In Israel, larger is better as Q3 seed investing drops: report

Investors in Israel are preferring more mature Israeli companies over seed-stage startups.

Financing for seed-stage companies in Q3 was the lowest since 2013, according to the quarterly report by IVC Research Center and the law firm ZAG-S&W.

In the quarter, investors put $29 million into 21 Israeli seed-stage companies. Those are the lowest deal and dollars-invested numbers since Q3 2013, when firms invested $18 million in 25 seed startups, the report shows.

In the year-earlier quarter, investors poured $53 million into 31 seed deals.

The Q3 drop followed a lift in seed activity in the first half. An average $76 million went into an average 46 deals in each of the first two quarters.

In Q3, the IVC-ZAG report found that mature-stage companies raised almost six times the capital that their early-stage counterparts did.

This mirrors the investment trends in the U.S., where larger venture deals in later-stage companies are fueling the increase in the amount of money deployed.

In Israel during the third quarter, the dollar amounts of deals valued at $20 million or more reached a record $1.1 billion, according to the report. Driving this were the deals involving Trax (which raised $125 million), Next Insurance ($83 million), SiSense ($80 million) and Memed ($70 million).

The report found that artificial-intelligence companies in Israeli continue to soar. AI companies were the main attraction for financing deals in the most recent quarter.

The number of deals grew 15 percent to 39 in Q3 from 34 in the year-earlier period, while funding to AI increased 50 percent to $498 million from $332 million.

Overall, the number of AI deals in 2018 to date has risen steadily, with 17 companies attracting more than $20 million each.

The funding for Trax, an image-recognition-tech provider used by retail companies, was the largest, and that round was led by Boyu Capital from China.

The report said cybersecurity had a weaker Q3 in number of deals, with 14 compared with 27 in Q2. But the amount invested in cybersecurity peaked above the quarterly averages, with Forter raising $50 million, again driving home the theme of larger, mature companies raising more capital in Israel.

Other takeaways from the report:

  • Capital deployed came to $1.56 billion, the fourth biggest quarterly total of the past six years, though the amount was down 6.7 percent from an especially strong second quarter.
  • The number of deals fell 16 percent to 131, the lowest quarterly total since at least 2013.

Action Item: For more investment data in Israel, visit the IVC home page at www.ivc-online.com.

VCJ Senior Editor Mark Boslet contributed to this report.