Sign of the times? Investment in Israeli high tech dropped sharply in 2022

While the plunge sounds quite disheartening, 2021 was an absolutely record-setting year for investments in Israeli firms, which puts the news somewhat into perspective.

By Batya Jerenberg, World Israel News

Investment in Israeli high-tech startups dropped a whopping 43% in 2022 according to a report published by Start-Up Nation Central (SNC), a nonprofit organization that connects such companies to financial backers, and its independent policy think-tank, SNPI.

Total investments fell from $27 billion in 2021 to $15.5 billion, with startups in the fields of fin-tech and cybersecurity feeling the investment pinch in particular. The number of funding rounds also dove by about a third, from 1,103 to 826, the SNC report noted.

While the plunge sounds quite disheartening, 2021 was an absolutely record-setting year for investments in Israeli firms, which puts the news somewhat into perspective. As SNC CEO Avi Hasson told Calcalist, “Had I said at the end of 2020 that startups would have raised $15 billion in 2022, we would have been delighted by that.”

On the other hand, such a bounty raises expectations.

“After what happened in 2021, we now know this is a difficult time,” Hasson continued. “I believe that the ramifications of 2022 will continue into 2023 and 2024.”

The major part of the financing drop-off occurred during the second half of the year, when markets in general started to slow down as a result of recession fears due to the war in Ukraine that began in February, subsequent supply problems that hadn’t yet recovered from the global Covid-19 crisis, and rising interest rates as governments tried to stop escalating inflation.

Israel’s hi-tech sector was not the only one hit by the bad global financial news. Silicon Valley investments last year fell by a similar 40%. And all these issues are still on the table as 2023 begins.

There are glimmers of good news. Seed investments in Israeli startups actually rose from $1.3 billion to $1.6 billion, a rise of 22% from 2021 to 2022. One reason for the jump is that investors swung from putting their money into later-stage companies to financing firms that were in earlier stages of life.

According to the SNC report, the previous, wildly successful funding rounds of the later-stage companies led to their valuations increasing to the point that it discouraged investors in a more cautious mode, considering that most of the companies had yet to even make a profit.

While the media in Israel has prominently noted thousands of recent layoffs in the high-tech sector in recent months, Hasson was optimistic for the long run.

“There was a bullish market for a long time, and at the macro level the current situation is healthy and necessary,” he told the financial paper. “There were many companies that should have never been founded or raised big follow-up rounds. A lot of money will now be freed to enter the right places, and the coming years can also be positive for the industry.”

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