ISRAELI VENTURE CAPITAL CONTINUES STRONG PERFORMANCE IN Q1/2017
Following record-breaking capital raising by Israeli startups in 2016, Israeli venture capital continued its strong upwards trajectory in Q1/2017, with over US$1 billion raised (just below last year’s record breaking Q1 of US$1.09 billion). The strong capital raising was accompanied by the largest ‘exit’ ever in Israeli high tech, as Intel acquired Mobileye for an historic US$15.3 billion. Capital raising by Israeli startups in the first quarter of 2017 was highly characterized by large financing rounds, as over 20 companies raised rounds of at least US$11 million, with the biggest round raised by Kaminario, a flash storage company and a Pitango Venture Capital portfolio company, which raised US$75 million in January. This trend continues to solidify our strong views of the maturing Israeli venture capital market, as more companies look to raise growth stage capital as opposed to opting for an early exit – supporting the growing returns of Israeli venture capital funds.
The strength of the Israeli market in Q1/2017 stands in contrast to recent trends in the U.S. where the market continues to see a normalization trend, with capital raising in Q1/2017 at its highest in three quarters, but still 12% down YoY (and 18% down YoY, when excluding the US$1 billion capital raising by Airbnb). Our view suggests that this outperformance trend remains driven by the discounted valuations of Israeli startups vs. their U.S. counterparts (with the median
pre-money valuation of early stage Israeli venture-backed startups being 54% lower than the median pre-money valuation of U.S. venture-backed startups, as highlighted in our previous newsletter), their ability to generate global-leading technology and a more favorable balance of supply vs. demand of venture capital.
CELEBRATION OF 'UP ROUNDS' AND STRONG INVESTMENT TERMS LEAD TO OUTSIZED RETURNS
A recent report published by Shibolet & Co. and Fenwick & West LLP has identified that during 2016 90% of financing rounds in Israeli startups attained a higher valuation than previous rounds (a “up-round”), compared to only 73% in the U.S., with 13% of U.S. financing rounds being made at lower valuations than the previous rounds (a “down-round”), compared to only 7% in Israel.
In addition, the report indicates that post round A investors in Israeli startups are able to negotiate liquidation preferences at a higher rate than post round A investors in U.S. startups, 67% vs. 28%, respectively. These liquidation preferences provide investors with superior economic rights that entitle them to receive a return in preference to the common shareholders, and subsequently receive a share greater than their pro-rata share in the company, leading to outsized returns upon ‘exits’.
NOTABLE INVESTMENT ROUNDS
Valens, a Magma Venture Partners, Aviv Venture Capital, Genesis Partners and Israel Growth Partners portfolio company, secured its series D funding for $60 million, and has accumulated investments of $101 million to date. Valens is a fabless semiconductor company with products for distribution of uncompressed HD media content. The chipsets are used in automotive, consumer electronics and industrial PC sectors.
Orcam, an Aviv Venture Capital and BRM Capital portfolio company, secured $41 million in funding, and has accumulated investments of $56 million to date. Orcam develops wearable computer vision devices which process visual information into audio for the visually impaired.
Freightos, an Aleph, Israel Cleantech Ventures and Ourcrowd portfolio company, secured its series B extension funding for $25 million, and has accumulated investments of $55.9 million to date. Freightos is an online shipping marketplace with software tools for freight business analytics, management and pricing.
Dapulse, a Genesis Partners portfolio company, secured its series B funding for $25 million, and has accumulated investments of $34.1 million to date. Dapulse develops Software as a Service (SaaS) project management tool, for team management and communication.
Otonomo, a StageOne Ventures and Bessemer Venture Partners portfolio company, secured its series B funding for $25 million, and has accumulated investments of $40 million to date. Otonomo is a cloud based data exchange platform. The platform allows car
manufacturers, developers and service providers to exchange data on connected
and autonomous cars.
ControlUp, a Jerusalem Venture Partners portfolio company, secured its series B funding for $10 million, and has accumulated investments of $13.2 million to date. ControlUp is an analytics platform for information technology (IT) operations, utilizing big data to detect problems and generate actionable insights.
NOTABLE "EXITS"
WalkMe, a guidance and user engagement platform, acquired Jaco, a useability platform that records and analyses user activity, for an undisclosed amount. Jaco was an UpWest Labs portfolio company and is WalkMe’s second acquisition of 2017.
Danaher, a U.S. manufacturer of professional, medical, industrial and commercial products, acquired Advanced Vision Technology, a developer of automatic print inspection systems and technology for $100 million. Advanced Vision Technology was listed on the Frankfurt
exchange since January 2002.
Natural Intelligence, a performance-based, marketing site comparison company, acquired Cappsool, an application distribution and discovery platform for an undisclosed amount. Cappsool had raised $3 million prior to its acquisition. Cappsool investors include Gigi Levi, Or Ofer, Naftali Investments (Udi Recanati) and Docor International.
NOTABLE FUND FORMATIONS
83 North completed the final closing of its fourth fund, 83 North IV at $250 million. The fund targets investments in Israeli and European startups across all stages, with an emphasis on early stage investments. The fund invests in enterprise technology companies across sectors. 83 North was formerly known as Greylock Israel, an affiliate fund of Greylock Partners one of the longest-standing Silicon Valley based venture capital fund.
Israel Secondary Fund completed the final closing of its second fund, ISF II at $100 million. Israel Secondary Fund targets to acquire limited partner interests in Israeli private equity and venture capital funds, as well as direct secondary transactions in select portfolio companies.
RECOMMENDED VENTURE CAPITAL READS
Airbnb raises $1B at $31B valuation, delaying IPO plans [Pitchbook] Volkswagen CEO visits Israel [Globes] Israel a leader in Self-Driving Technology [NoCamels] Ride sharing giant Didi Chuxing considers $6 billion investment backed by SoftBank [Bloomberg] Unicorn VC-backed exits since 2009 [CB Insights] Israel has second-highest concentration of Cyber-defense companies globally [Times of Israel]