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Minding the Gap Between U.S. and Israeli Valuations

Sit down with any entrepreneur or investor in the world and the topic of valuation is sure to pop up. And who can blame them? It’s a lightning rod topic that can make or break a startup, regardless of which tech hub you call home. According to 2010-2014 data on AngelList, the average angel valuation for Silicon […]

The post Minding the Gap Between U.S. and Israeli Valuations appeared first on iAngels.

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Sit down with any entrepreneur or investor in the world and the topic of valuation is sure to pop up. And who can blame them? It’s a lightning rod topic that can make or break a startup, regardless of which tech hub you call home.

According to 2010-2014 data on AngelList, the average angel valuation for Silicon Valley tech startups clocks in at an astonishing $4.7 million – more than 10% higher than the average valuation of N.Y., Boston or Seattle-based startups. When you go overseas, the gap becomes even more pronounced. Perhaps most surprising is that Israel is the second largest startup ecosystem in the world, generating an estimated average seed valuation of $1.5-$2.5 million based on research and conversations with some of the most active angels in the ecosystem.

I am most interested in how these valuation gaps affect Israeli-based startups. As a venture capitalist and entrepreneur, I started the iAngels network with my partner Mor Assia to serve investors around the world interested in investing in high-tech in Israel. As an analyst at heart, valuation is a sensitive subject. It is the main driver of investor returns so it was important for us to understand it from an industry perspective and versus some of the alternatives. When I couldn’t find data driven literature on the topic, I decided to research it myself.

In the last 1 year, Israel has generated three near-billion dollar exits alone with Waze, Wix and Viber and one over 5 billion – Mobileye. Almost every angel investor that we’ve met has agreed that Israel is at least comparable to New York City and Silicon Valley when it comes to startup output, entrepreneurial talent and a robust support system.

So why is it that these ecosystems that share so much in common can command such different valuations? Should investors care? And does it even matter when it comes to predicting returns? Yes, and not necessarily.

While it’s true that the U.S. and specifically Silicon Valley has on average generated more household names like Facebook and Twitter, we think there’s more to the success story than just looking at the number of much-hyped, rare exits.

Let’s consider the amount of venture capital available to tech startups in these ecosystems. We believe that startups in Israel receive less funding simply because there’s less available capital as angels and VCs prefer to invest locally. This causes startups in Israel to scramble over limited venture capital. In Israel, there are a couple of dozens of angels and VCs over ~3,000 startups. According to our research, approximately 1,800 Silicon Valley startups received $20.5 billion of funding since April 2012. During the same time, 1,255 Israeli tech companies raised around $4.5 billion of funding.

Secondly, let’s take a look at the returns coming out of U.S. tech hubs versus Israel. Last year, CrunchBase found that the average successful U.S.-based startup raised $41 million and exited at a little over $243 million, implying a value creation ratio of 5.9x. We did a similar exercise for Israeli startups in order to understand whether or not the valuation gap was a predictor of investor returns.

Using the same methodology applied by CrunchBase, we found that since 2011 the average successful Israel-based startup raised $28 million and exited at around $192 million based on IVC Research, implying a value creation ratio of 6.9x. Keeping everything else constant, it appears that the average return profile of Israeli startups is at the minimum, not inferior to that of their U.S. colleagues and potentially better.

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It’s also important to consider more than just the total size of the exits. From 2011 to October 2014, there have been around 4,600 exits in the U.S. out of 60,000 startups and around 360 in Israel out of 3,000 startups. Thus, the implied “exit rati o” during this time period was 8% in the U.S. vs. 12% in Israel. In other words, there is more to a successful track record than just higher exit valuations and Israel has an edge when it comes to capital efficiency and hit rate.

Thirdly, even though we’ve spent the better part of this article debunking the significance of the valuation gap, we believe that early stage investors must pay attention to this metric. Here’s why. Lower valuations — particularly in the lean and mean Israeli ecosystem — can translate into higher profitability resulting in better investor ROIs and more attractive exit multiples.

