ISRAEL 
HIGH-TECH & INVESTMENT REPORT

from the July 2016 issue


Israeli startups raise record $1.4b in Q2

The highest-ever amount raised by the country's startups in a single quarter included $300 million raised by Gett from Volkswagen.

Israeli companies raised an all-time record $1.4 billion in the second quarter of the year, compared with $1 billion in the first quarter (according to "Globes" figures) and $1.1 billion in the second quarter of 2015 (according to the IVC). The figures for the second quarter of 2016 include a $300 million investment in Israeli company Gett (formerly GetTaxi) by Volkswagen. This extraordinarily large investment was not strictly speaking a venture capital investment, and if subtracted it provides a slightly more precise picture of venture capital investments in Israeli technology companies.

Even after this investment is subtracted, however, the figures still show no real slowdown: $1.1 billion is similar to the first quarter of 2016 and almost identical to the second quarter of 2015, thereby maintaining the record pace. $2.4 billion was raised in the first half of 2016, compared with $2.1 billion in the corresponding period last year. Now that the second quarter has come to an end and we have taken a deeper look at the figures, an analysis yields the following results:

The average amount raised per company in the second quarter was $27.9 million, or $12.1 million if the Gett investment is subtracted, $500,000 less than the average in the first quarter. This is more or less the amount of capital an earlier stage company already making initial revenue needs to keep going for 12-18 months. For the first half of the year, the average amount raised per company was $14.1 million, or $12.4 million excluding Gett.

13% of the companies raising money since the beginning of the year were biomedical companies, meaning companies developing drugs or medical equipment or a different medical solution. This means that the majority of available capital for investment is still going to technology companies, because their risk profile is naturally lower. The biomedical companies account for only 10% of the amount raised since the beginning of the year.

Three companies raised over $50 million in the second quarter, compared with four companies in the first quarter - almost the same, but only two compared with four if the Gett investment is excluded. This makes a total of seven companies since the beginning of the year - only 4.2% of all companies raising capital. This figure may indicate a slowdown in the number of potential unicorns - a company value of over $1 billion, which are often successful at raising this amount of money. Gett, which raised $300 million, and Via, which raised $100 million, may be valued in the hundreds of millions of dollars, but they are still far away from $1 billion - at least as of now.

The companies that raised over $50 million jointly accounted for 22% of the total raised in the second quarter and 29% of the amount raised in the first half of the year - in other words, 4% of the companies raised 29% of the total, showing that a very small number of companies receive a substantial proportion of the venture capital funds' investment budget.

86% of the companies raised up to $25 million in the second quarter, meaning that most of the companies that raised capital were just starting out (initial revenue). The proportion was the same for the first half of the year. These companies raised 45% of the total in the second quarter.

The Israeli defense electronics company will supply advanced thermal-imaging observation systems to a country in Europe. Israeli defense electronics company Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT) announced today that it has been awarded contracts worth $30 million to supply advanced thermal-imaging observation systems to a country in Europe. The systems will serve all army command levels, from the dismounted soldier to the headquarters command and will be supplied over a one-year period.

Among the systems that are being provided are Long View CR (LVCR) observation systems- (dismounted soldier long-range observation systems that are well suited for target acquisition with day and night capabilities), LOROSS systems- (fixed installation long-range observation systems) and XACT observation systems for dismounted soldier applications. Elbit Systems ISTAR Division general manager Elad Aharonson said, "Observation systems are a vital component of the Intelligence, Surveillance and Reconnaissance ("ISR") field. They enable day and night operations under all weather conditions. We are proud to have won these contracts, reaffirming Elbit Systems' position as one of the leading providers of advanced ISR solutions, which are highly adaptable to the needs of the contemporary battlefield."



Reprinted from the Israel High-Tech & Investment Report July 2016

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