THE ISRAELI FOUNDER: USING DATA TO DRIVE INVESTMENT DECISIONS
CO-INVESTING WITH THE LEADING GLOBAL VENTURE CAPITAL FUNDS
Since 2012, there has been a substantial increase in the amount of capital invested in Israeli venture capital, rising to $4.8 billion in 2016 from $1.9 billion in 2012. While Israeli investors accounted for an important portion of this growth, increasing their investments by 46% during the period, foreign investors fueled the majority of the growth, increasing their investments by nearly 400%, from $589 million in 2012 to $2.88 billion in 2016.
As highlighted in our previous newsletter, the flow of foreign capital to Israeli venture capital has been driven by the discounted valuations of Israeli startups versus their U.S. counterparts and their ability to generate global leading technology. On the valuation front, our most recent data, as of Q2/2017, shows that the median pre-money valuation of early stage Israeli venture backed companies is 54% lower than their U.S. peers. U.S.-based venture capital funds account for the majority of foreign investment activity in Israeli venture capital. These include Lightspeed Venture Partners, Battery Ventures, Bessemer Venture Partners, Canaan Partners and Accel Partners. Several of these funds now also have dedicated teams based in Israel, while others have decided to raise capital for an Israel focused investment vehicle. While increased competition in the venture capital market usually tends to produce inflated valuations and diminished returns for investors, we note that Israeli funds have actually benefited from the presence of the top U.S. funds in Israel. Instead of competing for dealflow, Israeli funds have been investing alongside their U.S. counterparts. Indeed, our analysis shows that since 2000, 78% of Israeli companies that raised capital from one of three leading U.S. venture capital funds, which have a dedicated office for investment in Israel (Lightspeed, Battery and Bessemer), had at least one Israeli venture capital invested in them. Our view is that investing alongside these top U.S. funds produces a positive effect on the portfolio companies of Israeli funds. The U.S. funds provide strong venture expertise to portfolio companies, as well as a wide network of follow-on investors and potential acquirers from Silicon Valley. This virtuous circle has also been reflected in strong ‘exits’ of such U.S. VC-backed Israeli companies. Recent ‘exits’ which had both Israeli and U.S. funds include Lightcyber (portfolio company of Glilot Capital Partners, Vertex Ventures and Battery), Ravello Systems (Vintage Investment Partners, Bessemer, Sequia Capital, and Norwest Venture Partners), Leaba Semiconductor (Pitango Venture Capital and Bessemer) and Panaya (Israel Growth Partners, Gemini Israel Ventures and Battery).
ISRAEL'S AUTOMOTIVE TECH SECTOR CONTINUES TO THRIVE, ON THE TAILWIND OF INTEL'S ACQUISITION OF MOBILEYE
The global automotive industry is confronting a range of disruptive forces stemming from electrification, artificial intelligence and computer vision. Israeli start-ups, such as Mobileye, Gett and Valens, have been at the forefront of a number of technological innovations underpinning these trends and propelling the Israeli automotive and smart mobility ecosystem. Globally, Israel is also being recognized as a leader in this space which received a boost from Intel’s acquisition of Mobileye in 2017, further increasing confidence in the strength of the automotive tech industry in Israel and has increased global M&A and investment activity in the sector.
Two recent examples of this investment are Argus Cyber Security and Innoviz Technologies. Argus Cyber Security, which provides cyber security solutions for connected vehicles, was acquired earlier this month by Continental AG, the leading German automotive manufacturer, for $430 million. According to reports, there were several other competing offers to acquire Argus, including one from Panasonic, the Japanese conglomerate. The competitive bidding process reportedly propelled Continental to increase their bid for the company by an excess of $100 million. Innoviz Technologies, which develops LiDAR technology for autonomous vehicles, raised $65 million as part of their B round in Q3/2017, and recently announced that it has raised an additional $8 million to complete the round. Major investors in the round include tier-1 automotive OEMs Magna and Delphi, Samsung, SoftBank Ventures Korea, Naver (the leading Korean web portal) and Israeli venture capital funds Magma Venture Partners, Vertex Ventures and Amiti Ventures.
The latest show of confidence in Israeli automotive technologies came from Toyota AI Ventures’ managing director, Jim Adler, who told Reuters that “Israel is the market of the future.” The new $100 million California-based venture arm of Japan’s Toyota Motor Corp is looking to increase their investments in Israeli robotics and vehicle technologies, following their $14 million investment in Israeli startup Intuition Robotics. Jim Adler attended the Fuel Choice and Smart Mobility Summit in Tel Aviv in October 2017 along with other business leaders in the field from numerous multinational corporations, such as Tata, SEAT, Hyundai Motors Group, Ford, Didi Chuxing, Delphi, Volvo, Volkswagen, BMW and more.
NOTABLE INVESTMENT ROUNDS
Yotpo, a Rhodium, Vintage Investment Partners, 2B Angels and Plus Ventures portfolio company secured its series D funding for $51 million led by a syndicate of Access industries, Bessemer Venture Partners, Vintage Investment Partners, Blumberg Capital,2B Angels, Rhodium and Marker. Yotpo’s platform helps businesses improve their user engagement through user generated content.
Optibus, a Pitango Venture Capital portfolio company, secured its series A funding for $12 million from Verizon Ventures and Pitango Venture Capital. The company enables public transport companies to optimize their services, save resources and improve the travel experience for their passengers.
Wibbitz, a Lool Ventures portfolio company, secured its series C funding for $20 million led by a syndicate of Bertelsmann Digital Media Investments (BDMI), and with participation from The Weather Channel television network, The Associated Press, TF1 Group, and existing investors including NantMobile, lool Ventures, and Horizons Ventures. Wibbitz is a text-to-video creation platform built for publishers. Its advanced text-to-video technology can automatically produce premium branded videos using text content in seconds.
NOTABLE "EXITS"
SAP, a German software enterprise, acquired Gigya, which developes a customer identity and access management platform, for $350 million. Gigya was a Vintage Investment Partners, Intel Capital, Greenspring Associates, DAG Ventures, Mayfield Fund and Benchmark portfolio company.
Continental AG, a leading German automotive manufacturing company, acquired Israeli car connectivity technology startup Argus Cyber Security, for $430 million. Argus Cyber Security was a Vertex Venture Capital and Magma Venture Partners portfolio company.
ForeScout Technologies, a Pitango Venture Capital portfolio company, priced its IPO at $22, the top of its proposed range. It also enlarged the size of the IPO to 5.3 million shares, raising about $116 million in the offering. The IPO values ForeScout at just above $800 million. ForeScout helps businesses and government agencies monitor the devices connected to their networks. It also alerts them of potential intrusions.
NOTABLE FUND FORMATIONS
Viola Ventures, formerly known as Carmel Ventures, announced the initial closing of their fifth fund with aggregate commitments of $170M and a target of $200 million. This is the fifth fund raised by the Viola Ventures team, which now has over $1 billion in assets under management supporting early stage investments
Grove Ventures announced the closing of its first fund with aggregate commitments of $110 million. Founded in 2015, Grove Ventures is headed by Dov Moran, mostly known for his invention of the USB flash drive, also known as the disk on key.
RECOMMENDED VENTURE CAPITAL READS
Are you suited for a startup? [Harvard Business Review] A brief history of employees going rogue in Silicon Valley. [The Outline] Can the tech industry make big cities more affordable? Google thinks so. [GeekWire] How Facebook figures out everyone you've ever met. [Gizmodo] Suddenly, everyone seems to think Big Tech is broken. Can Silicon Valley's workers unite to rekindle the industry's dream of making the world a better place? [The Guardian]