Entrepreneurs and investors ponder the future of tech as fundraising slumps
Only 10 new Israeli VC funds managed to raise a total of $554 million in January to June, in what is set to be one of the worst years for capital raising in tech industry
Sharon Wrobel is a tech reporter for The Times of Israel.
The line to access Israel’s annual Journey tech conference held in Tel Aviv on Tuesday was long, with entrepreneurs, startup founders, investors, and consultants greeting each other, hugging and chatting along. For a moment one could almost forget that the country has been embroiled in a war for almost a year.
The main hall at consultancy Ernst & Young’s conference filled quickly as the 1,200 participants rushed to listen to Israeli singer Ninet Tayeb perform the song “Unstoppable,” by Australian singer Sia, which kickstarted the main panel discussion.
The song was aptly chosen to mirror the resilient attitude the Israeli tech ecosystem has been upholding over the past war year alongside its characteristics of being “unstoppable” and “invincible,” especially as many startups are facing funding challenges.
“The internal political conflict [during the attempt to overhaul the judicial system] and then the war have hurt our ecosystem,” said Noam Canetti, who is managing partner at Ernst & Young Israel. “Many businesses operating today feel uncertain about their future in five, 10, or 15 years from now.”
But “we have the grit, the stamina and determination over the long term, especially in the face of challenges and difficulties, [as] we transform constrains and threats into ideas and opportunities,” said Canetti.
Speaking at a panel discussion Mellanox founder Eyal Waldman said that Israel is in a crisis but has no choice other than to survive. He said that the great people, the talent, and the hope for a change in government drives his optimism for Israel’s future.
The ongoing call-up of reserve soldiers to the war effort, many of whom are working in local tech firms and companies, and the continued uncertainty about the duration and extent of the war with the Hamas terror group in Gaza present challenges, in particular for early-stage startups, both in terms of attaining critical funding for their survival and their daily operations.
“The uncertainties and risks, the extended military reserve service, the general sentiment toward Israel, and even the availability of flights, make running a business out of Israel challenging,” said Canetti. “Conferences like this one are almost impossible to execute — and yet, here we are.”
Data presented in the IVC-Gornitzky-KPMG Israel investor report published on Tuesday showed that capital raising by venture capital funds in the first half of this year hit a record low in terms of both the number of new funds and the amounts secured.
In the first six months of the year, only 10 Israeli VCs raised a total of $554 million for new funds in a gloomy sign for cash-strapped startups grappling with dwindling financial runways in a year of war that followed political unrest. If the current trend continues, 2024 is expected to end with total capital of $1.09 billion secured by 20 new funds, according to estimates in the report conducted together with the Israel Innovation Authority. That compares with the $1.6 billion raised by 27 new funds in 2023, the lowest amount since 2015.
“Due to the lingering war, 2024 wasn’t expected to be a usual year,” said IVC CEO Ben Klein. “The first half of 2024 highlights a challenging and dynamic period for the Israeli VC landscape.”
Red Dot Capital Partners and Vintage Growth Fund raised $400 million or $200 million each, which accounted for 73% of the total amount secured in the first half of the year, the report found.
“We sell globally, and we rely on foreign investments,” said Canetti. “Despite everything that happened here during the last couple of years multinationals and foreign investors continue to make big bets on Israel, acquiring Israeli companies, and expanding local activities.”
In the first six months of the year, foreign investors still accounted for more than half of first investments into Israeli startups, but the decline in the number of investments is experienced by both Israeli and foreign VCs, according to the IVC-Gornitzky-KPMG report.
“We need to make sure we are super attractive to foreign investments and that Israeli companies can and want to remain Israeli as they scale, build headquarters here, and produce generations of executives,” said Canetti. “This will happen if we foster a more welcoming environment for investors and multinationals, bring back certainty, keep the simplicity of corporate laws, and update tax rules and incentives.”
“Tech is key for the future of Israel,” he remarked.
Currently, Israeli VC funds sit on an estimated $10.2 billion in investments geared for local tech companies, according to data presented in the IVC-Gornitzky-KPMG report. Out of the capital available for tech investments, or so-called dry powder, about $2.4 billion is for new investments, and $7.8 billion, is earmarked for follow-on investments into existing portfolio companies.
“While the overall capital raised has decreased compared to previous years, the market remains resilient, with substantial dry powder,” said Cohen.
