Funding for Israeli high-tech companies reached record levels in 2021 at $26.6 billion, outpacing the growth in most other global tech centers. A close look at the investors driving this trend reveals that it was led by the largest global VCs, which are taking an ever-growing stake in the ecosystem.

Foreign Investors Dominated in 2021

Looking at the most active investors in Israel in 2021 shows the increased impact of foreign investors. Almost all of these investors invested more times in 2021 than in 2020, but according to Start-Up Nation Finder the investors that have increased their activity the most are the very large, foreign-based firms, particularly Insight Partners and Tiger Global. Insight was by far the most active investor this past year while Tiger entered the top 10 for the first time with the largest percentage increase.

2021 Most Active Investors in Israeli Tech

Investor NameInvestor TypeNumber of Rounds in 2021Number of Rounds in 2020
Insight PartnersForeign VC5217
OurCrowdIsraeli VC2921
Entree CapitalForeign VC2516
Bessemer Venture Partners Foreign VC2317
Vertex Ventures Israel Israeli VC2318
Viola Israeli VC2223
Pitango Venture Capital Israeli VC2016
TLV Partners Israeli VC2015
Aleph Israeli VC1811
Tiger Global Management Foreign VC183
Source: Start-Up Nation Finder

If we adjust these numbers for the size of the rounds that they invested in, the dominance of foreign investors becomes even clearer, as they occupy the top eight slots. This includes additional, very large investors such as Sequoia, Lightspeed, and Accel.

Most dominant investors in Israeli Tech

Investor NameInvestor Type
Insight PartnersForeign VC
Tiger Global ManagementForeign VC
Salesforce VenturesForeign Corporate VC
Bessemer Venture Partners Foreign VC
Spark Capital Foreign VC
Sequoia Capital Foreign VC
Lightspeed Venture Partners Foreign VC
Accel Foreign VC
Cyberstarts Israeli VC
Vintage Investment Partners Israeli VC
Source: Start-Up Nation Finder

This dominance can be understood in the context of the unprecedented amounts that VCs have raised for their own funds in recent years. By the middle of 2021, they had $238B in dry powder, up from $123B at the end of 2019, with 61% of it in the hands of the largest 50 global managers.

2021 Tech Trends – Leading Tech Sectors

2021 Tech Trends – A Global Comparison

2021 Tech Trends – Record Exits

2021 Tech Trends – A Unicorn Assembly Line

The increasing Influence of 10 Global Investors

In a separate research piece, we identified 10 of the largest global investors1[Giants] that have been most active in Israel among foreign investors since 2015. These investors have increased their activities in Israel substantially since 2018, especially in larger rounds, participating in 69% of all mega-rounds (rounds of above $100 million) during the first half of 2021 vs 25% in 2018. The larger the round size, the more likely at least one of these 10 investors participated.

Round size vs. total capital raised. Source Start-Up Nation Finder

Their increased investment activity, especially in 2021, has several causes. One of the effects of COVID-19 was that investors were unable to meet potential founders in person. While remote investing was not immediately accepted by all, the largest investors adjusted to the situation and changed their practices fairly quickly due to the large amounts they had to invest. This shift removed the long-standing bias to invest in startups that are physically close to where investors are based and put entrepreneurs who are located at great distances from investors on equal footing with those based in the same city or region.

Another cause was the large number of new unicorns created in Israel during the year. With 33 new ones and 54 in total, the Israeli tech ecosystem demonstrated an ability to create many companies with high valuations, generating strong returns for investors. Some of these returns were realized with almost $17B in exit value through IPOs, M&As and SPACs. These successes encouraged investors to allocate more to Israeli startups.

Another feature of the Israeli landscape that is attractive to these investors is companies’ relative strength in pure software sectors. The largest investors hold a strong bias towards these sectors as they have been amongst the most profitable and offer a variety of investment opportunities. Israel is particularly strong in three of the most favored sectors: Enterprise Software, FinTech, and Cybersecurity. These sectors combined attracted 65% of all capital invested in Israel in 2021. 

Conclusion

The current wave of record investment in Israeli companies would not be possible without the large, global investors who are providing a huge portion of the capital. Their influence is likely to continue to increase as they raise even more money at a faster pace than their smaller competitors.

How this ultimately affects the ecosystem is unclear. One possibility is that it will lead to further concentration among pure software companies as these investors stick to the fields that have served them best until now. Alternatively, as their assets grow and they need to find new opportunities, they may invest in sectors in which they have invested less until now, such as Healthcare and FoodTech. This could provide the needed boost for late-stage financing in these sectors.  


1Bessemer Venture Partners

Sequoia Capital

Insight Partners

Battery Ventures

Lightspeed Venture Partners

Accel

Softbank

General Catalyst

Tiger Global Management

Andreessen Horowitz

Meir Valman is the Director of Research at Start-Up Nation Central. He is involved in many different aspects of research including supervising research products, building the research infrastructure and developing research capabilities. Prior to Start-Up Nation Central, he worked for many years in alternative investments as senior analyst and head of investment due diligence at an international investment house. Meir is originally from the UK.

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