ISRAEL AT WAR - DAY 144

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Investments in Israeli tech firms plunge 65% in second quarter — report

IVC-LeumiTech data shows downtrend in funding activity has stabilized compared to first quarter, but the $1.78 billion is way down from $5b raised during second quarter of 2022

Sharon Wrobel is a tech reporter for The Times of Israel.

An illustrative photo of the Tel Aviv financial business district skyline. (Elijah Lovkoff via iStock by Getty Images)
An illustrative photo of the Tel Aviv financial business district skyline. (Elijah Lovkoff via iStock by Getty Images)

Capital raised by Israeli tech startups and companies plunged 65 percent in the second quarter of this year compared with the same period last year, according to a report compiled by research center IVC and LeumiTech, a Leumi banking arm that specializes in banking for tech companies.

Israeli tech companies nabbed a total of $1.78 billion from investors in the months April to June of this year, marginally up from the $1.7 billion raised in the first three months of 2023, but down 65% from the $5 billion raised during the second quarter of last year, preliminary data presented in the IVC-LeumiTech Israel tech review report showed. Full data of the Israeli tech sector is expected to be released in July.

Israeli tech firms raised close to $15 billion in capital last year and, during a bonanza funding year in 2021, nabbed $25.6 billion in private investments in total leading to high company valuations. However, in the second half of 2022, investments in private companies slowed amid rising interest rates, a global stock market fall, and tech layoffs.

Adding to this is the local political uncertainty around the contentious judicial overhaul announced earlier this year, which has been pushing foreign investors into a wait-and-see position about dealmaking.

Raising money has been much more difficult in a jittery market exacerbated by the local political uncertainty and companies are hoping to stretch the cash they have for a longer period to ensure their survival. In the years 2021 and 2022 about 80% of venture capital investments in the tech sector were generated from foreign funds, according to the Israel Innovation Authority.

Trading on the Tel Aviv Stock Exchange in the first half of 2023 was mainly affected by uncertainty around the judicial reform, which was frozen in March in an effort to hold talks between coalition and opposition parties in order to reach a broad agreement, the Tel Aviv bourse said in a report released earlier this week. During the first six months of the year, the TA-35 and TA-90 stock indices declined by about 1-3%. Meanwhile, the MSCI World Index jumped 12% during the same period, pointing to the first signs of a recovery in global markets.

Although the fundraising downtrend in the second quarter of 2023 continued year-on-year, the data in the IVC-LeumiTech report showed that the decline in fundraising versus the first quarter has paused “at least for now,” it was noted.

Tech workers march in Tel Aviv to protest against the government’s planned overhaul of the judicial system, January 31, 2023. (Tomer Neuberg/ Flash90)

“We are still seeing a decrease in the annual level of funding rounds, both in amounts and in the number of companies,” said LeumiTech CEO Timor Arbel-Sadras. “At the same time, we recognize the first signs of stabilization in the capital raising figures thanks to follow-on investments, compared to a halt of initial investments.”

The number of deals in the second quarter dropped 48%, with 100 transactions were recorded during the period compared with 192 year-on-year. Dealflow during the second quarter was the lowest in terms of the number of deals since 2017, according to the IVC-LeumiTech data.

Mega deals above $100 million each have become a sort of outlier in the last few quarters, with only one deal above $200 million registered in the second quarter of 2023, the report showed.

“It will be interesting to see how the upcoming months will develop and how companies will adapt their funding rounds to the current economic climate, which will enable new transactions and acquisitions in the tech industry,” remarked Arbel-Sadras.

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