In 2022, as the funds pouring into Israeli tech firms slowed down rapidly amid rising interest rates and a global stock market fall, investment in local healthcare-focused startups was found to be more resilient, according to a report published Monday by IVC Research Center, which tracks the industry, and aMoon, a healthtech and life science venture capital firm.
Last year, Israeli healthtech or life sciences startups drew $2.8 billion in investments, a 13% decline over the $3.2 billion raised in 2021 and the $2.7 billion recorded in 2020, the data showed. Digital health and biotech startups collectively nabbed over $2 billion, or 78% of the total capital raised in 2022.
Overall, investment in Israeli tech startups and companies slumped about 43% from the 2021 bonanza funding year, when Israeli companies nabbed a record of almost $26 billion in private investments in total leading to high company valuations.
“The healthtech ecosystem in Israel continues to grow and mature,” Erica Bennett, research director at aMoon, told The Times of Israel in emailed comments. “Like other segments in the high-tech sector, it is showing some signs of slowing down, but we believe that the universal and stable need for better, more affordable healthcare will continue to drive the resilience of our healthtech innovation ecosystem.”
The healthtech industry is generally divided into four major subsectors – digital health, medical devices, biotechnology and pharmaceutical therapeutics. The healthtech subsector accounts for 20% of Israel’s tech ecosystem, employing more than 63,000 people at 1,810 active life sciences firms in 2022 — slightly up from the 1,779 healthtech startups recorded in 2021. About half of the companies in the life sciences ecosystem were digital health and biotechnology startups.
There were 212 healthtech companies involved in investment deals last year, down from the 291 recorded in 2021, according to the data. Start-Up Nation Central, which tracks the tech industry, reported that only 159 healthtech deals (19% of all tech deals) were closed in 2022, representing a decline of 27% compared to 2021. The number of funding rounds was the lowest since 2016, with the second half of the year seeing the lowest since 2014.
Aidoc, a maker of AI-based software that helps radiologists read medical scans and alerts them to strokes or pulmonary embolisms, last year pulled in a $110 million Series D investment round, led by US VC firm General Catalyst. Medical tech company Viz.ai, a developer of an AI-powered stroke detection and care platform, drew an investment of $100 million at a valuation of $1.2 billion. The financing round was led by Tiger Global Management, a New York-based investment firm focused on software and financial tech, and Insight Partners, a VC and private equity firm also based in New York.
In 2022, the average funding per deal was $13 million, up from $11.3 million in 2021, and more than doubled in size from $6.7 million in 2018, the aMoon-IVC report showed.
“The increase in average deal size in healthtech was a key growth driver for the sector,” the report said.
In an already challenging macroeconomic environment with tech executives in Israel and abroad bracing for a slowdown in revenue growth this year, local healthtech leaders have recently warned about the dangers that the government’s proposed changes to weaken the judicial system could pose on the industry. The main concern among many tech founders and entrepreneurs is that the judicial overhaul will erode democracy and weaken checks and balances, which in turn will make venture capitalists and other money makers leery of investing their money in the country.
The Israeli high tech sector, including life sciences firms, is dependent on foreign investment, skilled personnel, and top academic talent. Healthtech leaders told The Times of Israel recently that the subsector’s need for massive amounts of long-term foreign investment, top Israeli scientific brainpower, and international academic and commercial collaborations make it especially vulnerable should Israel lose its perception as being among the world’s liberal democracies. Some healthtech firms are already seeing funding drop, while Israeli researchers are eyeing positions abroad, the leaders said.
In the first quarter of this year, Israeli tech companies raised $1.7 billion, down 70% from the $5.8 billion in the first three months of 2022, according to a report by IVC Research Center and LeumiTech published earlier this month. The quarter marked the lowest figure in four years.
Bennett noted that “as the largest healthech fund in Israel, aMoon is deeply committed to the Israeli healthtech sector supporting innovation through investments, partnerships and programs as we continue to see healthtech as a growth engine of the Israeli economy.”
The aMoon-IVC report showed that although the number of healthtech companies in Israel continues to rise year-over-year, the rate of growth has started to decline in recent years, in particular in the pace of new startups that are being set up. In 2022, only 61 new companies were established down sharply from the 118 in 2021.
“This trend of decreasing new company formations, although in-line with the trends in other high-tech sectors, was also driven by recent investment trends,” the report said.