Inside story

Year of the reset: As era of cheap money ends, how will Israeli tech fare in 2023?

Israeli tech firms brace for more cost savings, downsizing to get through global slowdown as the strong get stronger and the weak get weaker

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

Illustrative. High-tech office buildings in Herzliya Pituach, in central Israel, December 12, 2015. (Nati Shohat/ Flash 90/ File)
Illustrative. High-tech office buildings in Herzliya Pituach, in central Israel, December 12, 2015. (Nati Shohat/ Flash 90/ File)

If 2021 was the year of the flurry of billion-dollar tech companies, or unicorns, 2022 was largely about dealing with the aftermath of the boom and a changed economic reality of higher borrowing costs and the end of the cheap money era.

So, what does 2023 hold in store? It looks like it is going to be a year of recalibration for tech companies to reset systems.

Tech investors and entrepreneurs are treading with caution into 2023 with higher inflation and rising interest rates expected to take an even bigger toll in the first half of the year and companies brace for the likelihood of a global economic downturn, or even a recession.

As funding is no longer cheap and revenue growth slows down, cost savings and efficiency have become critical for startup founders and tech entrepreneurs that could make or break their businesses.

“In times of economic slowdown and when you see the markets go down, the amount of money that the high-tech sector is raising is also going down. Getting funding and financing, whether it’s equity or debt, is going to be a great challenge,” said Dror Bin, CEO of the Israel Innovation Authority. “Those startups that are already generating revenues might face challenges in either growing revenues or maybe they will even see a decline in revenues.”

“If companies in many sectors are going to face a slowdown, it means also that their demand for technological solutions is going to decline, such that many Israeli high-tech companies that provide enterprise software solutions might be facing less demand for their products,” Bin added.

2022 ended up being a rough year for Israel’s tech industry, as the uncertain specter of expensive borrowing costs and high valuations pushed entrepreneurs and investors into a wait-and-see mode.

Dror Bin, CEO of the Israel Innovation Authority. (Courtesy/Hanna Teib)

Last year also saw fewer new additions of Israeli-founded unicorns, or privately held companies valued at over $1 billion.

As of December 14, Israel is home to 98 unicorns, with 23 of them born in 2022, down from the 42 new ones recorded in 2021, but still up from the 19 new ones in 2020, according to Tech Aviv, which tracks the industry.

Forty of these unicorns, or some 41%, are based in Israel, with the rest in Silicon Valley, 24; in New York, 19; five in Boston; four in London; two in Los Angeles; and one each in Singapore, Chicago, Barcelona, and Dallas.

Local startups raised $13.9 billion over 538 funding rounds last year, a sharp decline of over 46% from the previous year’s record of $25.8 billion, according to data collected by Israeli venture investing group Vintage Investment Partners. The record flow of funds invested in 2021 led to high company valuations, and sometimes overvaluations of companies that were not close to turning a profit.

“What happened in 2021 was very unique but the negative impact of the significant capital flow is that there were a lot of companies that were raising funds without proving sustainable business, and some will not make it through this downturn and will need to close shop,” said Asaf Horesh, General Partner at Vintage Investment Partners, which has $3.6 billion in assets under management. “The first six months of 2022 were very similar to 2021 to the extent that unicorns were even priced higher than in 2021.”

According to Vintage, in the first half of 2022, investors paid an average of 50 times the company’s sales volume, compared to a multiple of 41.6 times in 2021, and a multiple of 27.9 times in 2020.

Founded in 2003, Vintage invests in venture capital firms and startups in Israel, Europe, Canada and the US, and combines secondary funds, co-investment funds and funds of funds. The Herzliya-based tech investment firm invested directly in companies such as Moovit (sold to Intel in 2020 for $900 million), Honeybook,, MyHeritage, Wolt and Outbrain.

“What we are seeing now is that for the first time maybe in a few years, there is sort of an adjustment of the valuation of late-stage or mature companies and in public markets today, good companies are traded at [a valuation multiple of] 10 to 15 times,” said Horesh.

A downturn

In the first half of 2022 investments in Israeli venture capital-backed private companies totaled $10.3 billion, similar to the full-year figure of 2020, and a notable achievement considering a significant market downturn that has seen thousands of workers laid off.

As the downturn deepened, investments slowed with tech outfits raising $2.3 billion in the third quarter and $1.2 billion in the fourth quarter of 2022, respectively.

Asaf Horesh, General Partner at Vintage Investment Partners. (Efi Yosefi/Courtesy)

Still from a historical perspective, the $13.9 billion raised by VC-backed private tech companies in 2022 marks the second-best year for investments into tech companies after the record $25.8 billion raised in 2021 and the $10.4 billion raised in 2020, a previous record.

