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Israeli companies raise USD 2.5 billion in 170 deals during Q2 2020 but feel COVID-19 impact

Despite the pandemic, the total second quarter capital raising was one of the highest ever, a new report by the IVC Research Center and an Israeli law firm showed.

Adam Jang/Unsplash

Israeli companies raised USD 2.5 billion in 170 deals during the second quarter of 2020 despite the impact of the ongoing coronavirus crisis which continues to wreak havoc on the world’s economy, according to a new report published on Wednesday by the IVC Research Center and law firm ZAG-S&W Zysman, Aharoni, Gayer & Co.

While capital raised increased from the USD 2.32 billion in 125 deals in the second quarter of 2019, it was down from the first quarter of 2020, in which companies raised a record USD 2.74 in 139 deals.

“After everything drew to a complete halt in March, it seemed that the total capital raising in the second quarter of 2020 would be significantly lower than the amounts we had become accustomed to in recent years,” said Adv. Shmulik Zysman, founding partner of ZAG-S&W in a joint statement between the law firm and IVC.

But even the optimists “were pleasantly surprised,” he added. Despite the pandemic, the total second quarter capital raising was one of the highest ever, the report showed. Also, total investments in seed companies, which are “the root of Israeli high-tech,” rose dramatically in relation to the previous quarter.

During the first six months of 2020, the dollar amounts totaled USD 5.25 billion in 312 deals, just 17% short of the total amount in 2018.

Capital raised in VC-backed deals reached USD 1.96 billion. The number of VC-backed deals stood at 96 and captured a 57% share of total transactions in this quarter, in line with quarterly averages of past years.

The coronavirus crisis did lead to a substantial decrease in dealmaking throughout March of this year. Only 17 VC-backed deals were registered, but “solid numbers in Q2/2020 compensated for that,” the companies said.

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“As the year under the threat of COVID-19 develops, Israeli high-tech has endured both ups and downs in capital raising. The second quarter of 2020 delivered a certain relief, following the downfall of February-March figures. Israeli growth-stage companies have strong support from the global community of investors, even though the company valuations are driven down due to the weakened economies globally,” said Marianna Shapira, research director at IVC Research Center.

Shapira noted that while Israeli tech has experienced a strong first half-year in fundraising, the second half of the year “might yet demonstrate a notable slowdown in financial activity and capital raising efforts of Israeli high-tech companies in general, and especially in early-round financing, as observed in Q1/2020.”

Most of the investor activity in the second quarter of 2020 were in follow-on investments, supporting their portfolio companies. First investment numbers didn’t change much in the first and second quarters, compared to historical averages, the report said.

Even though “being hopelessly optimistic borders on irresponsibility; the data nevertheless indicates a decrease in total capital raising relative to the first quarter, a phenomenon that can certainly be repeated in the third and fourth quarters of 2020,” said Adv. Zysman.

But he also pointed out that as “a veteran law firm that has seen all the crises of the past decades up close, we believe the second quarter results point to the strength of the high-tech industry, which will form the basis of the economy’s growth in the post-corona time.

This article first appeared in NoCamels, which covers innovations from Israel for a global audience. Photo credit Adam Jang/Unsplash.