Mobileye deal to fuel investment in late-stage Israeli start-ups

Wed Mar 22, 2017 12:52pm EDT
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By Tova Cohen and Steven Scheer

TEL AVIV (Reuters) - Intel's $15.3 billion acquisition of Mobileye has catapulted Israeli hi-tech into the global league, and is likely to stimulate investment in the sector's other late-stage startups, where funds are most needed.

Fundraising in late-stage startups - more mature firms that are already selling products rather than just the bright but unexploited ideas of entrepreneurs - has begun to increase. According to the Israel Venture Capital (IVC) Research Center, it rose to $2.9 billion in 2016 from $2.4 billion in 2015 as investors search for a higher yield on their investments.

Venture capitalists believe the U.S. semiconductor giant's purchase last week of Mobileye, which specializes in technology for driverless cars, should accelerate the trend.

"A concern over the years has been that compared to the U.S., Israel cannot produce outsized returns," said Adam Fisher, a partner who manages the Israel office for California-based venture capital fund Bessemer.

"Mobileye is a perfect example of how a big business can be built in Israel and how a large corporate will not hesitate to pay a strategic premium for the business despite its location."

The price was about 21 times Mobileye's expected 2017 revenue, or more than six times more expensive than the semiconductor industry's three-year deal average.

Until recently, many Israeli tech firms failed to grow enough to stay independent. Global companies, keen to tap into the skills of workers trained in the military and intelligence sectors, often bought them before they floated on the share market or when they were still small-cap stocks on the Nasdaq exchange.

This was the case with Waze, the Israeli map app, which Google bought in 2013 for $1.15 billion. That same year, Wix, an Israeli startup which helps people build websites, made its market debut on New York's Nasdaq, raising $127 million seven years after the company was founded.   Continued...

FILE PHOTO: A device, part of the Mobileye driving assist system, is seen on the dashboard of a vehicle during a demonstration for the media in Jerusalem October 24, 2012. REUTERS/Baz Ratner/File Photo