“When you look at a chart, 2021 was the outlier, it overshot, it literally went off the charts, but when you take out 2021, you see that the market is growing healthily,” said Jon Medved, CEO and founder of Israel-headquartered global venture firm OurCrowd. “What happens this year is where the chart will really get interesting.”

“The question is: will investments continue to grow back to $20 billion, or will it go down more and that’s very hard to predict,” Medved added.

Medved views 2023 as a “year of renewed balance, a year of back to basics and of rebooting to take a long-term view, and a year of both, focusing on the fundamentals in your portfolio as well as seeking very interesting opportunities.”

Overall, 2023 and 2024 may end up being very strong years for tech investors as there are opportunities to buy into a market where prices and valuations are depressed, Medved pointed out.

“That’s good. That makes it easier to sell higher later on,” he added.

Meanwhile, investors found few places to invest their money safely in 2022, as Russia’s invasion of Ukraine and China’s strict COVID-19 policies also contributed to surging inflation, and roiled the global economy and markets triggering a tumbling in tech valuations. The benchmark S&P 500 index had its worst start to a year since 1970.

In Israel, the value of tech “exits” — mergers and acquisitions or initial public offerings of shares — in 2022 slumped a staggering 80% from the prior year and totaled $16.9 billion, according to the 2022 Israel High Tech Exit report by consultants PwC Israel.

The number of tech exits dropped 58% to 72 from 171 in 2021, with the average value of the deals plunging more than 50% to $235 million from $482 million during the same comparative period.

“If history is any guide, this slowdown is not necessarily all bad,” said IIA’s Bin. “Some of the best high-tech companies were starting to get funded and started operations during crisis times whether it was during the 2000 tech bubble, or the 2008 crisis.”



The market downturn has seen thousands of workers laid off triggering funding pullbacks and creating a bear market for new tech offerings, with an overall sense of doom clouding the economy.

As a result, Israeli tech exits are returning to the levels seen in 2020, which counted 60 transactions valued at $15.4 billion, and in 2019, with 80 deals valued at $9.9 billion.

“We see a wave of layoffs because CEOs understand that they need to cut cost structures, as they need funds for a longer runway before they go and try to raise another round,” said Bin. “And some companies are reducing costs to make sure that I have enough cash until this slowdown ends.”

For some startups, downsizing will not be enough, and they will have to raise fresh funds and face adverse market conditions as they need the capital injection to continue to operate, according to Horesh at Vintage.

“That’s the reality of startups, they need capital to grow, and it takes them a long time until they get to some profitability. Their valuations as they face the market are going to be slashed by 70%, 80%, or even 90%,” said Horesh. “Stronger companies are probably going to come to the market, whenever they feel like they need capital to try to take advantage of an opportunity, to get more market share, or just to strengthen their balance sheet, even if it means that they take a haircut on their valuation.”

US-based cybersecurity startup Snyk, founded by Israeli entrepreneurs, in December raised $196.5 million from investors in a Series G funding round at a company valuation of $7.4 billion, down from its previous $8.5 billion valuation. The startup, which attained unicorn status in 2020, has reportedly been eyeing an initial public offering over the past year targeting a market value of more than $8.6 billion.

“For entrepreneurs and for the investors that are willing to take the risk, this is actually a good time to do investments because valuations go down and even the cost of employment goes down or at least is not growing as has been in the last two years,” said Bin. “Even because of this crisis some good technologies and good companies can leverage it and grow very fast.”

The decline in valuations is likely to make Israeli tech firms, both on the public and private markets, more vulnerable to takeovers, as well as merger and acquisition deals.

“This is going to be a market which is going to increasingly look for deep tech solutions and things that are not just like an e-commerce site for yet another new fintech idea,” said Medved. “The areas that are going to increasingly attract investor interest are going be semiconductors, health care, climate, energy, and food tech.”

“These are companies that depend on real technology breakthroughs, where Israel is very, very strong,” he added.

This is where venture capital funds and private investment funds are coming in, which are sitting on an almost $300 billion bonanza pile of capital that they have raised in recent years.

“Fund managers who were sitting on what we call ‘dry powder,’ that is, money available for investment are going to have a great time because prices are down and because the pressure is not as intense to get the good deals,” Medved said. “Those who come back into the market will, probably, have a reasonable selection of opportunities to explore, and to conclude.”

Strong rounds

Over the course of 2022, Israeli venture capital funds raised a record $3.9 billion, up from $2.7 billion in 2021, and $2.3 billion in 2020, according to data compiled by Vintage. Almost half of the 2022 total amount, or $1.9 billion, was raised in the first three months, $1.1 billion was raised in the second quarter, $650 million in the third, and $245 million in the last quarter.

“Now is the time to invest for two reasons,” said Horesh. “First because valuations are going to be much more sensible than they were in the past few years, and second because we have seen in the past that great companies are being built in downturns as the strong get stronger, and the weak get weaker.”


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