June 2017 - Monthly Insights - Israeli Venture Capital
Updated: Aug 15, 2018
AS FINTECH CONTINUES TO GROW, ISRAEL EMERGES AS A GLOBAL HUB
Rothschild Boulevard (the main boulevard of Tel Aviv) is rarely mentioned in the same breath as Wall Street or The City, but Israel’s emergence as a global leader in the the rapidly growing financial technology (Fintech) sector, may soon change this. Investment in Israeli Fintech companies is increasing at a rapid clip, and grew to $700 million in 2016, from just $98 million in 2012.This strength is consistent with the global surge in Fintech investment, which has grown by more than 7x in the last four years, from $1.9 billion in 2012 to $13.6 billion in 2016.
While the emergence of Fintech in Israel may appear surprising, a deeper look at the fundamentals of the Israeli venture capital ecosystem shows that it is a fertile ground for Fintech startups. Indeed, many of the technologies which Israel has traditionally excelled at, form the basis for many of the new technologies which are driving the global growth of Fintech. These include encryption, anti-fraud, artificial intelligence and big data analytics. In the encryption technology space, Colu, an Aleph portfolio company, has been leading an effort to establish a local currency using Blockchain technology, which is already accepted by hundreds of local merchants in Tel Aviv. In the anti-fraud space, Riskified, a Genesis Partners and Qumra Capital portfolio company, is developing a range of solutions for fraud prevention for online merchants. On the AI and big data front, Israel has seen the emergence of strong insurance tech companies such as Next Insurance, a TLV Partners portfolio company, which develops technology for the customization of insurance plans for small business, and Lemonade, an Aleph portfolio company, which has developed the first fully automated insurance company.
Israel’s Fintech sector is able to flourish as a result of its unique ecosystem characterized by a strong presence of multinational corporations (MNCs), experienced entrepreneurs, and the early adoption of technology by local financial players. The strong presence of MNCs translates through early stage support, with numerous acceleration and incubation programs run by major MNCs such as Citi and Barclays. In many cases, MNCs are also the final acquirers of the technology. The second supporting pillar, the vast experience of Israeli entrepreneurs, is the legacy from the numerous foreign acquisitions of Israeli companies in Fintech, such as Retalix, Check and Superderivatives. These have encouraged serial Israeli entrepreneurs to form new companies on the back of strong track records and institutional knowledge. The final supporting pillar of the ecosystem lies in Israel’s ability to be a strong ‘beta’ testing ground for startups, as Israeli banks have traditionally been early adopters of technology, allowing companies to prove their technology prior to exploring expansion outside of Israel. We believe that the growing global interest in the Fintech sector will continue to provide a tailwind to solutions coming out of Israel. Our recent discussions with numerous European, Asian and Australian financial institutions, looking to map Israeli startups in Fintech anddeploy capital in the field, support this conclusion.
NOTABLE FINTECH INVESTMENT ROUNDS IN 2017
Next Insurance, a TLV Partners portfolio company, secured its series A funding for $35 million from American Express Ventures, Markel, Nationwide, HSB Ventures and TLV Partners. Next Insurance looks to provide customized insurance plans for SME.
CrediFi, a Carmel Ventures and OurCrowd portfolio company, secured its series B funding for $13 million from Liberty Interactive, 31 Ventures Global Innovation, CVC (a fund managed by Global Brain for Mitsui Fudosan), Battery Ventures, Carmel Ventures and Stax. CrediFi provides cloud-based data services for the valuation of opportunities and risk in commercial real estate.
VATBox, a Viola Growth and Viola Private Equity portfolio company, secured its series B funding for $20 million from Target Global and Viola Private Equity. VATBox provides automated VAT recovery solutions for enterprises and individuals.
ISRAELI BLOCKCHAIN COMPANY, BANCOR RAISES RECORD AMOUNT IN INITIAL COIN OFFERING
Bancor, an Israeli cryptocurrency company, raised a record amount, equivalent to $153 million, through its initial coin offering (ICO). The offering, which was the largest amount raised to date through an ICO, took place over the span of just three hours and included 10,885 participants, who contributed an aggregate amount of 396,720 ETH (Ethereum, a leading cryptocurrency). Bancor’s technology enables the creation of ‘smart-tokens’ which creates a liquid market for the conversion of cryptocurrencie.
NOTABLE INVESTMENT ROUNDS
Cybereason, secured its series D funding for $100 million from SoftBank and has accumulated investments of $189 million to date. Cybereason develops an automated SaaS cyber security solution for large enterprises.
Minerva Labs, a StageOne Ventures portfolio company, secured its series A funding for $7.5 million from Amplify Partners, Webb Investment Network and StageOne Ventures. Minerva Labs develops an endpoint security solution to protect enterprises from malware.
Cognata, secured its series A funding for $5 million from Maniv Mobility, Emerge and Airbus Ventures. Coganta develops a simulator for the testing of autonomous vehicles.
GeoQuant, secured its seed funding for $4 million from Aleph and XL Innovate. GeoQuant develops an AI based risk analysis platform for financial institutions.
NetApp, an American storage company, acquired Plexistor, which develops high capacity storage memory, for $20 million. Plexistor was a Battery Ventures and Lightspeed Venture Partners portfolio company.
Honeywell, an American conglomerate, acquired NextNine, which develops cyber solutions for industrial manufacturers, for $40 million. NextNine was a Infinity Venture Partners portfolio company.
JFrog, an Israeli company, acquired Dimon, which develops a solution for the monitoring of chat bots, for an unreported amount. Dimon had no prior investors in the company.
NOTABLE FUND FORMATIONS
The Technion, Israel’s Institue of Technology, announced the formation of a $200 million fund in partnership with Hong Kong’s UG Capital Management and Israel’s Genesis Partners. The fund intends to invest in science and technology companies, mainly related to the university and its alumni.
RECOMMENDED VENTURE CAPITAL READS
Self-Driving Cars Could Add $140 Billion In Alphabet Shareholder Value [Forbes] Trump’s plan to privatize air traffic control could expedite drone delivery in the U.S. [ReCode] Should startups care about profitability? [BothSides] Why Amazon’s acquisition of Whole Foods matters for startups. [Tomasz Tunguz]