The Highs and Lows of Israel’s Venture Capital Scene – July 2015

by Anthony Leung

  • 21 Jul 2015
  • PE
  • VC

Israel has historically been a country with a strong culture in nurturing the high-tech and start-up industries. One need not look much further than the hubs in and around Tel-Aviv, an area known as “Silicon Wadi” – considered second in importance only to its Californian counterpart. In recent years, significant funding rounds exceeding $100mn have been completed for disruptive companies such as Get Taxi, Inc. and Infinidat. Since 2009, Israel has been experiencing an increase in aggregate venture capital funding on an annual basis, reaching $1.3bn in 2014. The first half of 2015 has continued this strong and steady trend with $778mn invested in Israel-based companies during the first two quarters of this year, a 64% increase on the H1 2014 figure. 

The companies that have been the driving force behind all these investments operate in the software, healthcare and telecoms industries. Venture capital deals in these sectors have been the most prominent in terms of both the number of deals and aggregate deal value, with healthcare and telecoms accounting for 19% and 16% of all Israeli venture capital deals respectively since 2007 with regards to both criteria, while the software sector has accounted for 23% of the number of deals and 22% of aggregate deal value over the same period. In 2015 YTD, the internet and telecoms sectors have accounted for the largest proportion of venture capital deals (20% each), whereas investments in the software sector have contributed the largest proportion of aggregate capital (30%). This has been in part due to notable deals such as the $150m Series B round for storage management software firm Infinidat this April, pushing up the total amount of venture capital invested in Israel.

Preqin’s Venture Deals Analyst online service shows that Series B deals have been the most common financing rounds in Israel in 2015 YTD, making up 25% of the total number of venture financings. Early stage investments such as angel and seed financings have accounted for 17% of all venture capital deals in Israel in the year so far, with the internet industry being of greatest prominence; 50% of Israel’s seed/angel financings have occurred in this sector.

Though it appears that the country’s venture capital deal activity has been healthy, the exit environment for Israel paints a different picture. At the time of writing, there have been six exits in 2015 YTD with an aggregate value of $102mn, with the largest exit so far being the trade sale of cybersecurity firm, CyActive, to Paypal for $60mn. The total value of venture capital-backed exits from Israel-based companies in H1 2015 is the lowest semi-annual exit value since H2 2012 and stands 58% lower than H1 2014. Should momentum not pick up, 2015 could end as the weakest year for exits in Israel on record.

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