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73% of Investment Deals In Israeli FinTech Are Made By Foreign Investors

31 October 2018 13:02, UTC
Denis Goncharenko

Israeli FinTech startups get more attention on a global scale — investors from other countries participate in 73% of investment deals in 2018, raising from 66% in 2017, as it was reported by Start-Up Nation Central (SNC). The increasing interest may be the follow-up to the successful development of the blockchain industry in Israel — earlier Bitnewstoday.com paid closer attention to this issue in the interview with Roman GOLD, founding Partner of the Israeli Blockchain Association.

According to Roman, the number of blockchain startups in Israel rose to 200 from 60 during the current year, with nearly 60 companies being FinTech projects among them. Looking at the Israeli startup ecosystem in general, there are about 8000 projects, where companies dedicated to financial technologies take considerable place: different sources claim there are from 450 to 600 projects present. The SNC report shows that Israel was home to 475 active FinTech startups at end 2017, up from 159 in 2012, while Deloitte counted 500 of them in January 2018, collectively raising an estimated total of $500-650 million to that date.

The current year brought new players to the market, says Roman GOLD, while lots of companies are in a process of transformation, as Mergers and Acquisitions trend continued its fast pace during 2018. Besides the M&A, there has also been a remarkable trend in startups closing up shop – over 400 in 2017, according to Start-Up Nation Central. Aviv ALPER, SNC’s director of research and analysis, claimed the data may be pointing to an elimination of weak players in the market and a maturing ecosystem.

Israeli Fintech Ecosystem Is A Fertile Ground

Multinational corporations participated in 38% of investment deals in Israeli FinTech during 2018, compared to 26% in 2017, SNC reports. There was a decline in the number of investment rounds, from 371 deals in the first half of 2016 to 260 over the first half of 2018, but an increase in the investment sums per round is great. A record number of funding and investment deals was observed: more than $400 million was raised in 45 deals, exceeding previous half-year investments by 33% and 45%, respectively. The median deal size also almost tripled, and median late-stage deal size reached an all-time record of $30 million, according to the data obtained.

“Israel is a ‘right’ place for FinTech. There is nothing revolutionary to be expected, but the expertise is strong. It is a center of competency, with a quick response to the market demands. A perfect environment for fast incubation, acceleration, and validation of the concepts,” Roman GOLD names the possible reasons for Israel attractiveness.

Indeed, for the last few years, global financial services firms either entered the Israeli market or diversified their existing innovation activities to include the local FinTech sector. Over 350 multinational companies have set up various innovation or R&D centers in Israel, and its VC density is one of the highest in the
world – owing much to government endorsement, which in turn draws angel investors to the field, Deloitte report says. Israel got the attention of such global players like Citibank, Barclay’s, JP Morgan, Visa, Mastercard, BNP Paribas, AmTrust Financial Service, etc. Their activity includes the establishment of R&D centers, incubators, and accelerators, scouting programs, VC investments.

The Need for Speed: When Time is Money

Israel isn’t sometimes called a Startup Nation for nothing. The established environment, experience and process make the country a testing field for new ideas and projects. “Israeli FinTech startups have unique opportunities for quick hypotheses tests in cooperation with large players. These opportunities have always existed in name, but recently they have shown great developments,” explains Roman GOLD. “Now the time from getting acquainted with the tier-1 company till the pilot launch was reduced remarkably. There is a case when such pilot has been launched in a month’s time.”

According to SNC, there are about 300 multinational R&D centers currently operating in Israel. But MNCs realize that “opening a local R&D center may not be the best or the only way to enter the Israeli ecosystem,” said May NECHUSHTAN, SNC’s head of FinTech Sector. There is a number of alternative ways in which multinational corporations can operate within Israel. Such engagement models allow global financial services organizations to quickly attract Israeli talent and innovation and spend less money on R&D centers. Thus, the maturing of Israeli tech entrepreneurial activity and vivid opportunities for cooperation make the country attractive from different angles — and the global players definitely like it and vote for it with their investments.