The sky’s the limit for Israel’s booming fintech ecosystem, which has experienced a record-breaking first half of 2021 in terms of Venture Capital investments; as announced by Start-Up Nation Central.
According to data gathered by Start-Up Nation Central Finder, Israeli companies raised $2.3B in the first half of this year, representing a 260% increase over H1 2020 funding. This figure even surpassed the 2020 full-year total of $1.8B by 28%.
The insights strongly suggest that investments in fintech made up 19% of the total funding in Israeli innovation technology companies during H1, which amounted to $12.2B.
When it comes to international comparisons, data from PitchBook showed that Israel’s 28% increase in fintech funding over the 2020 total surpassed the 20% increase in US company funding and the negative growth (-30) exhibited by the Asian ecosystem but fell short of Europe’s impressive 63% growth during the same period.
Investors’ interest in Israeli fintech was also expressed in the number of the sector’s funding rounds. With a total of 68 rounds halfway through the year, 2021 is already nearing the 2020 total of 74. A breakdown according to round type reveals an increase in the number of Seed rounds (26 in H1 2021, compared to 18 in all of 2020) and also in the number of C+ rounds (15 in H1 2021, compared to 13 in all of 2020).
This indicates that while fintech is a fully established sector, new startups are continuing to emerge. When it comes to mega-rounds (investments of more than $100M) 2021 has already seen seven companies raise nine-figure sums, compared to only five throughout all of 2020.
The first half of 2021 also indicated very strong exit momentum in the Israeli fintech sector, with 7 acquisitions, 1 IPO, and 1 completed special purpose acquisition company (SPAC), compared to 8 acquisitions and 1 IPO throughout the entirety of 2020. The rise in exists can be linked to the US Federal Reserve‘s monetary policies, which promoted cash influx to financial markets, leading to a surge in public capital market activity.
Payment Solutions Are the Fintech Sectors’ Hottest Ticket
Over the last two years, 70% of Israeli fintech funding was funneled into three prominent subsectors: Payments, Anti-fraud and Insurtech. This trend has continued in 2021, with Payments retaining the top spot, comprising 35% of fintech funding in H1.
The demand for online payments skyrocketed during restrictions imposed by Covid-19. Companies like multi-currency mobile wallet Rapyd ($300M Series D), eCommerce fraud prevention company Forter ($300M Series F), and supplier payment platform Melio ($110M Series D) were well-positioned to benefit from the shift in habits and are expected to continue to grow going forward.
The first half of 2021 also saw investment growth in Enterprise Solutions. This new demand was largely spurred by the pandemic-induced rush for corporate innovation which created an opportunity to modernise legacy processes.
Speaking on the Israeli fintech boom, Start-Up Nation Central Fintech Analyst Nicole Krieger comments, “2021 has been encouraging for the Israeli fintech sector so far, with a record number of large late-stage funding rounds, notable exits, and emerging early-stage companies. Covid-19 drivers aside, Israeli fintech companies have grown rapidly and globally, building commercial partnerships and contributing significant technology to payments and enterprises.
“Tech innovation significantly upgraded legacy financial services processes. The sector now stands poised for a new era, we see a digital age emerging and are watching digital currency evolution enter a new digital age, it seems the stage could be set for subsequent fintech evolution such as the adoption of digital currencies.”