And now a word about the data. Ever since we began digging into exit data in Israel and the US, we’ve noticed that there is much more available data on the former. Having spent time on both sides of the Atlantic, we believe that this may be due to the fact that Israel is a much smaller country and journalists in Israel have it easier when it comes to accessing information. The typical Israeli just doesn’t rest until he or she finds out how many millions their neighbor brought home after an exit. It’s simply much more difficult to unearth a comparable amount of exit data for US-based startups.

We tested this by pulling CrunchBase data on California- and NYC-based tech startups versus IVC data on Israel-based companies. We found exit data on 65% of all Israeli exits since 2011, compared to only 40% and 25% of California and NYC exits, respectively. This wouldn’t be such a big issue if the sample of available information were representative of the population – but in this case it does present a problem because these samples don’t reflect reality.

Given that larger exits receive more publicity, the lack of information on exits of all sizes in the US creates an availability bias. The result? People believe that Israel typically generates smaller exits because they rarely hear about smaller exits in California. Out of the ~1,200 exits in California from 2011, we could find only 35 companies that were sold for less than $10 million.

During the same time period, out of the 360 exits in Israel, we found 50 companies that were sold for less than $10 million. We are willing to bet that out of the ~700 deals in California with undisclosed exit amounts, there are quite a few smaller transactions that would have dragged down averages.

Here’s the bottom line. The valuation gap has a lot to do with pure economics and less to do with startup quality, exit performance or investor risk/return profiles. But whether you choose to mind or not mind the valuation gap, the fact is that it exists and it’s not going away anytime soon. Investors that can look past valuation and understand the upside to investing in early stage Israeli startups can be the ones to enjoy the Wixes and Wazes of tomorrow.

This blogpost was originally published on the Wall Street Journal and has been updated for Q3 2014

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Shelly Hod Moyal
Founding Partner, iAngels

Source: https://www.iangels.com/2014/10/minding-the-gap-between-u-s-and-israeli/

Private Equity

Boston startups expand region’s venture capital footprint

This year has shaken up venture capital, turning a hot early start to 2020 into a glacial period permeated with fear during the early days of COVID-19. That ice quickly melted as venture capitalists discovered that demand for software and other services that startups provide was accelerating, pushing many young tech companies back into growth […]

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This year has shaken up venture capital, turning a hot early start to 2020 into a glacial period permeated with fear during the early days of COVID-19. That ice quickly melted as venture capitalists discovered that demand for software and other services that startups provide was accelerating, pushing many young tech companies back into growth mode, and investors back into the check-writing arena.

Boston has been an exemplar of the trend, with early pandemic caution dissolving into rapid-fire dealmaking as summer rolled into fall.

We collated new data that underscores the trend, showing that Boston’s third quarter looks very solid compared to its peer groups, and leads greater New England’s share of American venture capital higher during the three-month period.

For our October look at Boston and its startup scene, let’s get into the data and then understand how a new cohort of founders is cropping up among the city’s educational network.

A strong Q3, a strong 2020

Boston’s third quarter was strong, effectively matching the capital raised in New York City during the three-month period. As we head into the fourth quarter, it appears that the silver medal in American startup ecosystems is up for grabs based on what happens in Q4.

Boston could start 2021 as the number-two place to raise venture capital in the country. Or New York City could pip it at the finish line. Let’s check the numbers.

According to PitchBook data shared with TechCrunch, the metro Boston area raised $4.34 billion in venture capital during the third quarter. New York City and its metro area managed $4.45 billion during the same time period, an effective tie. Los Angeles and its own metro area managed just $3.90 billion.

In 2020 the numbers tilt in Boston’s favor, with the city and surrounding area collecting $12.83 billion in venture capital. New York City came in second through Q3, with $12.30 billion in venture capital. Los Angeles was a distant third at $8.66 billion for the year through Q3.

Source: https://techcrunch.com/2020/10/23/boston-startups-expand-regions-venture-capital-footprint/

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Private Equity

Alternative Investments/Real Estate: Housing Market Demand Is “Insane”

Speaking to CNBC on Power Lunch, Glenn Kelman, CEO of real estate brokerage Redfin (NASDAQ: RDFN), said he expected the current boom conditions in the housing market to last well into next year. He attributed the high demand to affluent professionals looking for remote homes as well as low interest rates. Also, he thinks some sellers will put their properties on the market only after the presidential election.

