Israeli companies and startups managed to raise a record $2.74 billion in 139 deals during the first quarter of 2020 despite the coronavirus crisis which has jolted the world’s economy, according to a new report by the IVC Research Center and law firm ZAG-S&W Zysman, Aharoni, Gayer & Co published on Sunday.
The impact of the pandemic was felt towards the closing of the quarter in the months of February and March, and will more than likely mean a second quarter that is “significantly lower than what we have become accustomed to in the past few years,” according to a joint IVC and ZAG S&W statement.
Early-stage companies were the first to suffer from the COVID-19 crisis, as there were only four deals raising seed capital made in February and March, compared to 20 in January, according to the report. Seed companies suffered a “major setback” due to the crisis, the report said, raising $16 million in 21 deals, down 28 percent in number and 70 percent in capital volume from the quarterly averages of 2019.
Seed financing rounds showed a “drastic decrease” to 24 deals, compared with the quarterly averages of 32 seed rounds in the years since 2013.
Growth-stage companies, on the other hand, raised “robust amounts” due to nine companies with over $50 million each, raising $1.37 billion in total. Four of those companies raised “notable” amounts in March, with the largest being Israeli-founded ride-sharing startup Via.
While the first quarter was extremely encouraging, as Israeli tech companies raised 76 percent more funds than in the first quarter of 2019, March was a different story. In March only 17 VC-backed deals were registered, down almost 50 percent from the numbers observed in the other months of the year.
“Two weeks into the month of March, the market stopped all at once. Most investors at various stages of negotiations simply backed out. Indeed, when it rains, everyone gets wet – even the best. It is clear by now that the high-tech industry, along with others, will not manage to avoid the effects of the coronavirus,” said Shmulik Zysman, founding partner of ZAG-S&W.
Zysman said the total amount of funds raised in the life sciences industry over the quarter is 200 percent higher than the average fundraising in the sector recorded over the past six years. But, the industry is also experiencing a “dramatic halt” in the area because “all the resources of the world’s public medical systems are being invested in coping with the virus,” he said.
“It is already clear that the aggregate amount of transactions in the second quarter of 2020 will be significantly lower than what we have become accustomed to in the past few years,” Zysman said in the statement. “The recovery will not be easy; the psychological blowback of the coronavirus crisis is entwined with investment psychology and the herd behavior principle; a repetitive phenomenon in every crisis.”
While the “strength of Israeli high-tech will be tested in 2020”, according to Guy Holtzman, CEO of IVC Research Center.
“This time around, it is a completely different industry from the previous crisis, and even though many companies will suffer, IVC believes that overall, the Israeli tech industry will emerge strengthened from this challenge. In the long run, the crisis will create an opportunity for international corporations, corporate VCs and VC funds to increase their involvement in Israeli investments and acquisitions,” he said.