Despite the initial signs of some stabilization in the field, the downward trend in recruitment in Israeli high-tech continues. Israeli high-tech companies raised $1.676 billion in the third quarter of 2023 in 85 deals. The amount raised reflects a decline of 38% during the year compared to the amount raised in the third quarter of last year and a decline of 41% in the number of transactions compared to the corresponding quarter last year.
These are data indicating continued cooling in Israeli high-tech and stabilization for 2018-2019. In a quarterly comparison, the volume raised in the third quarter reflects a decline of only 14 percent compared to the second quarter of the year, and almost unchanged from the first quarter, according to the preliminary data of the Leumitech and IVC report summarizing the third quarter in Israeli high-tech.
Nvidia Building and Yokneam Industrial and Hi-Tech Park Photo: Shutterstock,
The data provide a first glimpse into investment activity in the current quarter.
Don't take a chance
"It is clear that investors have much less appetite for risk, certainly even when the financial environment is such that there are high risk-free interest rates," a senior source in the industry explains to Israel Hayom, adding: "The question is why should an investor take the risk and go invest in a startup, especially if it is in an atmosphere of uncertainty regarding the political climate.
Beyond that, startups in Israel have always been considered riskier than, for example, startups in Silicon Valley, and now there is a complex political climate here, a financial climate unique to Israel – you can see this by the weakness of the shekel. So investors prefer to stay on the fence."
Fewer foreign investors
The presence of foreign investors, which is reflected in the number of transactions carried out, is usually a significant sign of the availability of money for investment, which is slightly lower than in the second quarter.
In the third quarter of the year, the number of foreign investments in Israeli high-tech stood at $319 million, compared with $355 million in the second quarter. However, the figure for the third quarter for the volume of transactions carried out by foreign investors also supports the continued trend of stabilization.
Fewer investors coming to illustration, Photo: Getty Images/iStockphoto
Leumitech CEO Maya Eisen-Zafrir explained that the data indicate a trend of stabilization: "We continue to see third quarter data as the first signs of stabilization in the number and volume of fundraising, data that bring us back to 2018-19 levels.
Although there is still a decline in early rounds, it is more moderate than what we saw in previous quarters. In addition, we see stabilization in the pace of follow-on investments, an indication that companies are beginning to adjust their valuations to the new interest rate environment."
If we exclude the huge deals (over $200 million) that have recently become rare, from an analysis of recent quarters (in the third quarter there is only one relevant deal: a $238 million investment in Cato Networks), we can see more clearly the change in trend – from decline to stabilization. The third quarter is higher than the figures for the first quarter, and according to IVC's assessment, the final data for the quarter will reflect a volume of investments close to that which we saw in the second quarter.
Rising seed rounds
A positive trend can also be seen in seed financing rounds, which attest to investors' sentiment to take risks in startups, and to the ability of new companies to develop. The volume of capital raised in these rounds increased for the first time in the third quarter, after 5 quarters of continuous decline.
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