Wed,Apr 23,2014 23 Nisan 5774
Groucho Marx could have been talking about the Israeli hi-tech sector when he said “I made a killing on Wall Street a few years ago…I shot my broker”. In 2012, there was reason to celebrate but also cause for concern.
M&A: First, the good news- we’re RICH!! According to IVC, 2012 was Israel’s best year for hi-tech M&A in a decade, yielding $9.95 billion in exits. Years of aggressive cost cutting at US tech firms have decimated their R&D departments. Israel is more than happy to sell its start-ups to the US tech giants. One example is HP. Over the last decade, HP slashed R&D budgets from 9% of revenue to 2%. Moreover, in the last four years it squandered over $40 billion on acquisitions.
Outlier: Now the fine print- we’re not ALL rich. While there were 67 acquisitions, half that record total sprung from a single transaction, Cisco’s $5 billion acquisition of NDS. Founded in 1989 with more than 3500 employees worldwide (the largest contingent is in India), this colossus could hardly be called a start-up. Removing NDS from the results brings the 2012 total to less than 2011.
Hey Israel, Where's Your Instagram? Three quarters of Israeli exits were concentrated in the Communications, Life Sciences and IT & Enterprise sectors. That means even though there was an abundance of investments in consumer internet, Israel completely missed the consumer internet bubble of 2012 (I’m talking to you, Instagram, Facebook, Zynga, Kayak). The internet sector accounted for a puny 3.75% of returns.
IPO is OOO: Now, the bad news- we’re POOR!! There was not a single Israeli IPO in 2012. NASDAQ soared13.6% but the public markets had no interest in Israeli IPOs. Public and private markets are correlated. Without IPOs, the #2 tech ecosystem in the world (Start-up Genome) will find itself fallito other regions.
Welcome to the Party: While some R&D Centers (Medtronic, Oracle, etc) drastically retrenched, a number of prominent global companies initiated local R&D operations last year, including Nielsen, Citi, Young & Rubicam, Sony, Comcast and others. Also, the number of funded Israeli seed-stage start-ups rose 55% to 157 companies. Many of these were internet related, with more than twice as many early stage Internet companies funded in 2012 than 2011.
Venture Investment Declined: VC-backed deals amounted to $1.37 billion last year, down 22% from 2011. Until there is an Israeli Instagram, expect to see this trend to continue. Some of the digital media companies singing along to Frank Sinatra's "It was a very good year", include the following:
Waze (Crowd-sourced mapping): $67 million
Tango (VoIP): $87 million
Mobli (Object recognition): $28 million
Fiverr (Online marketplace): $20 million
Quixey (Mobile search): $25 million
DragonPlay (Games publisher): $14 million in 2012
Perfecto Mobile (Remote applications testing): $29 million
Ginger Software (Speech recognition): $12 million
MoMinis (mobile game platform): $15.5 million
Innovid (Online video ad:tech): $17 million
How do you think Israeli venture investments will perform in 2013?