Key Trends in The Israeli Tech Ecosystem – Liquid and Boiling Hot

We are seeing very strong funding activity among our portfolio companies (see select examples in our December 2021 Newsletter) reflecting the trends in the wider venture capital market.

 

The Market is Liquid

The Israeli technology ecosystem has been awash with deals in 2021. The first 3 quarters saw a 71% increase in investments (to $17.8 billion) as compared with the entire 2020 year , according to IVC data. And 2020 was itself a record year. The ecosystem is full of capital liquidity looking for good investment opportunities and the market is expanding with more and more foreign investors coming into and investing their capital in Israeli tech.

 

The Ecosystem is Expanding

According to analysis done by Cardumen Capital, the number of active funds in Israel has grown from 320 in 2020 to 380 now. Interestingly, new research by IVC explains that some of the new interest in Israeli tech is coming from US private equity funds whose share of the market doubled from approximately 10% (by number of deals) historically to 20% this year.

 

Deal Sizes are Growing

A natural consequence of the rise in the number of funds, the increase in the amount of capital they have invested and the entry of larger private equity investors is that deal sizes have increased dramatically. Israeli VC investors are driving the early-phase end of the market and foreign funds are more active among mature companies and in follow-on transactions. Median deal sizes have risen by 63% in 2021 to $10.4 million compared with 2020 (IVC data), with median early-phase deal size rising from $2.5 million in 2020 to $4 million now. At the more mature end of the market, the number of deals in excess of $100 million in size have increased by a multiple of 4x compared with 2020. Some market participants have remarked that growing deal sizes have tended to be accompanied by larger dilution expectations, especially at the early-phase end of the market.

 

Valuations are Hot

Early-stage median pre-money valuations (according to Pitchbook) in the US (Israel tracks the US market) have risen by 57% from $28 million in 2020 to over $44 million so far in 2021 with valuations spiking to $53 million last quarter.  Similarly, later stage median pre-money valuations have risen by 61% to $113 million this year.

 

The Time is Now

From our vantage point, what we are seeing in the market right now is that the Israeli tech ecosystem is very robust and growing stronger and increasingly more valuable. Funds are flowing, so now is the time for entrepreneurs to seek funding, and now is the time for VCs to put their capital to work.

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