The coronavirus (Covid-19) crisis may have shaken the world's economy to its core, but Israeli tech still managed to close a record-high quarter. Israeli tech companies raised a total of $2.74 billion across 139 deals during the first quarter of 2020, a record amount, according to a joint report released on Sunday by Tel Aviv-based research firm IVC Research Center and the Israel office of international law firm Zysman, Aharoni, Gayer & Co. (ZAG-S&W).
The painful effects of the coronavirus are likely to be felt from the second quarter onward, but during the first quarter, Israeli tech companies raised 76% more funds than in the first quarter of 2019. Leaving out the $400 million mega-round raised by ridesharing company Via Transportation Inc., the opening quarter of 2020 was almost identical to the fourth quarter of 2019: $2.34 billion in investments across 138 deals compared to $2.36 in 138 deals in Q4 2019. While the overall sum set a new record, the fallout from Covid-19 was already felt. Only four seed rounds were completed in February, compared to 20 in January.
"The results of the first quarter of 2020 are a continuation of what we saw in 2019 and are not an indication of the trend we will see later in the year," said Guy Holtzman, CEO of IVC Research Center. "The strength of Israeli tech will be tested this year. The Israeli tech industry is completely different from what it was during the last financial crisis and even though a lot of companies will suffer, the Israeli industry as a whole will be stronger for overcoming this crisis. In the long term, the crisis will present local and international companies, institutional funds, and venture capital funds with the opportunity to increase their involvement in purchases and investments."
According to the report, venture investment deals were responsible for 89% of all funds raised in this year's first quarter, reaching a record of $2.34 billion in 84 transactions, 60% of all deals. The month of March saw only 17 deals, a 50% drop compared to the first two months of the year. Local venture capital funds were responsible for only $201 million of the total sum raised in the first quarter, a mere 7%. That is a dramatic drop compared to the final quarter of 2019, in which local funds invested $279 million into local startups. In the first quarter of 2019, local funds invested $278 locally.
Mega deals made up the majority of the funds raised in the quarter, with the 11 deals that crossed the $50 million mark totaling $1.5 billion in all, 55% of the entire quarter. There were 43 deals in the $5-$20 million range, a 12% decline from the previous quarter. Six deals raised over $100 million, with four of them, including Via's, being announced during March.
"Two weeks into March, the market came to a grinding halt. Most of the investors who were in different stages of negotiations simply backed out," said Shmuel Zysman, one of the founders of ZAG-S&W. "When it rains everyone gets wet, even the very best. It is now clear that the tech industry will not be able to escape the effects of coronavirus," Zysman said. "Unfortunately, it is clear that the sums raised in the second quarter of 2020 will be significantly lower than what we've been used to over recent years. The bright spot is China's recovery. On the other hand, the U.S. hasn't experienced the peak of the epidemic yet and we can predict with certainty that this will have short term ramifications for Israeli tech."