Israeli High-Tech Sums Up a Year: What Do Investors Think? - Voila! money

What do people with money think about Israeli high-tech, the investors?/ShutterStock

The local high-tech diet comes from the cash coffers of Israeli and foreign investors, who began clenching their fists in the past year, and stopped distributing money indiscriminately as they did in the past out of fear of missing out on the next unicorn.

The failure to reach for the wallet does not stem from stinginess, but mainly as a result of the increase in the interest rate, which provides their money with more worthwhile investment channels at this time, which also carries a lower risk.

If the fog of uncertainty hovering over the global economy was not enough, the demonstrations against the legal reform in Israel, which the current government began promoting at the beginning of the year, led to a divisive public discourse that presented Israel as a divided society, and as such, increased the level of risk in investing in companies operating within it.

Most of the investors we asked believe that the global crisis, and therefore the state of companies, will continue with us into 2024.

However, it should be remembered that they are also waiting for the right time to invest in companies they find worthwhile, and expect that the latter's need for cash will allow investors to receive a larger share for a smaller investment.

The second article in the series: Israeli high-tech summarizes a Hebrew year from the perspective of investors

Oren Junger, Partner at GGV Capital/Courtesy of the subject

Oren Junger (36), partner at GGV Capital

Investment Areas: Information and Cyber Security, Software Development Tools, Infrastructure and Data

Software Investments: The fund has invested about $350 million over the past 4 years and manages about $9.2 billion in investments.

How do you summarize the Hebrew year of high-tech?
"Local influences, such as what outside investors perceive as social instability as a result of policy changes in Israel, make it difficult to focus and grow the Israeli high-tech industry. This is in addition to the global economic challenges that also affect the local industry.

In the past, investors, mainly Americans, would see Israel as an investment in another US state, despite the geographical and cultural distance. But today they see it as more regulatory risks, which, alongside global economic challenges, have significantly slowed the pace of investments in Israel."

What do you think the industry can expect in the coming Hebrew year?
"We, at the GGV Foundation, believe in Israeli entrepreneurship, which is based on the ability of Israeli entrepreneurs to achieve goals that sometimes seem impossible, and progress cannot be stopped.

We believe that local winds will push Israeli entrepreneurs to move and build their startups closer to their target markets, especially in the post-COVID-<> world."

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Guy Rosen, Chairman of Millennium Foodtech and Vice Chairman of Tnuva/Tal Cohen

Guy Rosen (57), Chairman of Millennium Foodtech and Vice Chairman of Tnuva

Areas of investment: Foodtech such as protein substitutes, and supporting technology in the fields of personalized nutrition, reduction of food waste and leftovers, smart packaging, new food ingredients and artificial intelligence in the food field.

Investments: The R&D partnership has invested in 10 portfolio companies and has raised $50 million to date.

How does the year of Hebrew foodtech and food innovation sum up?
"The market has shifted, almost abruptly, from a reality in which start-ups rose like mushrooms after the rain and raised money easily and at high valuations, to a reality in which investors close their pockets sharply and investments are made sparingly, if at all.

The drastic change in the global macroeconomic situation with the sharp increase in interest rates and the level of risk, alongside uncertainty regarding the direction in which the country is headed, led to difficulties in raising funds in general, and from foreign investment entities in particular.

The name of the game at such a time is cash in the cash register, and to our great delight, the vast majority of Millennium Foodtech's ten portfolio companies arrived at this crisis equipped with enough cash to provide them with a runway of nearly two years.

What do you think the industry can expect in the coming Hebrew year?
"Unfortunately, I do not expect a change for the better in the coming year, perhaps even a worsening if instability in Israel increases. Therefore, I believe that companies must become more efficient and focus in order to increase their runway until the situation changes.

We, the investment bodies, have a responsibility to support our companies and make sure they take the necessary actions."

Rotem Shaham, Director at PSG/Arik Sultan

Rotem Shaham (36), Director of PSG Fund

Investment Areas: Growing

Software Companies Investments: The fund has raised $14 billion since its inception

How do you summarize the year of Hebrew high-tech?
"The difficulties in the real economy led to a decline in business activity in all sectors, including high-tech companies around the world. These two forces led to a significant decline in the stock markets, which was also reflected in a decline in the value of technology companies.

The damage felt on the stock exchanges also penetrated the private markets, cutting the value of private technology companies, in Israel and around the world. As a result, the emphasis of investors and company managements has shifted from a focus on future growth to a focus on profitability in the here and now.

