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There is no exit: a drop in investments in Israeli high-tech Israel today


Research bodies: a sharp decrease in 2022 in the scope of investments by venture capital funds in Israeli start-up companies • A fall in the number of exits and IPOs on the stock market • Cyber ​​suffered the hardest blow: investments in startups in the industry were cut by 60% • CEO of SNC, Avi Hasson: "Difficulty In raising capital funds will affect the capital available for investments in the years 2024-2025"

After two years of high-tech intoxication, with glittering parties, huge IPOs on Wall Street and crazy salary celebrations - comes the phase of disillusionment: two studies published this morning indicate that the surge we saw in the last two years in high-tech was replaced in the second half of 2022 by a downward trend with no end in sight, and according to The signs are not going to stop soon either.

The reports - one by the organization "Startup Nation Central" (SNC) together with the research institute SNPI, and one by LeumiTech together with the Israeli research company IVC - examined the state of Israeli high-tech according to the amount of funds that were poured into it, the exits (sales transactions) in which companies were sold to others or shares were issued on the stock exchange.

The most significant decrease that the reports point to is in the scope of investments in high-tech. According to the SNC report, the total investments in high-tech, which reached 27.6 billion dollars in 2021, decreased by about 44% to about 15.5 billion dollars in 2022.

The investments that the report deals with are investments by venture capital funds (VC) that invest money from private investors, companies or other funds in start-up companies. In practice, start-ups are born or die due to the decisions made by the funds.

The decline indicated by the reports is even more serious, given the fact that two-thirds of the money raised in 2022 was raised in the first half of the year, which was in fact a continuation of 2021, which was an unprecedented record year in the scope of activity in the high-tech industry.

In the second half of 2022, the volume of investments has already dropped by about 50% - from about 10 billion dollars in the first half of the year to about 5 billion dollars in the second half, similar to the volume of investments around the beginning of the current decade.


Along with the decrease in the volume of investments, the reports reveal, the rates of investment transactions (raising rounds), exits (mergers and acquisitions) and public offerings on the stock exchange also fell.

According to the SNC report, the number of investment transactions decreased by 25% - from 1,103 rounds in 2021 to 826 rounds in 2022. The number of exits decreased, according to IVC, by 44% - from 158 transactions in 2021 to 89 transactions in 2022. The financial volume of the exits decreased by 33% - from 7.8 to 5.3 billion dollars. The number of issuances fell back to the levels of the previous decade, and in 2022 it was 18 issuances compared to 76 issuances in 2022.

The SNC report also examined the situation in specific sectors of Israeli high-tech, and found that the sharpest decline was experienced by the cyber sector. According to the report, investments in cyber companies fell by about 60%.

On the positive side, the reports indicate a 22% increase in the volume of investments in new companies - from 1.3 billion dollars to about 1.6 billion dollars. Is this a collapse? No. CEO of Start-Up Nation Central, Avi Hasson, explained that looking at A few years later "I discover that the exceptional year in Israeli tech was 2021 and not 2022. The unrealistic jump in investments in 2021 only corrected itself."

However, according to Hasson, we are not expected to see investment volumes rise again soon.

According to him, following the declines and against the backdrop of macroeconomic processes in the world, led by the rise in interest rates, "difficulty in raising capital funds is expected, which may affect the capital available for investments in 2024 and 2025, because the funds will not be able to show successful exits."

In other words, Israeli startups may face a broken trough in the next two years, which will put their existence in jeopardy.

The industry expresses concern that as the crisis worsens, the wave of layoffs may intensify and also reach positions that until now have enjoyed immunity from layoffs.

The developers, for example.

"In 2021, there was an employee celebration, and everyone knew that it required a correction. Salaries skyrocketed and even if you paid a lot, there was no one to hire," says attorney Guy Lachman, partner and co-director of the high-tech group at the Pearl Cohen law firm.

According to him, "this trend has changed and now the employers have the upper hand. This allows them to do all kinds of things, such as lay off, reexamine salaries, reduce projects and units or focus on sales."

John Medved, founder and CEO of the investment platform OurCrowd, one of the largest investors in 2022, also believes that the wave of layoffs is not coming to an end: "I expect there to be more layoffs and belt tightening, but it is still difficult to say whether the atmosphere will continue to be negative for most of the year."

"The coming crisis is also the right time to talk about help", Lifshitz, photo: Yossi Tzvekar

According to Eyal Lipshitz, from the "Peregrine" fund that specializes in investing in companies in the field of life sciences, "Each company has to decide where to concentrate efforts so that the money is enough for more time, and there are of course also layoffs - not only in shell positions."

"Support when needed"

What should the government and the business sector in Israel do now, to ensure that the decline in investments does not deteriorate into the closing of companies and widespread waves of layoffs?

Hasson explains that "the current crisis emphasizes the need to create diversity in the technological sectors that lead the Israeli high-tech economy, and the necessary development of economic 'legs' and other sectors that can add significant economic and technological value to Israel and the world."

According to him, the coming crisis is also the right time to talk about help and government guidance: "Government involvement should be when the economic cycle is declining and support precisely when needed."

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Source: israelhayom

All tech articles on 2023-01-10

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