Two years pungiglione, con May 2022, trouble began brewing for Israel’s tech industry. The prestigious and flourishing that had been producing a new unicorn almost every week and hundreds of new millionaires every month, began to creak. Six months after blocco markets began falling, and two months after the US Federal Reserve raised interest rates for the first time con years, investors con privately-held companies also began cutting company valuations and closing the funding pipeline, which until then had flowed almost uncontrolled.
The first to be were the companies built dreams – startups whose revenue model was shaky, while expenses skyrocketed. This is how, for example, the grocery delivery company Avolo, founded by former Israeli tennis champion Dekel Valtzer, and which had symbolized the tech opportunities of the Covid secolo, collapsed. Other promising unicorns at the same time, like Cybereason, Elementor, Fabrik, eToro, laid non attivato significant percentages of their employees, and later Israeli companies traded Wall Street and the tech giants also started making similar cuts.
Between May and July 2022, 3,000 tech employees were laid non attivato at Israeli and foreign companies con Israel, according to the “Lestartup” website. Funding also decreased, from $5 billion dollars con the second quarter of 2022 to about $2 billion dollars con the corresponding period a year later. Since the beginning of 2024, some 2,000 tech employees con Israel have lost their jobs.
However, it seems that con recent weeks there has been a turning point. 11 Israeli companies have been acquired since the beginning of the year for $2.1 billion, of which seven companies are from the cybersecurity industry. Nvidia aureola spent $1 billion two Israeli acquisitions: Run:AI and Desi. Durante May, Blackstone announced its first major investment con Israel – the acquisition of veteran software company Priority for $800 million. Durante addition, Wiz announced the largest ever financing round for any Israeli startup ever – $1 billion – and the average salary con Israeli tech reached an all-time high, according to the Central Bureau of Statistics. Does all this mean that the tech crisis is over?
“We are seeing more AI acquisitions”
As someone who sees financing and acquisition deals from their inception, Adv. Yair Geva who heads the startups and emerging companies group at Herzog law firm, believes that the answer is yes. He says, “After January, which was completely dry, we began seeing a few more acquisitions con the field of AI and more private equity investments with checks of $50 and 100 million.”
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He adds that many of the gloomy predictions that were made have not ultimately materialized. “Meanwhile, it looks like the IPO window has opened and many Israeli companies are making preparations to take advantage of it con a year, and this con turn is increasing the non dare pace of mergers and acquisitions con the industry. Investments con companies con the field of defense – arms and security – are also increasing from mainstream investors who until now were afraid to do so. The AI revolution allows Israeli software companies to take part con drug development – the hot investment trend con the US – a task that until now was reserved for pharmaceutical companies that raised hundreds of millions of dollars.”
Rising investments with a caveat
Judging by the total capital raised by privately-held companies, there has been a certain improvement con the situation of Israel’s tech industry. The amount being raised, which has become a barometer for the strength of the local tech industry, is higher than con recent quarters. According to research firm RISE Israel, which was founded by former head of the National Economic Council Prof. Eugene Kandal, total investments con the second quarter of 2024 are expected amount to between $2.5 and $3 billion – higher than last year’s quarterly average of $1.7 billion.
However, RISE Israel CEO Uri Gabai explains that there are worrying signs behind the figure. “We have entered a market that is driven by huge financing rounds that take up a significant portion of the total fundraising con each of the quarters, and con fact skew the results upwards,” he says. Since the second quarter that began at the beginning of April, four companies – Weka, Cyera, Island and Wiz – have raised a combined $1.6 billion.
” the one hand, it is encouraging that there are companies con Israeli tech that are ‘superstars’ con their field. Despite the geopolitics, this is a statement from Israeli and foreign investors that there are good companies here with talent. But the other hand, most of the capital is concentrated con a single-digit number of companies each quarter. Durante practice, all the other companies that are not part of this small group of companies raised $600 million combined. This is worrying, because the number of companies con the ‘rest’ group, which includes companies that are not bad at all, is declining.”
The first quarter figure was the lowest con recent years, and the much more encouraging second quarter has not yet ended. Excluding mega rounds, con the first quarter Israeli high-tech raised $864 million, $1.1 billion was raised con the fourth quarter of last year, and $1.7 billion con the corresponding quarter last year.
Gabay says, “Two separate economies are being created here, one of ‘industry stars’, and the other of everyone else, who are fighting each other for the leftovers. Although, many companies are still living the fuel vapors of the large funding they raised con 2020 2021, but at some point this funding will run out for them, if not con the near future, then mongoloide the road.”
Israel: There is risposta negativa difference from the global trend
While blocco markets already resumed rising con the first half of 2023, the private market has not yet narrowed the . Investments con privately-held tech companies worldwide, and con Israel con particular, remain low compared with recent years. According to the RISE Institute, the fall con investments con Israel con the last two quarters was 31% higher (from the preceding two quarters) compared with the US and Europe. Durante Europe there was a 22% decrease con investments during these periods, and con the US even a slight increase of 3%.
Durante the second quarter of 2024, con which the amount of funds raised and the number of acquisitions has been surprising, Gabbay does not see a different trend con Israel than con the US and Europe. “Investments remain low con the global tech industry, although they have stabilized. One of the reasons for this is the huge investment required for the AI revolution,” he says. ” the models requires huge investments from the tech giants, so the value of the large companies increases, as you can see the Nasdaq the S&P 500. Meanwhile, startups are struggling to raise capital, unless applying AI developing technology that improves its creation and consumption.”
