Israeli startups and companies raised close to $10 billion in investments in the first half of 2022, a notable achievement considering a significant market downturn that has seen thousands of workers laid off and investors spooked, according to the latest IVC Israeli Tech Review report for H1 2022 put together by research center IVC and LeumiTech, a Leumi banking arm that specializes in banking for high-tech companies.
The figure marked a 30% drop compared to the second half of 2021 (H2 2021) — part of a bonanza funding year when Israeli companies nabbed $25.6 billion in private investments in total — but companies are on track to end 2022 with higher investment figures than all of 2020, when tech outfits raised an annual $10.3 billion, a previous record.
2021 was a bumper year for the global tech industry, with about $643 billion in private funding. This flow of funds has led to high company valuations, and sometimes over-valuations of companies that were not close to turning a profit. About half of the overall existing unicorns (private companies valued at $1 billion or over) today were “born” in 2021.
It was also a record year for tech IPOs and M&As.
In Israel, too, tech firms saw exits jump an astonishing 520 percent in 2021 to an unprecedented $81.2 billion in value. (Exits are defined as merger and acquisition deals or initial public offerings of shares.)
But in 2022, the market started to turn, and valuations and shares traded publicly have been taking a battering.
According to Calcalist records, over 1,000 tech workers have been or are being let go as companies conserve on cash, even firms that raised “mega-rounds” (of $100 million or more) just a few months ago.
Investment firms and financial institutions have warned of a tough road ahead in 2022, with rising inflation and interest rates, the ongoing Russian war on Ukraine impacting supply chains and the global economy, and investors hunkering down.
Guy Holzman, IVC’s CEO, said in a statement that the first six months of 2022 found the Israeli tech sector “at an inflection point between overhyped valuations and the high possibility of global economic depression.”
But the resilient tech economy did extremely well during the last quarter, Q2 2022, with $4.12 billion in investments across 182 deals, Holzman noted.
“The numbers and amounts of deals didn’t change much in historic levels, and the contracted valuations of high growth companies were well adjusted to the trend on Wall St. It still remains to be seen how the current situation will affect the early-stage start-ups in the following months,” he said.
Between January and June 2022, Israeli companies raised $9.8 billion in 395 deals, and the tech industry saw 66 “exits” with nine IPOs (including two SPACs) and 56 mergers and acquisitions (M&As), according to the IVC-LeumiTech report.
Among the notable M&As are Intel’s intended acquisition of Israel’s Tower Semiconductor for $5.4 billion. Intel is also set to buy Israeli computing tech startup Granulate for about $650 million.
Google bought Israeli threat detection firm Siemplify (officially, Cyarx Technologies) for $500 million earlier this year, and Qualcomm, a major US tech company, acquired Cellwize Wireless Technologies, an Israeli maker of cloud and artificial intelligence-based software that can speed up deployment of 5G networks for around $350 million.
Notable investment transactions so far this year include funding rounds for digital assets platform Fireblocks, with a $550 million investment in January, construction tech company Veev, with an investment of $400 million also in January, and cybersecurity company Axionus with a round of $200 million in March.
In June, Coralogix, a company that develops advanced machine learning log analytics, announced a Series D round of $142 million; Israeli semiconductor company Vayyar, the developer of 4D imaging radars, pulled in $108 million; and Aidoc, a maker of AI-based software that helps radiologists read imaging scans raised $110 million.
As in previous tech reports, companies in the cybersecurity sector generated the most funding (about $2.5 billion) in H1 2022, followed by fintech startups with about $1.5 billion, IoT (internet of things) companies with about $700 million) and food tech outfits with $450 million in investments, including $135 million for plant-based meat startup Redefine Meat.
LeumiTech CEO Timor Arbel-Sadras said that a majority of the drop in investment levels in H1 2022 were of rounds higher than $50 million (61 such deals in H1 2022, down from 79 in H1 2021), and that funding below that level held steady while early-stage investments saw an increase.
“Funding rounds below $50 million remain relatively stable. This figure proves that there are good companies that manage to continue raising money according to their real value. At the same time, reality requires them to make quick changes, including streamlining, in order to maintain their cash on hand for a longer period,” she explained.
Arbel-Sadras said the sector is subject to “processes that will eventually lead to healthy economic conduct of the high-tech industry,” in terms of the focus on growth, operational efficiency, and established business models. “Mature companies which will act in accordance with these principles, will overcome the challenges and run successful funding rounds,” she said.
Arbel-Sadras also explained that “demand for technological products continues to be stable in all sectors. The data shows that investors continue to seek young companies, at similar investment levels.”
Early-stage rounds amounted to over $2 billion in H1 2022, according to the report.
“The strength in early rounds could… signal a shift in investors interest to more potentially lucrative investments than the hyper growth companies, which are now considered overvalued,” the report said.
Arbel-Sadras said that for entrepreneurs in the initial stage, “this is no doubt an opportunity. They have a good chance of raising funds according to real value, if they can build attractive product-based companies along with a sustainable business model.”
“The numbers for H1  are impressive but still show clear signs of a slowdown in specific parts of the Israeli tech economy,” the report read.