Place strategy

Israel’s place in the European venture capital ecosystem…

The 2021 European Venture Report by EMEA VC analyst Nalin Patel has just revealed some of the information regarding the European venture capital ecosystem. Even with the relentless uncertainty of the COVID-19 pandemic and macroeconomic volatility (especially rising inflation), 2021 has been a surprisingly exceptional year for the European venture capital ecosystem. Deal value, exit value and participation from non-traditional investors hit new records, with the number of closed venture capital deals reaching a record 10,583, valued at €102.9 billion – the first calendar year to exceed 100 billion euros. This value doubled the record set in 2020 (46.8 billion euros). In addition, the exit value more than tripled from the previous high in 2018 (from €42 billion to €142.53 billion). Regardless of the challenges faced in 2021, investors were more than willing to seek out and support highly skilled talent looking to leverage technology to create innovative start-ups.

With such growth, local ecosystems in Europe have matured, Israel being one of them. A new high of €11.2 billion was invested in Israel-based start-ups in 2021, almost triple the amount in 2020. The exit value reached €17.1 billion in 2021, as founders and investors took advantage of favorable market conditions for technologies. companies. Notable unicorn outings include the IPO of productivity tool Monday.com, which listed at an impressive pre-money valuation of €5.1 billion. As EMEA VC analyst Nalin Patel said, “Israel has established itself as a major VC ecosystem globally, and we expect investment to increase in the future.”

Let’s dive into some of the trends the European venture capital ecosystem has seen in 2021.

Move the material…

Software technology and companies have taken the reins of venture capital deals. The technology sector saw 3,665 deals (representing 37.9% of global deals), with a transaction value of €36.26 billion (representing 35.2% of global deals). The technology sector has eclipsed the sectors of business services, consumer goods and leisure, energy, HC appliances and supplies, HC services and systems, computer hardware, media, pharmaceuticals and biotechnology and transportation. Much of this has to do with the COVID-19 pandemic, as intermittent restrictions forced us to embrace a new way of life, one that revolved around software solutions.

From a consumer perspective, the pandemic has forced us to rely on online products and services more than ever. This, in turn, has led to the digitalization of economies, which has therefore led to more venture capital investment in the technology sector. It has also allowed businesses that historically needed physical footprints, including pharma, biotech, retail, and health and wellness, to transition to operating online, as they might have struggled in these unprecedented times.

The workforce has been forced to make similar changes due to the pandemic. The digitalization of the economies mentioned above is partly due to the fact that companies have decided to work remotely; remote work was forcing companies to organize their business in the cloud so they could continue to hire, work and grow, even with the lingering pandemic. Cloud-based businesses have many advantages. On the one hand, they cost less, but can also be quickly extended across borders. Adopted tools can be deployed to a large workforce via commercial licensing or can be scaled up via online referral programs, social media, viral marketing campaigns and/or targeted advertising. As a result of this change, many cloud-based businesses have experienced immense growth in the number of active users, growth rates, potential future or recurring revenue; wherever there is growth, investors will follow, which further explains increased investment in the technology sector.

Non-traditional investors

Non-traditional investors such as investment banks, private equity firms, hedge funds, pension funds, sovereign wealth funds and venture capital firms (VCCs) have decided they want a share of the European venture capital cake. So much so that the value of this transaction with the participation of non-traditional investors reached new records reaching 78.4 billion euros, while in 2020 it was only 34.4 billion euros . Again, we can attribute much of this to the coronavirus pandemic. The pandemic has caused global supply chain issues and increased prices, which have hampered international business and trade. However, technology-focused companies were generally less affected and therefore created an attractive investment proposition for non-traditional investors. Non-traditional investors seek outlier long-term returns in high-growth areas. Thus, with the growth of the software industry, it has become a prime target for non-traditional investors. The share of the value of venture capital transactions with the participation of non-traditional investors in the software sector was 34.9%, which is equivalent to 27.33 billion euros. Emerging start-ups dealing with strategic partnerships and synergistic opportunities, such as food delivery and production, also captured much of their attention.

Output values

Exit values ​​hit a new high in 2021, reaching a staggering €142.5 billion – more than triple the previous best level set in 2018 (€42.0) – as investors and founders continued liquidity events. A record number of companies exited in 2021, at 1,241, almost double the amount in 2020, thanks to bubbling stock market valuations and favorable market conditions. Over the past year, public stocks have been volatile; European-based companies saw a record 186 public listings, which raised an astonishing €117.3 billion, nearly four times more than the previous peak set in 2018. technology has grown tremendously (largely due to the pandemic), the exit conditions for tech-focused companies were ideal. Israel had some notable releases last year, the biggest being Monday.com. More generally, Israel recorded 93 releases (8.7% of European releases) for a value of 17.09 billion euros (ie 12% of the total achieved).

Fund raising

Capital commitments to emerging and established GPs have increased as strong return profiles and high-growth investment opportunities have attracted capital to raise. In 2021, 203 venture capital funds closed and raised €21.7 billion, which represents a 31.9% drop in the number of funds but a 10.1% increase in capital raised compared to the figures of 2020. The amount of capital raised this year is the second highest of any calendar year, below €22.7 billion raised by 270 venture capital funds in 2017. Among notable fundraisings for the Israeli market, include Accel which raised 539.1 million euros for investments in Europe and Israel from a larger effort of 3.0 billion euros. Moreover, the share of capital raised by Israeli venture capital funds was 6.6%, raising a total of 1.43 billion euros. Unsurprisingly, pandemic-induced growth in sectors such as software, pharmaceuticals and biotechnology has helped fundraising campaigns. Considering the exit values ​​and excess liquidity generated in 2021 (€21.7 billion raised and €102.87 billion invested), 2022 will surely see similar trends.

First time offers

Innovation is more crucial and popular than ever, with the ecosystem seeing a lot of early offerings in the past year. Although 2021 was predicted to be a year in which generalists would become risk averse and focus more on their existing portfolio companies, this was not the case as early round capital tripled compared to 2020 figures. In 2021, 2,865 first deals worth €9.9 billion were completed, compared to 2,457 deals worth €3.6 billion in 2020 These investments will fuel the start-up ecosystem and lay the foundation for continued innovation. .

Spotlight on Israel: sustainable and alternative food production

As the issues of climate change become more and more popular among people around the world, many companies have been created to play a role in mitigating its consequences. As a result, many food tech companies have emerged trying to shed light on the carbon footprint of the food industry and create products that will generate profits as the world slowly moves away from industrial agriculture. In the fourth quarter of 2021, Israel-based food technology company Future Meat closed a €307.4 million funding round with participation from the VC arms of US food companies Archer-Daniels-Midland, Rich Products and Tyson Foods.

With 2021 being such a successful year in the European venture capital world, it can be hard to top. But, if the trends of the past year continue, 2022 will undoubtedly see record activity, as venture capital-backed companies continue to maximize their investment avenues and growth targets.