The report also noted that private funding trends in Israel and the US ‘closely mirrored’ each other, with both ecosystems experiencing similar declines after October 2023.
By Noah Michaeli, TPS
While certain sectors of the Israeli economy have suffered small declines over the past year of war, the country’s tech ecosystem remains strong and continues to develop, according to a report released on Thursday.
“If you look at indicators of health in the different sectors, it’s a story of resilience,” Avi Hasson, CEO of StartUp Nation Central told The Press Service of Israel.
Startup Nation Central, which released the report, is a Tel Aviv-based non-profit that promotes Israeli startups and innovation.
“The money raised this year is similar to previous years and mirrors the trend of what we’re seeing in the US,” he explained. “One would expect that with all the extra load, due to the war, we would see an underperformance. But we haven’t.”
The report details the impact of the attack and subsequent war on Israel’s tech ecosystem.
According to the report, despite the ongoing war and global funding challenges, Israel’s tech sector raised $7.8 billion across 577 private funding rounds — a small 4% decline from the $8.2 billion recorded in the same period last year.
“This resilience indicates the continued confidence of investors in the long-term potential of Israel’s innovation landscape,” the report said.
Meanwhile, mergers and acquisitions reached $9.6 billion across 73 deals, slightly down from $10.6 billion the previous year.
The business software and cybersecurity sectors led this activity, with notable exits such as WalkMe’s acquisition by SAP and Run’s acquisition by Nvidia.
The report also noted that private funding trends in Israel and the US “closely mirrored” each other, with both ecosystems experiencing similar declines after October 2023.
“Israel’s funding levels initially dropped to 66% by February 2024, while the U.S. saw a more moderate decline to 87%. Both ecosystems rebounded by May, with Israel recovering to 152% and the U.S. to 158% of their October levels,” the report said.
Another finding of the report related to business continuity. “The conflict has forced 24% of companies to relocate some of their operations, and 44% reported shortages in human capital.
Despite these challenges, 54% of companies remain confident in their ability to grow in the coming year, particularly in the cybersecurity and business software sectors, the report said.
All About Demand
Hasson told TPS-IL that one of primary reasons Israeli hi-tech has not suffered despite the difficulties is demand.
“Unlike tourism, the demand for Israeli hi-tech didn’t go down due to the war. As long as you can deliver, you’re ok,” Hasson explained.
He noted that 90% of Israeli hi-tech is software, not physical hardware produced in a factory, meaning that disruptions from the war are less important. He added that the vast majority of Israeli hi-tech is not in the north or south, the hardest-hit regions of the country.
One trend that the report does note, however, is that due to rising uncertainty, investors are now tending to go to the lower-risk sectors and are therefore risk averse to earlier-stage startups.
“Much more attention is now on mega rounds, on later-stage companies, than there was before,” he explained adding that while it may be getting harder to be a beginning-stage business, this is a global trend.
While there is an increasing desire to avoid risk, for some sectors, this is not necessarily a negative development.
Hasson cited an emergence of many companies and VC startups in the defense sector, while companies focusing on rehabilitation and mental health are also doing well.
While acknowledging that there is definitely nervousness on the part of investors, Hasson is highly optimistic.
“What we’re seeing is simply a reflection of the fact that what Israel can offer the world is unique,” Hasson said.