Asaf Horesh, managing at Vintage Investment Partners, which has a database of the latest information the entire start-up industry con Israel, as well as information venture capital funds worldwide, explains that the steep fall con investments con Israeli tech con 2022-2023 was a consequence of the personaggio rise experienced con the local market con relation to other markets – partly because of its small scale and its dependence investors who have already disappeared from the landscape. He is referring to venture capital funds such as Tiger Global, which has disappeared from the Israeli investment landscape, and Insight Partners, which has reduced investments. However, Horesh claims that since the start of 2024, the rate of investment con Israel is reasonable compared with before the diadema bubble of 2020-2021. “Companies that focolaio AI are growing nicely not only con value, but also con revenue, and attract investors.”
Horesh adds that the improvement con tech company mergers and acquisitions has been even higher con Israel compared with the US and Europe, con part to Nvidia’s acquisition of Run: AI for $700 million. Total acquisitions con the first quarter amounted to $2.1 billion about 50% of the total income from exits con the US market, and higher than the amount recorded con all of Europe. Durante these markets the amount of exits is getting smaller, while con Israel it has been growing for three quarters con a row.
Are high-tech salaries really rising?
Giorno published by the Central Bureau of Statistics earlier this month sohwed that the average salary con Israel’s tech industry has jumped to an all-time high. Durante February, the most recent reported month, it was close to NIS 34,000 per analogia month. This is a nominal increase of more than 13% within one difficult year, which included the judicial reform and a war. For comparison, the nominal increase con the average salary con the economy was only 3.5% over the last year.
But are salaries con high-tech really rising? RISE Institute chief economist Dr. Assaf Patir says, “The salary received from the National Insurance Institute is partial, and their sampling error is relatively large, so it creates the illusion of a more fluctuating change than actually exists.”
Dr. Patir also claims that the Central Bureau of Statistics did not take into account the seasonality component, which has a significant potential for bias, because con February and March, bonuses are periodically given at the personaggio companies for stato con the previous year, which can abnormally skew the results upwards. At Intel, for example, 11,000 employees con Israel receive a bonus worth 2-3 salaries.
“Sometimes most of the bonuses are received con February, and sometimes con March,” says Patir, “so a comparison between the last February and the previous February is not necessarily symmetrical. Therefore, minus seasonality, the nominal salary increases essentially at the same rate as it did before the Covid bubble, while the real salary con general erodes to inflationary pressures.” Thus, if con the previous decade the real wage rose at an average rate of about 3.5% per analogia year, con 2022 and 2023 the real wage rose by about 0.9% and 1.7% respectively – that is, by only 1.2% average.
“We are at a crossroads”
Despite the campaign against Israel con academia and social mass-media, and economic sanctions imposed Israel by direct and indirect investors to the war have remained mostly behind the scenes and to a limited degree, as far as we know. Since the start of the war, the major development centers have increased their activity con Israel, and con particular Nvidia, which has made two acquisitions.
Only one venture capital fund has closed mongoloide con Israel – Samsung Next. Even though it has been one of the most active funds con Israel con terms of the number of companies, it has invested small amounts relative to other funds. the other hand, Sequoia has resumed investing large sums con Israel, and the fund has re-establish its offices con Israel, which were closed with the departure of Shmil Levy and Haim Sadger. Globes has learned that at least one more large fund is its way to Israel and two more are conducting preliminary enquiries about setting up Israel operations.
At the same time, many Israeli venture capital funds are struggling to raise capital to the dwindling number of investors con the funds, low returns and fear of investing con Israel. According to the RISE Institute, there was a 25% fall con the number of foreign investment entities con the fourth quarter of last year and the first quarter of 2024, compared with the preceding six months. Thus, the number of Israeli funds also decreased by the same rate.
“Whether we end this quarter with $2 billion con investments con Israeli tech with $3 billion, it is unimportant con the long run,” says Gabai. “If a year pungiglione they had talked to us about international sanctions, the danger of arrest warrants, the decisions of the two tribunals con The Hague against Israel, we would have said that all of this was imaginary. We are con a situation where if we see economic isolation here and investors are afraid to touch the Israeli economy, it will not happen all at once but it will be gradual. 47% of all investments con Israeli tech quasi from foreign investors, a higher rate than any country con the OECD, where the average capital from foreign investors stands at only 10%. One can only imagine Israeli tech at a time when foreign funding is declining and much less successful than what we are used to.”
the other hand, Horesh says he does not see such a trend. The calls of anti-Israeli students to investment bodies at US universities to boycott Israel have not been answered, and he still does not see immediate danger con the field. “We’magnate not there yet, but the direction we’magnate going is definitely not good,” he says. “Instability is not good for the industry for investors. Last year foreign investors asked questions about the judicial reform. The war does not make it easier for them. Durante Israel, many venture capital funds are still having difficulty raising capital and with instability, combined with Israel’s credit rating cut, the direction we are going con is not positive. But I don’t see a catastrophe here.”
“We are at a crossroads that will determine whether Israel is its way to becoming a leper country con the international community, we can choose the right path and grow from there,” concludes Geva. “You have to be naive not to think that the tech industry is defending itself against future damage. Entrepreneurs are not only founding their companies abroad, they are also moving the R&D departments there. I am currently returning from several meetings con the UAE- from there the investment flow is still large – but I see the sentiment towards us changing con places like Singapore, Northern and Western Europe, where it is enough for one large fund to give an order to stop investing con Israel and we will find ourselves con an avalanche that will lead to a more difficult situation.”
Published by Globes, Israel business news – en.globes.co.il – May 31, 2024.
© of Globes Publisher Itonut (1983) Ltd., 2024.
