It has certainly been an interesting year, but 2020 was more than just the year of COVID-19. Here is my traditional rundown of 10 highlights (and lowlights) in the Israeli high-tech scene in the last 12 months.
- Investments. Despite initial concerns, Israeli high-tech companies raised approximately $9.9 billion in around 578 deals in 2020, exceeding 2019’s results by 27% in value and 14% in number of investments. The biggest checks were cut to high-tech companies in the fields of cybersecurity, fintech and IOT. In the beginning of 2020, early-round investments (seed and A rounds) took a hit, but they rebounded toward the end of the year. However, the general trend was for the money men (and women) to focus on, and reinvest in, their existing portfolio companies, resulting in more late-stage rounds and less new or early-stage investments. VC funds continued to be the major source of capital in Israeli tech, with foreign funds taking the lead. (See the Israeli Tech Review 2020 presented by IVC Research Center and Meitar Law Offices.)
- Secondary Sales. Secondary sales (the sale of shares by shareholders rather than by the company) were previously unpopular due to the belief they implied a lack of faith in the company or challenged the notion that the founder was fully committed/incentivized to create value. However, attitudes have evolved and following (and perhaps the reason for) the recent trend of entrepreneurs looking to grow their companies rather than seek a quick exit, the local secondary market has become more popular. This year saw some significant hi-tech secondary sales, typically in conjunction with a traditional investment, providing early investors, founders and certain employees the opportunity to enjoy the success of the company and some liquidity.
- Exits. While there were some memorable deals, notably the acquisitions of Forescout Technologies by Advent International, Checkmarx by Hellman & Friedman, Armis by CapitalG and Insight Partners and Moovit by Intel Corp, each for over $1 billion, 2020 was not the year for Israeli exits. According to IVC, the total value of M&A deals in 2020 was $7.8 billion (93 deals), about a third of the $22 billion number (144 deals) for 2019.
- IPOS. IPOs boomed this year and proved to be an attractive exit route for Israeli growth tech companies, both abroad and in Israel. This trend signaled a maturity of the Israeli high-tech scene, and the local ecosystem shrugging off the label of “Start-Up Nation” in favor of “Scale-Up Nation,” with entrepreneurs seeking alternative paths to join the unicorn club (companies valued at over $1 billion). We saw seven Israeli high-tech companies listing on the traditionally popular NASDAQ and NYSE, including JFrog, Lemonade, Neogames and Nanox.
However, more interestingly, the Israeli capital market, which up until 2020 was dominated by real estate and finance, finally developed a taste for technology. The Tel Aviv Stock Exchange (TASE) had a record number of 19 new high-tech company listings (including five R&D partnerships), including the first-ever TASE food-tech IPO by plant-based meat maker SavorEat and the IPOs of Ecoppia, GenCell and Aquarius Engines.
- Return of the SPAC. Special purpose acquisition companies (SPAC) reverse the process of a typical IPO by raising money from investors first and trading publicly, before seeking to buy a target company. SPACs raised more than $40 billion this year as an alternative to IPOs, and Bloomberg notes that this exceeds the amount raised by SPACs in the aggregate in the last 10 years. By way of example, ION Acquisition Corp 1 raised approximately $260 million with the stated goal of buying an Israeli tech unicorn. If recent local media reports are correct, it has its eyes set on Taboola, the Israeli online content recommendation company. Israeli start-ups Innoviz Technologies, Payoneer and REE Automotive are all reported to be considering and pursuing this exit route.
- TASE UP. TASE launched TASE UP, a platform for, among others, high-tech companies and venture capital funds to raise financing from institutional and qualified investors by listing securities while remaining private entities and subject to reduced regulatory requirements. This platform opened another way for Israeli tech companies to raise funds, though we have yet to see its impact on the local market.
- Potential of “Silicon Wadi”. Only time will tell if the Abraham Accords and the normalization between Israel and the United Arab Emirates and Bahrain will bring a new dawn and opportunities for the Israeli tech scene, but it is certainly exciting. In December, for the first time, Israelis flocked to the Gulf Information Technology Exhibition (Gitex) Technology Week, one of the world’s largest annual tech summits, held in Dubai. To kick business off, the government-owned Abu Dhabi Investment Office (ADIO) announced its upcoming plan to open its first foreign office in Tel Aviv. In addition, Israel’s OurCrowd signed a partnership memorandum of understanding with Phoenix, spearheaded by Abdullah S Al Naboodah, Chairman of Al Naboodah Investments LLC, aimed at increasing ties between the Israeli and UAE tech ecosystems.
- “Pivot Pivot Pivot”. 2020 was the year of the pivot for may Israeli startups, they sought to repackage and adapt their technology to answer the pains caused by COVID-19 and perhaps to attract investors or qualify for new Israel Innovation Authority (IIA) funding. (In March, the IIA in conjunction with the Ministry of Health, announced NIS 500 millions in new grants to reimburse R&D expenses for tech companies seeking to improve the healthcare system and public health or that had suffered due to the impact of the pandemic.)
For once the customer was pivoting as well, with the pandemic forcing certain business to quickly adopt technologies previously considered a “nice to have” or that were being leisurely piloted, into a necessity, including predominantly digital health tools and tools to address the new work-from-home model.
- Women. The Mastercard Index of Women Entrepreneurs (MIWE) for 2020 ranked Israel as the best country for women entrepreneurs worldwide. Israel was awarded first place for the first time, progressing from fourth place in 2019. After reports of the disproportionate impact of the COVID-19 pandemic on women’s careers globally, it was nice to hear some positive local news for females in the tech space.
- All Quiet on the Regulation Front. Another year without a government meant another year without material regulatory reforms in the tech space, particularly in fintech. Fintech entrepreneurs are still awaiting completion of the payment reforms for legal certainty on the Israeli regulatory requirements applicable to their products, as well as the establishment of the promised regulatory sandbox to allow early-stage startups to test case their products without the burden of complying with all of Israel’s financial regulations. That being said, past-open banking reforms are due to come into effect in January 2021, after the Bank of Israel spent this last year laying down the necessary regulatory groundwork. These reforms will finally allow fintech companies to disrupt various aspects of the traditional banking system, decentralizing the banks’ current hold on its customer’s financial data and increasing competition in the banking space.
Now bring on (a hopefully healthier) 2021….