IVC-Leumitech: Startup raising down 55% in Q3

Dollars Cedit: Shutterstock
Dollars Cedit: Shutterstock

IVC-Leumitech cautions that investments in Israeli startups will continue to fall in the fourth quarter of 2022.

Israeli startups raised $2.57 billion in the third quarter of 2022, IVC-Leumitech reports. This sum was 38% down on the preceding quarter of 2022 and 55% down on the third quarter of 2021, when startups raised $5.7 billion. The amount raised in the second quarter of 2022 was the lowest amount raised by Israeli startups since the second quarter of 2020, when $2.1 billion was raised. The average investment in a startup in the third quarter of 2022 was $18 million, the lowest average figure since the fourth quarter of 2020.

IVC-Leumitech cautions that investments in startups will continue to fall in the fourth quarter of 2022 due to the large number of negative factors in the markets and economies. These include the danger of a recession in Europe, where an energy crisis is brewing, and the hawkish policies of the US Federal Reserve on rate hikes, while inflation is still rising and geopolitical uncertainties are rising. IVC-Leumitech sees startups raising just $1.25-1.5 billion in the fourth quarter of 2022, if there are no exceptional financing rounds above $200 million. Such an amount would mark a return to 2018-2019 levels in the funds raised by Israeli startups.

In the third quarter of 2022 the number of financing rounds above $100 million fell to just three, compared with 13 in the preceding quarter and 14 in the corresponding quarter of 2021. In the entire third quarter of 2022 only one new unicorn (a startup worth over $1 billion) was born, compared with 20 in the first half of 2022.

However, investments in earlier stage startups strengthened in the third quarter of 2022, despite the overall slowdown in startup fund raising. In the third quarter of 2022, early stage startups raised $302 million in seed funding compared with $247 million in the preceding quarter of 2022, and $127 million in the corresponding quarter of 2021. IVC-Leumitech estimates that 580 new startups were founded in the first three quarters of 2022, a similar number to startups founded over the same period in 2021 and 2020.

IVC-Leumitech also reports that 191 foreign investors were active in the Israeli fund raising market in the third quarter of 2022, the smallest number since the fourth quarter of 2019, while 112 Israeli investors were active, also the smallest number since the end of 2019.

IVC-Leumitech insists that the lower figures do not represent a crisis for the Israeli tech sector but simply a return to normal proportions. The report stresses that 2021 was exceptional with investments at unrealistic valuations while 2022 reflects a return to sanity.

Leumi-Tech CEO Timor Arbel-Sadras said, "Following financing rounds setting the valuation of companies that raised in 2021 have still not taken place, and it will be interesting to see if the 'multiples crisis' develops into a real crisis in the business results of companies. Such a crisis could happen if we enter into a deep recession as well as due to the companies struggling to adapt themselves to market conditions."

Published by Globes, Israel business news - en.globes.co.il - on October 23, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

Dollars Cedit: Shutterstock
Dollars Cedit: Shutterstock
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