase in total fund-raising is due to four deals each larger than $100m. – investments in cybersecurity firm Cybereason Labs, shuttle-sharing company Via, insurance firm Lemonade, and Skybox Security.
It is likely that Israeli hi-tech firms will break the 2017 record next year, partially due to new Chinese regulations that encourage investment overseas. Earlier regulatory confusion may have hurt investment for 2017.
In the past year, Israeli mid-stage and late-stage companies conquered the lion share of funding, raising $3.9b. – or half a billion more than in 2016.
Notably, Israeli venture capital funds are taking a bigger piece of the funding pie, investing some $814m. in 2017, the most in five years. It is a 25% increase from last year.
There is an estimated $3b. in available capital – or “dry power” – for investment in Israeli start-ups and other companies, according to Shapira. Israeli venture capital firms raised $1.3b. in 2017, and four other funds will have $550m. under management early in 2018.
Software companies raised the most – $1.9b. from 208 deals, similar to in 2016. Life science companies raised $1.2b., a 41% jump from the previous year. And semiconductor companies raised $348m., nearly tripling the amount in 2016. But communication-related firms raised much less in 2017, $569m. compared to $872m. the year before.
Internationally, larger venture capital investments are increasingly going to fewer companies. In the US, VC-backed companies received $71.1b. in capital, according to a MoneyTree report published by PwC and CB Insights. Financings worth more $100m. hit a record high, but the number of deals was down 4% from the previous year and was the lowest since 2012.