March 2020 - Monthly Insights Israeli Venture Capital
News and Updates
IMPACT OF COVID-19 ON THE ISRAELI VENTURE CAPITAL ECOSYSTEM We would like to share with you an extract from the letter which we shared last week with limited partners of Sweetwood Ventures, debriefing them about our views and actions in light of the spread of COVID-19 (known as the “Corona Virus”). In these times of global uncertainty, we first want to note that the health and safety of your families, friends and coworkers should be the primary focus and we wish everyone well as we deal with current events. As we all are well aware, the scale and duration of the current crisis remain largely unknown at this point of time. Nevertheless, we have already seen the strong impact of the spread of the virus on our local community and the global economy. We take a particular note of the fact that this crisis is very much driven by external forces and is not directly derived from the financial sector, as banks have largely de-leveraged their balance sheets and that their loan books are not overexposed to Corona-hit sectors. As a result, we view this current crisis as more of an economic downturn and remain hopeful that global growth can recover by year’s end. At this stage however, we acknowledge the risk of a more significant downturn to the global economy as many uncertainties remain. As things relate to the venture capital market, we have already begun to see the impact as funds, almost across the board, have halted new investments and turned their attention to their current portfolio, in an attempt to ensure the long-term sustainability of their active portfolio companies. Per IVC, investment activity during January-March 2020 saw a significant drop as the number of investments decreased by more than 30% when compared to Q1/19. Through most of March, we have only seen 11 deals announced, two of which are Seed and A rounds, compared to 44 deals of which 28 were Seed and A Rounds in March 2019. As reports on new fundraising rounds tend to only be published several weeks after rounds are finalized, we tend to believe that the numbers will see an even larger drop in the coming months.
Number of Israeli Capital Raising Deals, January-March 2019/2020 Source: IVC Online
From a portfolio company perspective, we now expect to see a drop in the year-end revenues of many of our portfolio companies, driven by a global reduction of business activity and supply chain disruption. The main questions which our portfolio managers and their companies are now looking into are their ability to sustain the current downturn through the reduction of their burn- rate, a revaluation of their run-rate and the significant obstacles of external fundraising expected in the near term. These notions were also seen in the recent survey conducted by Viola Ventures, in which 33% of startups surveyed have noted that they intend to reduce their headcount in the next few weeks. In addition, many of them are adjusting to remote work as the new daily reality. While the short-term impact is expected to be meaningful, we remain positive on the long-term success of venture capital and our portfolio in particular. As data shows, recent economic downturns have proven to be a “hot-bed” (no pun intended) for innovation, promoting the creation of some of the largest technological companies of our times and driving the returns of venture capital funds. Overall, we believe that the early stage of the vast majority of our portfolio, the ample dry-powder of the vast majority of our funds and our own large amount of dry-powder, will allow us and our portfolio funds to seize on the opportunities which will emerge from the current situation. ISRAELI TECHNOLOGY AIMS TO LEAD THE FIGHT AGAINST COVID-19 As the global tech community aims to deliver solutions to combat the outbreak of COVID-19, the Israeli tech ecosystem has followed suit with several initiatives. HealthIL, a non-profit organization promoting the Israeli digital health ecosystem, launched a new program directed at finding solutions for COVID-19. The program will aim to bridge the gap between the unique needs of health organizations dealing with this outbreak, and technological companies and startups that can potentially offer solutions – on a global scale. Add link to the website? In addition, recent headlines indicated that Unit 81 of the Israeli Defense Forces, which is one of the most secret units in the IDF, has decided to place great efforts to help the fight against the virus. As part of these efforts, the innovation team of the unit will help provide solutions for some of the medical challenges faced during the Corona crisis. Such solutions include the conversion of BiPAP (define) home ventilator units so that they can supplement the fully functioning ones in hospitals across the country and develop air containing systems in hospital rooms to avoid exposition of rooms to air coming from infected patients. These will also be available for ambulances to avoid contamination of paramedics. The unit is also working on software for hospitals that can store and analyze patient data, infection tracking, test results, providing hospitals with data to help them make sense of what they’re seeing and how to best combat the everyday challenge. It’s encouraging to see how a military approach to battlefield technology development can help in such unprecedented circumstances.
Notable Investment Rounds
Datree, a TLV Partners portfolio company, secured its series A round of $8 million co-led by Blumberg Capital and TLV Partners with the participation of Y Combinator. Datree scans, catalogues and recommends code components in the context of the clients stack, helping developers select the right component for the right job based on the data.
Quantum Machines, a Meron Capital portfolio company, secured its series A funding of $17.5 million led by Avigdor Willenz and Harel with the participation of TLV Partners, Battery Ventures and Meron Capital. Quantum Machines develops control and operation systems for quantum computers and aims to fulfill the potential of quantum computing.
Wiliot, a Grove Ventures portfolio company, secured its series B funding of $30 million led by Vintage with the participation of Maersk Growth, NTT DOCOMO Ventures, PepsiCo and Verizon Ventures. Wiliot is a fabless semiconductor company that develops passive SoC platforms for the loT market.
Advent International and Crosspoint Capital, the American private equity firms, acquired ForeScout for $1.9 billion, a Pitango Venture Capital portfolio company that delivers pervasive network security by allowing organizations to continuously monitor and mitigate security exposures and cyber attacks.
Microsoft (NASDAQ: MSFT), the American multinational technology company, acquired CyberX for $150 million, a Glilot Capital Partners Capital portfolio company that developed a system that provides protection to networks in factories and industrial control systems by analyzing current activity and anomaly detection through machine learning.
Recommended Venture Capital Reads
Many family offices don't seem to be sweating the recent market free-fall. Considering their frequent lack of diversification, maybe they should be. [Institutional Investors] The Carlyle Group co-founder David Rubenstein opens up about wealth disparity, privilege, taxes, philanthropy and some of the other biggest topics in finance today. [The New York Times] Every corner of the sports world seems to be obsessed with tech. Is it stripping away some of the soul from the games we love? [The Wall Street Journal] The coming months could be a tough time for VC firms looking to build new relationships with LPs. [TechCrunch]mes]