Israel's high tech sector continues to smash records, with tech startups raising a record $10 billion from January-May 2021.
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According to Nimrod Cohen, founding partner at TAU Ventures, which invests in Israeli high tech companies: "This past year, we've seen an explosion in terms of fundraising, both in terms of amounts and in terms of worth. Some might say that this is a bubble, but on the other hand, I think that the process that has taken place in the world this past year, which was accelerated by COVID, is mainly one of realizing that technology is everywhere and critical to every industry."
Cohen says that "We, our children, and our parents handle technology from the moment we wake up in the morning until we go to sleep. I assume that this realization, combined with low interest rates and a lack of investment alternatives, is part of the reason we are seeing an increased influx of funds. Like with every trend, some will ride this one and benefit from it unjustifiably, but I believe that it will straighten out in the end."
Startup fundraising in the first half of 2021 included 28 rounds by unicorns – startups valued at $1 billion or more. A total of 30 rounds comprised $100 million or more, what are known as "mega-rounds." In total, these mega-rounds made up over $5 billion of all money raised. The high tech sub-sectors that raised the most money were cyber, fintech, and organizational programs.
Mega-rounds have become almost routine. In January 2021, OwnBackup, which develops cloud-based backup and restoration solutions, announced that it had completed a round totaling $167.5 million, bringing its valuation to $1.4 billion.
Other Israeli high tech firms reported closing massive rounds in the space of 72 hours, such as Orca Security, which in three days raised $210 million, pushing its valuation to $1.2 billion – all a mere two years after it was founded.
Another aspect of fundraising that has broken records were fundraising rounds held more closely together than in the past. Whereas it used to be customary to wait two to three years between rounds, Israeli high tech companies are now closing multiple rounds in a single year. An example of one such company is Salt Security, which held three rounds in under a year, bringing in $120 million -- $70 million in the most recent alone.
Salt Security CEO Roey Eliyahu, the company had not planned to hold additional rounds, but agreed to because it saw the investors as potential strategic partners for the future.
Dekel Persi, co-founder and managing partner at TPY Capital, said that the Israeli high tech sector was undergoing "accelerated growth," which translated to companies and ventures being able to grow into giant companies rather than being acquired for a few tens or even hundreds of millions of dollars.
"Part of that accelerated growth of course has to do with COVID, and continued low interest rates in the world, which is creating demand to invest in the tech sector," Persi added.
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However, caution is needed, warned Lee Moser, managing partner of AnD Ventures.
"This past year has accelerated processes in the world of investment in high tech in general and Israeli high tech in particular. But this flood of money is causing some startup companies to grow too fast and skip important steps in building a stable company. Entrepreneurs are finding themselves with double the amount they wanted to raise, with investors who aren't necessarily a good fit strategically … Surplus money in the markets mustn't be allowed to cause entrepreneurs to lose focus on building stable companies, starting from the critical first steps to continuing to grow and joining up with the right investors for them," Moser said.
Gilad Zwick contributed to this report.
