A few days after research company IVC and LeumiTech released encouraging figures indicating a recovery in investment in Israel’s technology industry, Rise, a not-for-profit organization funded by donors headed by Prof. Eugene Kandel, has published some reservations that pour a little cold water on the rejoicing.
As in the report at the beginning of the week, Rise too states that the graph of investment in Israeli companies rose in the second quarter for the first time since 2022, mainly thanks to a huge raise of $965 million by cloud security company Wiz. The trend, Rise reveals, is identical to what has been happening in the US and Europe, where there has been a similar upturn. The improvement in technology investment may represent a global trend, but the fact that, despite the war, the Israeli sector manifested a positive trend similar to what is happening around the world is good news.
According to the statistics published by IVC on Sunday, Israeli privately-held companies raised a total of $2.9 billion in the second quarter, the best quarter since the second of 2022, when $5 billion were raised. The total raised in the second quarter of this year was 47% more than in the corresponding quarter of 2023, and 78% more than in the first quarter of this year, as mentioned largely thanks to Wiz, and also to other rounds by cybersecurity companies.
It may be, however, that this is an optical illusion, since many cybersecurity companies announced the billions they raised in the weeks before the RSA Conference, an important international cybersecurity event, as part of a marketing strategy.
Even excluding the $965 million raised by Wiz, the total amount raised by the other companies, $1.93 billion, represented a 19% increase over the previous quarter, according to IVC. Still, a small number of large deals accounted for a big slice of the general total. Just six companies, among them four cybersecurity companies – Cyera, Island, Semperis and Wiz – accounted for 62% of the amount raised in the quarter.
In the report released by Rise this morning, it emerges that excluding all the mega-rounds, of $100 million or more, the total amount raised by Israeli startups in the second quarter was just $1 billion, only slightly better than in the previous quarter. The implication is that the money raised for Israeli companies stays in the hands of a small number of companies, while the majority are fighting for their existence.
Rise also finds that, although the amounts raised by Israeli companies rose, the number of companies raising funds has declined substantially, reaching a low of 112 in the second quarter. The number could be revised upwards as additional fundraisings become known, since not all of them are reported, but Rise doubts whether that will significantly change the picture of the trend. For the sake of comparison, in 2019, before the Covid pandemic, the number of Israeli companies raising funds was 300-400 each quarter.
RELATED ARTICLES
Israeli startups raised over $550m in June
Israeli tech fundraising recovered strongly in Q2
Israeli cloud security co Wiz raises $1b at $12b valuation
Rise uses statistics gathered by IVC, but its analyses reveal negative trends below the surface. It finds, for example, that the number investors in Israel’s technology sector has declined dramatically since the beginning of 2022, even though the total amount invested grew in the second quarter.
In the first half of 2024, the number of foreign investment entities active in Israel fell by 10% in comparison with the previous six months. The figure includes venture capital funds, corporate funds, investment institutions, and corporations. In comparison with the first half of last year, the decline is steeper, at 18%.
The number of Israeli investors also dropped in the first half of 2024, by 15% in comparison with the previous six months and by 22% in comparison with the corresponding period last year. It’s true that many investors began investing in Israeli startups in the pandemic period, 2020-2022, and many evaporated because of the rise in interest rates in the US and the start of the global crisis in investment in technology companies, but the numbers now emerging are lower even than those of 2019.
Exits also declining
Rise also seeks to correct the impression that the many exits by companies recently is part of a trend of improvement in the Israeli technology sector. After the huge sales of companies like WalkMe, Noname Security, Avalor, and other cybersecurity companies, Rise finds that the rate at which Israeli companies were sold was no higher than it was last year: 50 in the first half of 2024, compared with 98 in the whole of 2023. As for flotations of Israeli tech companies in New York, it turns out that the number was below the average of previous years. In fact, only one Israeli company has made an IPO in New York this year, namely smart glass company Gauzy.
EU association under threat
Rise also reports that Israel’s status in European research and development programs is in danger, after the EU Foreign Affairs Council, which brings together the foreign ministers of member countries, decided at its meeting in May to convene the Association Council, which governs relations with Israel in this respect. “Part of the discussion in that meeting was about sanctions on Israel, though several EU countries oppose such sanctions. The Association Council will discuss the situation in Gaza, and whether Israel is fulfilling the human rights obligations of the association agreement it signed in 2021,” the Rise report states. Israeli academic institutions have benefitted from grants totaling some €3.15 billion under that agreement.
“The fourth quarter was the highest for investment for over a year, which could indicate a degree of recovery by Israeli high-tech after a long period of crisis,” says Rise CEO Uri Gabai. “It is important to stress, however, that there are still worrying signs, such as the decline in the number of investors and question marks over innovation links with Europe, the main warning light being the growing dependence on a small number of outstanding companies. Without them, the Israeli tech industry has stabilized at a level of investment of about $1 billion per quarter.
“To the extent that the security situation becomes permanent, high-tech will also stabilize, at a lower level than in the past. If the Israeli government wishes gradually to restore high-tech to the level of activity before the crisis, it has to invest more in this sector, particularly in early-stage startups.”
Published by Globes, Israel business news – en.globes.co.il – on July 2, 2024.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.