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Alternative Investments/Real Estate: Housing Market Demand Is “Insane”

https://platodata.net/wp-content/uploads/2020/10/alternative-investments-real-estate-housing-market-demand-is-insane.jpg

Redfin CEO Glenn Kelman says the boom could last into next year.

Speaking to CNBC on Power Lunch, Glenn Kelman, CEO of real estate brokerage Redfin (NASDAQ: RDFN), said he expected the current boom conditions in the housing market to last well into next year. He attributed the high demand to affluent professionals looking for remote homes as well as low interest rates. Also, he thinks some sellers will put their properties on the market only after the presidential election. (CNBC)

Kelman: Too good to last forever

“This level of demand is absolutely insane. I would expect it to last into 2021, at least,” Kelman said.

Recent data from the National Association of Realtors shows up the strength in the housing market.

Existing home sales shot up 9.4% in September beating expectations. Even though the median purchase price of a home rose approximately 15% year over year, there is just a 2.7-month supply of for-sale homes, showing tight market inventory conditions.

The 30-year fixed-rate mortgage averaged 2.80% for the week ending Oct. 22, down from 2.81% in the previous week and 3.75% a year ago, according to the Freddie Mac Primary Mortgage Market Survey. Therefore, mortgage rates crept even lower in the latest week.

However, “there’s no way it can last forever,” Kelman warned of the bullish conditions.

Canada: Off the charts

Meanwhile, at the northern neighbor, home sales activity in September is described as “off-the-charts.”

Housing data released by the Canadian Real Estate Association (CREA) last week showed a nationwide year-over-year increase in sales of 45.6%.

This was a new all-time monthly record for the third month in a row.

“This is starting to sound like a broken record (about records being broken), but Canadian home sales and prices set records once again in September … as they did in July and August,” said Shaun Cathcart, senior economist at CREA, in a statement.

Real Estate ETFs in the U.S.

The year-to-date performance of some real estate ETFs is shown below:

iShares U.S. Home Construction ETF (ITB)              +24.61%

SPDR S&P Homebuilders ETF (XHB)                          +20.83%

Vanguard Real Estate Index Fund ETF                      -13.91%

It may be noted that despite the boom conditions in housing, real estate ETFs and stocks have declined in recent days.

According to Barron’s, this may be due to yields on the 10-year and 30-year Treasuries moving higher in recent weeks.

Other reasons could be fears of inflation ticking up in the future amidst an improving economic situation.

Nevertheless, the view is that interest rates are likely to remain low for longer. So demand may remain strong.

“Part of what is fueling this boom is that the economy has just split into two and rich people are able to access capital almost for free, so, of course, they’re going to use that money to buy homes,” said Redfin’s Kelman.

Related Story:   Mortgage Rates Set Another Record Low; Real Estate ETFs Could Benefit

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Source: https://dailyalts.com/alternative-investments-real-estate-housing-market-demand-is-insane/

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Private Equity

Asda’s new owner EG Group seeks new leadership ahead of IPO – report

EG Group is owned by the billionaire Issa brothers and the private equity firm TDR Capital, who teamed up for a £6.8 billion takeover of Asda last month

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UK grocer Asda Group’s new owner EG Group is looking for a new chairman and independent directors as it prepares for a £10bn initial public offering, The Timesreports.

EG Group is owned by the billionaire Issa brothers and the private equity firm TDR Capital, who teamed up for a £6.8 billion takeover of Asda last month.

The move comes after Deloitte resigned last week as the company’s auditor because of concerns over the group’s governance and lack of internal controls, according to the publication.

A decision on candidates will be taken before the end of this year, although roles haven’t been finalised yet as the company is in the process of deciding whether to float in the UK or the US, The Times reports.

Write to Barcelona editors at barcelonaeditors@dowjones.com

From Dow Jones Newswires

Source: https://www.penews.com/articles/asdas-new-owner-eg-group-seeks-new-leadership-ahead-of-ipo-reports-20201023

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