Investor participation in finance rounds of Israeli startups sank to a nine-year low in the first half of 2023, and private financing hit a five-year low, Start-Up Nation Central reports. The report is based on analysis of data by the information platform Finder, which examined the six most significant sectors in Israel's startup ecosystem: cybersecurity, fintech, IT and software solutions, climate-tech, healthcare, and food and agriculture.
The report depicts a gloomy picture with the first half of 2023 reflecting a low point in a number of trends: private financing fell to NIS 39 billion - a 29% fall from the first half of 2022. The current level of private financing is the lowest since 2018. The report stresses that this continuous decline is in contrast to what is happening in the US market where private financing trends are relatively stable, with no significant downward trend between 2023 and 2022, according to PitchBook.
Foreign investors leading the investment rounds
The report also points out that there was a nine-year low in the first half of 2023 in investor participation in investment rounds. The number of investment rounds fell by 53% compared with the corresponding half of 2022, and a decrease of 24% compared with the second half of 2022. Although there was an 11% fall in their participation from H2 2022, international investors led 70% more rounds than Israeli investors and initiated 17% more new investments.
The slowdown also hit mergers and acquisitions either, with the IPO market at its lowest point since 2018. Activity in mergers and acquisitions fell by 64% compared with the corresponding half last year, and by 53% compared with the second half of 2022. Activity amounted to $1.3 billion, one of the lowest volumes in the past decade.
In the fintech industry, the situation is also grim. Total investments in this sector in the first half of 2023 was $545 million, down from $2.6 billion in the first half of 2022, and $6 billion in the first half of 2021.
The situation in IT and software solutions was also gloomy with a fall of 66% in private investment in the first of half of 2023 to $450 million from $1.34 billion in the first half of 2022.
Dramatic fall in food-tech
In the food-tech sector there was $200 million in investment deals in the first half of 2023 compared with $600 million in the first half of 2022.
Start-Up Nation Central VP Digital Products, Development, Data and BI Yariv Lotan said, "The uncertainty and internal changes in Israel together with global economic changes are prominently expressed in the activity of the Israeli ecosystem and reflect a significant slowing down and an ebb in activity. This sharp drop is in contrast to the stable trends in funding and venture capital seen in the US ."
However, a number of bright spots can be noted in the report's findings, among others in the climate sector, which, unlike the other sectors, experienced an increase in both private and public funding - with total funding in the first half of 2023 amounting to $900 million, compared with $700 million in the corresponding half last year. According to the report, the expectation is that this sector will remain stable in relation to the current market conditions, due to the growing demand for technological solutions to eliminate carbon and the increasing involvement of corporations in the field.
In agritech, the report found that the investments in advanced rounds maintained stability, and compared with the first quarter of 2023, in the second quarter the volume of investments in agritech doubled. Even in the fintech, despite the fall in investments, the report found a wave of strategic collaborations with large companies and utilizing AI, which represents high growth potential in the field.
Published by Globes, Israel business news - en.globes.co.il - on August 1, 2023.
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