Even if 2021 a difficult year it broke records in investments in Israeli hitech.
2021 was already the second year of the pandemic. There were several waves of COVID-19 around the world, disruption to supply chains, and restrictions on international travel.
One of the biggest changes has been working remotely. Remote working already existed, and it became more and more common. We were faced with many changes and difficulties, which meant innovation was necessary. Many solutions were created to adapt to this new reality. We had to do better than we did before and improve services and products to adapt to the changes in our environment.
One country, in particular, had pioneered innovation in 2021: Israel. Israel is a pioneer in many disruptive technologies, from cybersecurity to self-driving cars and many more.
Israel attracted $25.6 billion of startup investment in 2021 alone.
It's a record year, with an increase of more than 150% compared to 2020! The best measurement of the confidence that the world has in a sector is by the amount that is invested in it. At the same time, many of the investors from all over the world put their trust in Israel.
More and more Israeli investment funds are being created to invest in the ecosystem. In addition, international funds are also increasingly investing in Israeli companies. These investments come after decades of high returns from mutual funds that invest in Israel.
There is much more confidence in investing in companies in Israel. Investors who only used to invest in traditional assets such as real estate or the stock market are now also interested in investing in Israeli startups.
Low interest rates and inflation are forcing traditional investors to diversify. Investors looking for high returns are beginning to accept the high risk of investing in startups.
Another new type of investor that is becoming more common is the angel investor, who invests in the stage before the seed investment. Many of these investors were those entrepreneurs who previously sold their startups. As we explain in the article, the number of angel investors continues to rise with the increase in the sale of startups in the ecosystem.
A gigantic number of acquisitions and IPOs arrived! More than 82.4 billion in 2021 alone
More than 75 IPOs were made, 23 on Wall Street and 52 on the Tel Aviv Stock Exchange.
To put it in context, there were only 20 IPOs for Israeli companies in 2020. Investor interest in companies still in development is higher, so more companies use IPOs to finance their activities. At the same time, Israeli companies are reaching a maturity where going public is more realistic for their situation.
The average value of each IPO increased from 257 million in 2020 to an average of 482 million in 2021. However, it should be noted that the average is affected by very high IPOs such as Ironsource, which reached an IPO value of 11 billion.
The number of private exits is difficult to calculate because not all the sums were published. Many factors can affect such estimates. However, Meitar estimates there were 12 billion, and there were 17 billion according to PWC.
Israel has now moved from a start-up stage nation to one of mature innovation companies.
With the enormous growth of the amount invested in startups, the vast majority was invested in growth rounds and investment rounds where the company had a product ready and needs investment for expansion in the market. Investment rounds attract a greater number of investors due to their lower risk. The high valuations that technology companies achieve mean that even after a round in a more developed company, very high multiples can be reached, making these investment rounds more attractive.
This trend started in 2015 and continues today where investment grows, especially in growth investment rounds. Seed rounds where the company is greener do not get more investments.
Due to the significant value that Israeli technology companies reach, there are more and more acquisitions within Israel. Israeli tech companies bought 46 companies in 2020. In comparison, they bought 82 for a value of more than 2.8 billion dollars in 2021. Even now, Israeli companies pay large sums for companies abroad, like Taboola, which bought Connexity for 800 million.
Despite numerous acquisitions, the Israeli ecosystem is maturing where companies are growing to maturity, so company and technology potential is being realized, creating more sustainable wealth.
Increasing growth investment rounds allow startups to compete against the giants of their sectors. At the same time, numerous IPOs allow them to raise funds. There is still only a few Israeli giants, with only four at a valuation of more than ten billion (Israel Chemicals, NICE, Solar Edge, Checkpoint). Even the 60 Israeli companies together have a valuation of 166 billion.
Investments and acquisitions in Israel are creating a circular ecosystem.
Why is it that each year Israel continues to have more investment and more company sales (exit)?
The system is like a snowball. An investor comes and invests in an entrepreneur's project, which grows and is sold to a company for a significant multiple. Later, with the money the investor and the entrepreneur (and even other company employees) receive, they reinvest it in other startups. And so, the circle goes on and on.
After this record year of investment and sales, we hope 2022 will be another record year due to this circular system.