The startup nation raised record funding in 578 deals despite the global crisis
Over $6.5 billion of funding came from public capital markets and $7.8 billion in M&A transactions
Bengaluru, NFAPost: Israeli Tech Review 2020 published by IVC and Meitar Law Offices, technology companies in the country raised a record fund of $10 billion in 578 deals.
As per the report, 2020 registered an increase of 27% in funding volume and a 14% increase in the number of deals compared to 2019. Israeli Tech Review 2020 finds that the total amount is achieved by seven large deals worth more than $200 million each, compared to three such large deals in 2019.
The report states that in the past year, while Israel has seen a significant reduction in M&A activity in light of Covid-19, the country’s tech companies reached a level of maturity that enabled them to turn to capital markets as a viable exit alternative, leveraging on a rapid increase in investments.
“Over recent years, we have seen an upsurge in investments in the range of $30 million and above. While companies that raise such amounts represent, to a great extent, the pipeline of future exits at high valuations, we have flagged the challenge presented to the Israeli high-tech industry – being the gap between the number of companies that are
expected to achieve a high exit value v. a consistent and relatively low number of exits of between $500M and $1B,” states the report.
According to Arvian Research, the finds of IVC report is parallel to the finds by PwC Israel recently published. “While in 2020, primarily due to the COVID-19 pandemic, we saw a significant decline in the M&A activity of Israeli companies, we simultaneously experienced an increase in financing rounds by Israeli and foreign investors, in the number of deals as well as the capital invested,” said the report’s authors.
“Specifically, financing among growth companies showed a significant increase, as did the total number of rounds. The above demonstrates the maturity and development of the Israeli high-tech industry, manifested, among other things, in the increased number of companies that have crossed the billion-dollar valuation (unicorns),” states the report.
Contrary to the M&A activity, the report states that investment activity in Israel during 2020 sent an optimistic message with record highs of the number of investments and amounts raised.
“Besides, in 2020, we saw a significant increase in financing by Israeli tech companies on the capital market, partly due to low-interest rates and the general hesitation in the markets in light of Covid-19. SPAC deals also experienced significant growth in 2020, as in the US, it was a record-breaking year in the number of SPAC offerings and the overall amounts raised in these offerings,” states the report.
Strong and high valuated companies have shown resiliency to the Covid-19 pandemic. Investment activity included an
an impressive number of growth investments (96 investments of above $30 million and 20 investments of above $100 million in 2020, compared to 65 and 18 in 2019, respectively).
“According to the pipeline we observe, this trend will continue in 2021, and many of the large companies that have matured in recent years will examine the option of public capital markets for continued growth and development. We believe that it will lead to an increase in M&As in these companies, where traded shares will be used as currency,” the report said.
There were 371 VC-backed deals worth $8.7 billion during the year, compared to $6.52 billion in 320 deals in 2019. Investments in early rounds declined in the first two quarters due to the COVID-19 crisis. However, the numbers picked up in the third and fourth quarters.
Some 121 publicly-traded hi-tech companies raised $6.6 billion during the year, compared to $2 billion by 68 companies in 2019. The most significant trend observed among investors was the focus on existing portfolio companies and increased follow-on investments, the report said.
Mature growth companies raised record amounts in 2020, continuing the trend observed over the past two years. Total investments in growth companies were $8.33 billion. Early-stage companies raised $1.6 billion in 2020.There was a significant decrease in mergers and acquisitions, as 93 companies netted $7.8 billion, after 143 M&As raised $14.24 billion in 2019.
As in 2019, US-based corporations accounted for 90% of all M&As. There were 18 IPOs by Israeli tech companies on local and foreign capital markets in 2020, with a total offering of $1.6 billion. Early Round Investments (Seed + A Rounds) took a temporary blow during Q1-Q2 of 2020, due to the uncertainty in the financial markets. However, Q3 and Q4 activity compensated for that and we saw a rise in the number of investments, in number and in value.
Israeli public companies’ activity on the capital markets was $6.55 billion (including IPOs, follow-ons and RDs, PIPEs, equity, and debt) in 121 deals compared to $1.95 billion raised in 68 deals in 2019. “2020, which was and continues to be impacted by Covid-19, is ending on a strong note and with hopes for continued activity in financing and offering and renewed increase in M&As,” the report concluded.
Because a large part of early investment deals become publicly known 12–24 months after they are closed, the real early investments pattern will be revealed in the upcoming year
These investments provided growth companies with solid financing for their longterm expansion strategies. As a result, the decline in M&A activity does not impair their ability to provide liquidity, which can be achieved through creation of value over time as standalone companies. The strong investment activity, together with the increased availability of capital for deployment, both through domestic and foreign funds, mark this year as an investors’ year.
Another global trend that has affected and continues to affect Israeli tech companies is the return of the SPACs. 2020 brought to the US a record of SPAC IPOs, both in terms of the number of deals and the amounts raised. SPACs provide a relatively painless track for Israeli mature technology companies to enter the public markets with significant available
funding, while skipping the tedious and often cumbersome process of an IPO. Interest in the SPAC opportunity is increasing in Israel, promising that 2021 will be another active year for Israeli tech companies on the capital markets.