With an estimated population of 8.8 million, Israel is ranked globally as number one for research and development expenditure as a percentage of GDP, with 84% coming from private capital. The country is also the global leader in venture capital investments as a percentage of GDP – an average of 600 start-ups are launched in Israel on an annual basis1. Currently, Israel is home to 160 venture capital firms, as tracked by Preqin’s online platform, while an additional 99 venture capital firms have satellite offices located in the country. Israel brands itself the “start-up nation”, with its own ‘Silicon Wadi’ claiming to be the second largest source of technology innovation after Silicon Valley, as measured by the values of the tech start-ups located in the area. Of the 259 venture capital firms operating out of Israel, 86% make investments in the technology sector, spanning a diverse range from advertising to healthcare.
In the past 10 years, venture capital funds located in Israel have raised an aggregate $5.1bn, with the annual fundraising total surpassing $600mn in each year since 2015, as seen in the chart below. The average size of funds closed has increased from $70mn in 2008 to $132mn in the first half of 2018, although the total number of funds closed has remained around 4-6 each year. 83 North, an early-stage venture capital firm, held the largest Israeli venture capital fund closure since 2012 with its most recent fund, 83 North IV Fund, which closed on $254mn in April 2017. Jerusalem Venture Partners, another early-stage investor, has raised $463mn through five funds over the past 10 years, and currently has a fund in market targeting $160mn.
This strong domestic fundraising is further bolstered by huge interest from foreign GPs. Over the past 10 years, nearly $21bn in capital has been raised by international venture capital funds that target Israel as part of their investment strategy. The majority of this came from managers based in the US ($14bn) and the UK ($4.2bn), with strong interest also coming from several other European and Asian countries.
With the name of “start-up nation”, it is unsurprising that early-stage funds make up 39% of the number of funds closed in Israel. Some of these investments have already started showing huge returns, and three Israeli companies are currently designated ‘unicorns’ (Infinidat, ironSource, OrCam Technologies). As globalization continues, investors may look to Israel as a place of potential growth, encouraging multinational corporations to expand their operations in Israel beyond research and development, and a shift in fundraising focus to more later-stage funds might be seen. Until then, Israel-focused venture capital fundraising is booming with 2018 on pace to be a record year.