Tel Aviv at sunset, Israel Startup Israel
IVC released the IVC-LeumiTech Israeli Tech Review Q3/2023. The report, however, is based on data from before the barbaric October 7 Hamas terrorist attack and obviously, many business deals have been put off due to the current situation. But Israel Startup Nation perseveres.
The financial world has been experiencing a period of significant volatility and uncertainty, with many aspects of the global economy exhibiting unusual or hard-to-explain trends. However, said IVC, the recent data on Israeli Tech investment activity suggests that the sector may be returning to a state of normality.
The average variation in investment numbers and amounts has stabilized in the last two quarters, returning to levels that were consistent with the pre-mid-2020 period. This suggests that the recent decline in investment activity may have been a temporary phenomenon, and that the Israeli Tech sector is showing signs of resilience.
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Several factors could be contributing to this return to normality, explained IVC. One possibility is that investors are regaining confidence in the Israeli Tech sector, recognizing its long-term potential and innovation capabilities. Additionally, the global economic outlook may be stabilizing, which could encourage investors to increase their allocations to high-growth sectors like technology.
Of course, it is too early to say definitively whether the recent stabilization is a temporary or permanent trend. However, the data provides a glimmer of optimism for the Israeli Tech sector, suggesting that it may be weathering the current economic storm and returning to a more stable growth pattern.
The Q3/2023 capital raising amounted to $1.78 billion in 90 deals. IVC said the main notion in its report is that Q1/2023 numbers signal a bottom (for the moment) and we are now at a stabilization process.
Here are some of the highlights from the report:
Unicorn capital raising activity continued at a slow pace in 2023. While the trend since Q1/2023 has improved, numbers are still at the levels of the second half of 2022.
In total, only two new unicorns were created in 2023 so far, a sign that high company valuations are not easily achieved, as opposed to the prolific 2020–2022 period for unicorns.
The third quarter of 2023 seems to have held a steady course, with the 12-month moving average looking stable, signaling that the Israeli high-tech market has reached a plateau in capital raising activity, at least in the short term.
More young companies succeeded to raise seed capital through the Q1-Q3/2022 period, with 126 deals – equal to the In Q3/2023, the pattern of pre-seed and seed rounds is still pointing down, compared to the numbers we saw in 2021–2022. In terms of amounts, the seed and pre-seed numbers are in a long slowdown that has started to stabilize in Q3/2023.
In Q3/2023, the downtrend in seed round amounts (seed and pre-seed) inched up for the first time after 5 quarters of decline. Less early rounds (pre-seed, seed and A rounds) were made in the first three quarters of 2023 compared to the same period in 2021 -2022, but in the ranges we saw during the same timeframe in 2018 – 2020.
Quarterly deals over $50m kept the same pace since Q4/2022, a decrease of 22% in capital and 33% in number of deals from Q3/2022. The amount share of this deal type out of total capital raised, however, reached 57% – the level we saw in 2019–2020.
VC-backed deals have kept their pace in Q3/2023, at 2018–2019 levels, while the stabilization of this deal type continues, following a sharp decrease in Q4/2021–Q1/2023.
In Q1–Q3/2023, Israeli high-tech exit activity experienced a slowdown, with 73 exits amounting to $8.58 billion. While the total amount of the exit activity is in the ranges IVC saw in similar periods (thanks to Imperva’s $3.6b acquisition by French Thales), the number of deals is relatively low.
In Q1–Q3/2023, the number of public follow-on offerings have kept at the 2022 annual numbers, while attracting 42% less capital, approaching the 2019 annual amount.
