Investments in Israeli startups drop by 36% in third quarter of 2022 — report

Research shows decrease in funding activity compared to two previous quarters, but companies still are on track to end year with high investment figures

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

Tel Aviv's financial business district skyline, June 2022 (Elijah Lovkoff via iStock by Getty Images)
Tel Aviv's financial business district skyline, June 2022 (Elijah Lovkoff via iStock by Getty Images)

Investments in Israeli startups dropped by 36% in the third quarter of 2022 (Q3 2022), compared to the previous quarter, with Israeli companies raising a total of some $2.8 billion between July and September this year, according to a report by investment firm Viola Group.

The figure marked a notable drop from Q1 and Q2 2022 fundraises, which amounted to $5.9 billion and $4.4 billion, respectively, according to the report published on Wednesday.

Israeli companies also saw a 69% year-on-year drop in “mega” deals — funding rounds of $100 million and over — in Q3 2022, but early rounds decreased by a more mild 13% compared to a year ago. “Growth” rounds, or Series B and C investments of anything between $20 million and over $50 million, also saw a drop of 47% in Q3 2022.

The report noted an overall 30% drop in the investment pace compared to last year — a bumper period when Israeli companies nabbed an astonishing $25.6 billion in private capital in total. But Israeli tech outfits are on track to end 2022 with higher investment figures than all of 2020, when companies raised an annual $10.3 billion, a previous record. Investments in the first three quarters of 2022 amounted to roughly $13 billion so far.

According to the Viola report, investments by foreign VCs dropped by some 35% in Q3 2022 and funding from Israeli VCs decreased by 29% compared to the corresponding period in 2021.

Q3 2022 also saw an uptick in extension rounds, where funding is kept open so that a given startup can secure more money at the same valuation. Extension rounds, often an indicator of market trouble, can buy founders and executives some time to grow revenue and fundraise again at a later time under, hopefully, more favorable conditions.

Traders work on the floor at the New York Stock Exchange in New York, Aug. 10, 2022. (AP/Seth Wenig)

Growth-stage companies, however, have “sufficient funds following the fundraising environment last year,” according to Viola principals Rotem Shacham and Tomer Meridor. These companies have been “restructuring their budget and/or exploring the venture debt alternative to secure a longer runway and postpone the fundraising timing” and the tech ecosystem is likely to see “an uptick in growth rounds in 2023.”

A report last month built on a survey of over 300 Israeli tech founders and 400 employees found that worries surrounding the 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.

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. Other main worries were securing sales, and hiring and retention, a previous lead concern before the market correction.

A previous, separate report by Viola on investments in the first half of 2022 noted a roughly 30% drop overall in funding compared to the first half of 2021, but also “a strong growth pace of 26% over a five-year period.”

Viola’s July report tracks with the IVC Israeli Tech Review for H1 2022 published that same month by research center IVC and LeumiTech, a Leumi arm that specializes in banking for high-tech companies.

The IVC report noted Israel’s resilient tech economy, even as markets have taken a battering, with some 200 investment transactions between January and June. There have also been dozens of tech “exits” (defined as merger and acquisition deals or initial public offerings — IPOs — of shares), including notable ones such as Intel’s intended acquisition of Israel’s Tower Semiconductor for $5.4 billion and Google’s purchase of Israeli threat detection firm Siemplify (officially, Cyarx Technologies) for $500 million earlier this year.

Tower Semiconductor headquarters in Migdal Haemek, Israel, Wednesday, Feb. 16, 2022. (AP/Ariel Schalit)

Intel is also buying Israeli computing tech startup Granulate for about $650 million and Qualcomm, a major US tech company, secured a deal to buy 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 Israeli-founded travel tech company TripActions, which raised $300 million last week in equity and debt financing in a new Series G round at a valuation of over $9 billion; digital assets platform Fireblocks, which secured 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.

The much-anticipated IPO of Mobileye, Intel’s self-driving tech subsidiary, may disappoint as the US semiconductor giant is eyeing a significantly lower valuation of $20 billion for the Jerusalem-based unit.

A self-driving vehicle from Mobileye’s autonomous fleet sits outside Mobileye’s autonomous vehicle workshop in Israel. (Mobileye, an Intel Company)

Mobileye, which produces adaptive cruise control and lane change assistance technology in driverless cars as well as driver assistance technology in manually driven cars, was originally expected to be valued at over $50 billion at IPO.

But soaring inflation and other adverse market conditions have led Intel to reevaluate the company’s evaluation at around $20 billion, the Wall Street Journal reported on Tuesday, down from an estimated $30 billion earlier this month.

Still, a $20 billion valuation would make Mobileye’s IPO one of the biggest to take place in the US this year. Intel bought Mobileye in 2017 for $15.3 billion, which remains the biggest tech exit for an Israeli company to date.

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