The decline in their value, the negative impact on real business activity, and the increase in financing costs led to a substantial decline in investments in high-tech companies around the world, including in Israel. To this can be added the political instability in Israel and the effects of the legal revolution, which together led to the local high-tech industry being hit more extensively than in other countries."

What do you think the industry can expect in the coming Hebrew year?
"It can be assumed that the Hebrew year will be similar to the previous one, and we will see ups and downs in it. Stock markets have recovered in some way, but uncertainty still hovers over them as well.

Many technology companies have significantly cut the expenses side and conducted extensive layoffs in order to cope with the new business environment and the decline in business activity.

The accepted assessment is that the waves of layoffs at the large companies are behind us, but there is a large group of companies in the younger stages whose future is shrouded in uncertainty. These companies face, on the one hand, a more challenging business environment and greater difficulty in selling their products, and on the other hand, a decline in liquid money for investments by investors.

These companies will be required to perform better in business or technology in order to raise funds for their future operations. The focus we have seen on profitability and efficiency will be reinforced in the coming year, and as a result there is real concern that some of these young companies will not survive the coming year.

On the other hand, a burst of innovation has swept over the past year, such as new artificial intelligence technologies. These technologies have the potential to bring about a new wave of products, be the catalyst for the establishment of new companies, create new markets, and bring about a significant change in the business environment.

The buds are already visible in the Israeli high-tech environment, and to this we can add past experience, which teaches that from times of crisis new business models are born that completely change our daily lives. We saw this after the last financial crisis and we can assume that we will see it again."

Ran Tsror, CEO of Shore-Tech Investments/Israel Hadari

Ran Tsror (43), CEO of Shore-Tech Investments

Investment Areas: Fintech and InsureTech.

Investments: The R&D partnership has raised NIS 29 million and has invested so far in 4 startups. The company's coffers accumulated about NIS 50 million.

How do you summarize the year of fintech and Hebrew insurtech?
"A high interest rate environment creates pressure on global industry, the discount rate on investments rises, and a risk-free alternative to money is created. The result: a plummeting value of venture capital investments. But there is also a second vector: the political environment in Israel.

The legal reform increases uncertainty, leads to an increase in the risk premium of investments in Israel, and harms both the ability to raise new investments and the value of Israeli companies raising funds. The result: more and more startups are registered abroad. These two vectors make it very difficult to raise funds and value Israeli startups.

The power goes to investors – to those venture capital funds that have cash in their coffers and in the past fought for every growth company. Investors' emphasis on valuation has shifted from growth to Economic Unite."

What do you think the industry can expect in the coming Hebrew year?
"If the interest rate shows a clear downward path, venture capital multiples will rise and it will be easier for high-tech companies to raise at higher valuations. Until then, strong funds can take advantage of the momentum and enter rounds at opportunistic prices compared to the previous year, and/or purchase Unicorn shares at liquidation prices of tens of percent discount.

From the micro-Israeli perspective, if broad agreements are reached on legislative changes, and the political-public uncertainty decreases, it will help raise funds for Israeli companies, or at least will not add another weight to the global challenge."

Dganit Vered, CEO of Smart Agro/Ariel Bashor

Dganit Vered (57), CEO of Smart Agro

Investment Areas: Climate, Agtech and Foodtech

Investments: The R&D partnership has raised NIS 56 million to date.

How do you summarize the year of Hebrew agtech and foodtech?
"Innovation has taken a hit and what determines is whether the company has the money to pay wages and meet other financial obligations or not. Funds have also encountered difficulties in raising funds in the past year, since fund investors now have safer and more profitable options.

Due to the economic/regime instability in Israel, there are funds that have announced that they will stop investing in Israel, and this should worry us all. As far as companies are concerned, investors are waiting for opportunities for attractive deals from companies that have run out of cash, or companies that have lower investment risk due to their ability to maintain themselves financially.

Startups in the field of agriculture are in exceptional demand in light of the solutions they know how to provide for dealing with the global climate crisis, and we notice fundraising rounds at the same values as previous rounds and even uprounds. It should be noted that companies that know how to manage and are perceived as such succeed in recruiting."

What do you think the industry can expect in the coming Hebrew year?
"I believe 2024 will be a complicated year. Companies that failed to raise funds in 2022 and 2023 and were supported by internal investors will embark on financing rounds, in parallel with companies that have reached the stage where they need to raise funds. In other words, many companies will raise funds at the same time, and it is estimated that this will lead to a higher rate of company closures than in 2023.

I also believe that there will be acquisitions and mergers between startups in order to increase the value offered to the customer, thereby improving the ability to raise money. Competition for investors' money will increase, and the phenomenon of a significant decline in investments in high-tech in Israel will increase as competition with startups from other countries increases."

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