Investor Participation in Israeli Startups Hits 9-Year Low, Fintech and Software Solutions Suffer Major Declines
The first half of 2023 has brought gloomy news for Israeli startups, as investor participation hit a nine-year low, according to a report by Start-Up National Central. The report, based on data analysis by the information platform Finder, examined six key sectors in Israel’s startup ecosystem, including cybersecurity, fintech, IT and software solutions, climate-tech, healthcare, and food and agriculture.
Private financing for Israeli startups fell to its lowest point since 2018, reaching NIS 39 billion in the first half of 2023, a 29% drop compared to the same period in 2022. In contrast, the US market has seen relatively stable private financing trends during this time, with no significant downward trend, according to PitchBook.
Investor participation in funding rounds also experienced a significant decline. The number of investment rounds decreased by 53% compared to the first half of 2022 and by 24% compared to the second half of 2022. While there was an 11% decrease in Israeli investor participation, international investors led 70% more rounds and initiated 17% more new investments.
Mergers and acquisitions activity, as well as the IPO market, have also taken a hit. M&A activity fell by 64% compared to the first half of last year, with a volume of $1.3 billion, one of the lowest in the past decade.
The fintech and software solutions sectors experienced major declines in private investments. Total investments in fintech plummeted from $2.6 billion in the first half of 2022 to $545 million in the same period of 2023. Similarly, private investment in the IT and software solutions sector fell by 66%, reaching $450 million in the first half of 2023 compared to $1.34 billion in the first half of 2022.
Even the food-tech sector, which has shown promise in previous years, experienced a dramatic fall. Investment deals in this sector reached $200 million in the first half of 2023, compared to $600 million during the same period in 2022.
Despite these bleak statistics, the report also highlights some positive developments. The climate-tech sector saw an increase in both private and public funding, with a total of $900 million in the first half of 2023 compared to $700 million in the corresponding period last year. The demand for technological solutions to combat carbon emissions and the increasing involvement of corporations in this field contribute to its stability.
In agritech, investments in advanced rounds remained stable, and the second quarter of 2023 saw a doubling in the volume of investments compared to the first quarter. In the fintech sector, although investments declined, there was a wave of strategic collaborations with large companies, utilizing AI and representing high growth potential.
Yariv Lotan, Vice President of Digital Products, Development, Data, and BI at Start-Up Nation Central, highlights that the declining activity in the Israeli ecosystem reflects the impact of global economic changes and internal uncertainties within Israel. This sharp drop stands in contrast to the more stable funding and venture capital trends observed in the US market.
Overall, the report paints a challenging picture for Israeli startups in terms of financing and investor participation. However, certain sectors, such as climate-tech and agritech, show resilience and potential for growth amidst the prevailing circumstances. As the situation continues to evolve, it remains to be seen how these trends will impact the startup landscape in Israel moving forward.
