Israeli venture capital fundraising hit 8-year low in 2023

Year of political upheaval and outbreak of Israel-Hamas war saw funds raised by local VCs plummet 73% from previous year, IVC-Gornitzky report shows

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

Israeli tech employees and activists protest against the government's planned judicial overhaul at Ramat Hahayal, Tel Aviv, July 4, 2023. (Miriam Alster/Flash90)
Israeli tech employees and activists protest against the government's planned judicial overhaul at Ramat Hahayal, Tel Aviv, July 4, 2023. (Miriam Alster/Flash90)

Fundraising by Israeli venture capital firms nosedived 73 percent in 2023, a gloomy sign for cash-strapped startups that have been grappling with dwindling financial runways in a year of political unrest and war.

The $1.52 billion raised last year by 21 Israeli VC funds is the lowest since 2015 and represents a 73% plunge from the $5.9 billion raised in 2022 by 62 VC funds, a peak year for fundraising, according to the annual IVC-Gornitzky-KPMG Israel investor report conducted with the Israel Innovation Authority.

Three VC investors — Qumra Capital IV, TLV Partners V, and Viola Growth IV — accounted for 51% of total funds, raising over $200 million each.

Currently, Israeli VC funds still sit on an estimated $10.08 billion in investments geared for Israeli tech companies, according to estimates presented in the report. Out of the capital available for tech investments, or so-called dry powder, about $2.38 billion or 24% is for new investments, while $7.7 billion, or 76% is earmarked for investments into portfolio companies.

“There is a decrease in the valuations of Israeli startup companies, making them more attractive for investments,” said Shlomo Landress, partner and head of technology at Gornitzky law firm. “The recent improvement in the technology sector in the United States could also contribute positively to the technology investment landscape in Israel.”

The Israeli VC ecosystem includes a total of 226 active funds managing over $29 billion in assets, with the largest 24 managing over $500 million each.

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

Israel’s tech industry has been struggling to raise critical financing as the sector grappled last year with political uncertainty around the now-frozen judicial overhaul and the outbreak of the war triggered by the Hamas-led onslaught on October 7, which pushed investors into a wait-and-see position on deal-making.

In 2023, Israeli institutional investors, including Altshuler Shaham, Clal, Harel, and Meitav Dash injected about $143 million into Israeli tech companies, marking a 70% drop from the $486 million invested in 2022, according to the report. The sharp slowdown was also reflected in the number of deals, which dropped by 55% year-on-year.

“2023 marked a year of profound challenges for the high-tech and venture capital sectors,” said Dina Pasca Raz, head of technology at KPMG Israel. “The importance of fundraising and investment rounds is undeniable, yet our industry’s strength lies in many factors.

“To prevent an exodus of innovation, it’s crucial to offer compelling incentives to entrepreneurs, preventing companies from leaving Israel, thus sustaining and bolstering this robust foundation,” said Pasca Raz.

Israel Innovation Authority CEO Dror Bin said that following the report’s findings and negative trends in 2023, strategic initiatives to boost available capital are being implemented.

“Notably, the Fast-Track program injected NIS 400 million into companies with significant business and technological assets and limited runway,” Bin said. “The recently launched Start-up Fund plans to conduct 100 funding rounds for pre-seed, seed, and Round A companies, investing approximately NIS 500 million.”

“In the near future, we also plan to launch the Yozma 2.0 Fund, which will engage Israeli institutional investors and incentivize them to increase their investments into Israeli Venture Funds to an overall investment of NIS 4 billion in 2024-25.”

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