Investment in Israeli startups slows in third quarter, but is up 32% this year
Capital raised by tech firms in July-September was down 20% compared with previous quarter, but up 40% year-on-year, IVC-LeumiTech data shows
Sharon Wrobel is a tech reporter for The Times of Israel.
Investment in Israeli startups and tech firms slowed in the past three months, dropping 20 percent compared with the previous quarter, amid a prolonged war with the Hamas terror group in Gaza and intense fighting with the Hezbollah terror group in the north, according to a report compiled by research center IVC and LeumiTech, a Bank Leumi arm that specializes in tech companies.
Israeli tech startups raised $2.43 billion in capital from investors from July through September, compared with $3.05 billion during the previous quarter, preliminary data of the report showed.
But the volume of capital raised in the third quarter was up 40% from the same period last year, when local political upheaval around the contentious judicial overhaul pushed foreign investors into a wait-and-see position about deal-making. The data suggests that the political unrest and uncertainty around the proposed judicial overhaul had a more damaging effect on investor sentiment than the ongoing war.
So far this year, Israeli tech firms have raised about $7.22 billion from investors, an increase of 32% compared with the same period last year. Larger deals led capital-raising rounds over the past three months, with six transactions above $100 million. AI startup Safe Superintelligence, co-founded by Ilya Sutskever, OpenAI’s former chief scientist, secured $1 billion from investors earlier this month. The startup is planning to open an R&D center in Tel Aviv.
In 2023, fundraising nosedived 56% to $6.9 billion year-over-year as local tech firms struggled to lure investments in a year of political upheaval led by the proposed judicial overhaul, followed by the war that broke out in the aftermath of the October 7 massacre perpetrated by Hamas terrorists in southern communities near the Gaza border.
“Israeli high-tech, which continues to operate in the shadow of the war, demonstrates resilience and even maintains an encouraging growth trend compared to 2023,” said LeumiTech CEO Maya Eisen-Zafrir. “In addition to the large deals, we are seeing a consistent increase in capital raising in the rest of the deals, quarter after quarter, since the beginning of the year.”
“In these complex days, as we soon mark one year to the October 7 onslaught, we realize how the performance of Israeli high-tech is not trivial and embodies the determination and flexibility that characterize Israeli entrepreneurs.”
During the third quarter, the share of investments in cyber-related companies was only 14%, compared to 62% in the previous quarter, according to data presented in the report.
For almost 12 months, Israeli startups have been grappling with the ongoing callup of employees to reserve duty and continued uncertainty about the duration of the war. The absence of personnel has damaged startups’ day-to-day operations, as well as their ability to attract foreign investors and raise funding.
Commenting on the report, IVC CEO Ben Klein said that the preliminary data showed that despite the prolonged war, the presence of foreign investors in the local tech industry in the first nine months of the year had only declined by a few percentages compared to the corresponding period in 2023. The tech sector relies heavily on foreign capital, largely American. In the first nine months of the war, 836 investments were recorded by foreign investors, versus 898 during the same period in in 2023.
“We have been closely following the Israeli high-tech industry for over 25 years, and we have never seen such challenging conditions for innovation and investment,” said Klein. “In the face of uncertainty, foreign investors hardly changed the scope of their exposure and activity remained within the range in the years 2018 and 2019.”
“Foreign investors continue to direct resources to Israeli companies and help the high-tech engine to drive growth in the entire economy,” he added.
Full quarterly data is expected to be released in October.
