Funding fears lessen as Israeli startups find footing in downturn, survey finds

Study by Startup Snapshot shows founders, employees relatively optimistic despite market turmoil

Ricky Ben-David is The Times of Israel’s Tech Israel editor and reporter.

An aerial view of the Azrieli compound area. (Oren Kfir via iStock by Getty Images)
An aerial view of the Azrieli compound area. (Oren Kfir via iStock by Getty Images)

Worries surrounding Israeli startups’ ability to raise funds in a market downturn have slightly lessened in recent months as companies have been able to stretch their “runway” for the coming period and focus more on bringing in revenue at an earlier stage, a new survey of over 300 tech founders and 400 employees has shown.

Startup Snapshot, a data-sharing platform for the Israeli startup ecosystem, found that although it remains a top concern, 64% of founders said they were worried about fundraising for their next round by August, down from 74% in May.

The surveys are prepared in partnership with Intel Ignite, Intel’s scale-up program for Israeli startups, Leumitech, the banking giant’s financing arm for the Israeli ecosystem, the Zell Entrepreneurship Program at Reichman University, and law firm Yigal Arnon-Tadmor Levy.

In this report, other main worries were securing sales, and hiring and retention, a previous lead concern before the market correction. By August, just 36% of startups named hiring and retention as a top issue, down from 40% in May and 58% earlier in the year.

More companies are now worried about their sales operations, with 54% naming the issue as their main concern, up from 47% in May and 35% in April.

Raising money has become more difficult in a jittery market and startups have to show validation and initial revenue in earlier stages.

But there’s a bright spot. Despite the turmoil, Israeli companies raised nearly $10 billion in the first half of 2022, a 30% drop compared to the second half of 2021 — a year in which Israeli companies nabbed $25.6 billion in private investments that partly led to over-valuations.

Since then, firms have also had to make painful decisions such as implementing layoffs and other cost-cutting measures to ensure that the existing capital they do have lasts longer. As a result, the Startup Snapshot survey found that 78% of early-stage companies were able to extend their runway for at least another six months, with 62% securing at least 12 months of spending capability to weather the next period.

At the same time, most companies (58%) are still hiring for key positions, albeit at a slower pace than earlier this year, the survey found.

The data reflects changing market conditions, and how tech firms have been coping with the shifting sands. Since the beginning of the year, interest rates have climbed, stock market showings have dropped and inflated private market valuations have fallen sharply.

The findings, said Startup Snapshot Founder Yael Benjamin, are “very reassuring and point to the good health of the Israeli innovation ecosystem. Local founders are very flexible and have demonstrated their ability to rapidly adapt to shifting market dynamics and investor demands.

“We see a situation in which the majority of companies are coming into the downturn well-capitalized and with reasonable spend, giving them the breathing room necessary to weather the storm,” she told The Times of Israel.

Leumitech CEO Timor Arbel-Sadras said in a statement that startup founders have taken “swift steps to cut costs and extend their runways, buying themselves additional time.”

“The question remains how the changes will affect the future topline and hence the real runway, and whether this leaner cost structure will enable founders to reach their business goals,” she added.

On the employee side, the survey found that workers felt optimistic and were not immediately worried about their roles. Some 67% of the 435 employees polled for the study said that they were not concerned about their future within the startup and 49% said there were many new opportunities available in the market.

And despite the slowdown, employees were “continuing to take advantage of the immense talent gap” in the market, with fierce competition and a lack of qualified applicants for some key tech roles.

A bit less than half of the employees polled for the study said they would consider leaving their current roles in the next 12 months to seek out better opportunities with other companies or one of the hundreds of multinationals operating in Israel

Job seekers were more attracted to smaller startups, with 42% wanting to work for a growth-stage startup, 29% preferring an early-stage startup (up from 22% in May) and only 14% looking to a large public firm like Wix or ironSource.

Almost a fifth of those polled said their next move might be to establish their own startup, up from 13% in May’s report.

Among the top reason for staying where they are, employees cited a belief in the company’s vision and liking their work colleagues.

In times of uncertainty, employees want to work in a company where they really believe in the vision and the ability of management to execute it. It is up to the founder to clearly communicate with employees, connecting them to the company strategy and steps to reaching the vision,” Benjamin said.

The Startup Snapshot initiative, launched in 2020, aims to bring greater transparency to Israel’s tech ecosystem by creating a data-sharing and cooperation platform within the community.

Luke Tress contributed to this report.

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