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M E D I A  C E N T E R

July 2017 - Monthly Insights - Israeli Venture Capital

Updated: Aug 15, 2018


Israeli startups continued to attract near record-breaking amounts of capital in H1/2017, with US$2.3 billion raised, short of last year’s record-breaking H1 of US$2.7 billion. As in the first quarter of 2017, the second quarter was characterized by a growing shift towards larger and later stage financing rounds, with 35 companies raising rounds of at least US$10 million, up from 20 companies in Q1. The most notable financing round in H1/2017 was led by SoftBank Capital, which invested US$100 million in Cybereason, a cyber-security company which develops endpoint security solutions. This trend confirms our strong view of a maturing Israeli venture capital market, as more companies look to raise growth stage capital at increasingly higher valuations, as opposed to opting for an early exit. This is an important trend driving the growing returns of Israeli venture capital funds.

While late stage investments continued to grow, early stage investments continued to decline, as just US$114 million were invested in early stage rounds (US$1 – US$5 million rounds), representing about 5% of total capital invested. The creation of about 2,700 new startups between 2015 and 2016 and an additional 670 in H1/2017, all of which seek early stage funding in the near term, is likely to exacerbate this funding crunch, and will further widen the gap in supply vs. demand of capital. This is likely to lead to lower valuations and create a unique opportunity for investors, as favorable valuations are one of the most important contributors to venture capital returns. Throughout this year, we have seen many prominent Israeli venture capital funds, as well as emerging managers, recognize this opportunity in the ‘round-A gap’ and raise new dedicated funds to exploit this opportunity. Our view suggests that these upcoming vintages may be the strongest yet, in Israeli venture capital.



From a sectoral perspective, cyber security continues to dominate capital raising in the Israeli market, with around US$450 million raised in H1/2017, an increase of more than 20% from the record-breaking second half of 2016. The larger and later round phenomena was also apparent in the cyber sector, as ten cyber security companies raised rounds greater than US$10 million, led by Cybereason (noted above) and SentinelOne, an UpWest Labs portfolio company, which raised US$70 million in its series C funding round.

Although we have witnessed an increase in the valuation of cyber security startups which is likely to impact future returns in the sector, recent cyber exits (highlighted below) show that there are still sizable gains to be obtained in the sector.    



The strength of the Israeli market in H1/2017 stands in contrast to recent trends in the U.S. which continues to see a stabilization in venture capital investments, with capital raising in Q2/2017 at its highest year to date, but still 8.46% down from the previous year. Our view suggests that the strong growth in capital raised by Israeli startups over the past two years continues to be driven by their discounted valuations relative to their U.S. counterparts. This is evidenced by the fact that the median pre­-money valuation of early stage Israeli venture-­backed startups contain a 54% discount to those of U.S. venture­-backed startups, a trend we discussed in our previous newsletter.





While H1/2017 has seen the biggest Israeli exit to-date with Intel’s acquisition of Mobileye for US$15.3 billion (pending the final closing of the transaction), the rest of the Israeli exit market has yet to follow-suit and has only generated about US$2 billion worth of exits in H1/2017. This trend appears to be on a strong reversion track, as in just the first ten days of Q3/2017, Symantec announced the acquisition of two Israeli cyber security startups, Fireglass and Skycure, for an aggregate amount of over US$500 million. Combined with the pending closing of the Mobileye deal, we fully expect 2017 to be the strongest exit year of Israeli startups to date.

The recent slowdown in exits appears to be a result of a variety of factors, which are both internal and external to the Israeli market. From an internal perspective, the maturation trend of the Israeli venture capital market (highlighted above), drives more companies to raise growth stage capital and defer early exits, extending the time frame from financing to exits. From an external view, the regulatory changes in China, which have limited the outflows of foreign capital, have made Israeli startups cautious in exploring an exit by a Chinese acquirer. While discussions of US tax reforms have forced potential American acquirers to reassess their capital allocation strategies, we expect that the effect of many of these changes will subside in the near-term, as more Israeli companies will reach critical stages and opt for bigger exits, especially given the recent recovery in the IPO market. While clarity on currency control policies from China remains unclear, we expect US based acquirers to remain committed to the Israeli market – mostly as a result of the strong technology, discounted valuations and a familiarity of acquisitions in the Israeli market.



Vroom, a PICO Partners portfolio company, secured its series F funding for $76 million from PICO Partners, T.Rowe and General Catalyst Partners. Vroom develops an online marketplace for cars.   


Trax develops a computer vision based solution for retail intelligence.     


Riskified, a Genesis Partners and Qumra Capital portfolio company, raised its series C for $33 million from Pitango Venture Capital, Capital One Growth Ventures and other current investors in the company. Riskified develops an ecommerce fraud prevention solution.



Symantec, an American software company, acquired SkyCure, which provides security solutions for organizational mobile phones, for $280 million. SkyCure was a Pitango Venture Capital portfolio company and the initial investment in the company was led by Rona Segev Gal, the Managing Partner of TLV Partners. 


Symantec, an American software company, acquired Fireglass, which provides security solutions for malware and phishing, for $250 million. Fireglass was a Lightspeed Venture Partners, Deutsche Telekom Capital Partners, Norwest Venture Partners and Singtel Innov8 portfolio company.





Qumra Capital announced the first closing of its second growth stage fund, Qumra Capital II, at $115 million and intends to complete the fundraising for the fund in the near future at $150 million.

The fund intends to invest in Israeli growth stage companies.


The Chinese government announced the formation of a China Israel technology fund, a $440 million fund managed by Hong Kong’s Compass Ventures General Group. The fund intends to invest in national security solutions, robotics, smart mobility and cyber.  



Mapping Silicon Valley's Many European Headaches [The Ringer] VCs Draft Code of Conduct to Battle Sexual Harassment [The Information]

Umbrella-sharing Startup Loses Nearly All of Its 300,000 Umbrellas in a Matter of Weeks [Shanghaiist]

Capitalism the Apple Way Vs. Capitalism the Google Way [Tomasz Tunguz]


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