Startup Nation Central (SNC) today published its "One Year of Israeli Innovation in War," report analyzing the impact of the ongoing conflict on Israel's tech ecosystem including the substantial differences between the country's regions and the low level of confidence in the government's efforts. Among the most concerning findings of the report was the financial uncertainty created and disparate impact of the war on different regions in Israel.
49% of Israeli tech companies reported investment cancelations due to the war and only 31% expressed confidence that they will be able to raise money next year. Investors shared this cautious outlook with 48% seeing a decline in investment activity in the coming year and only 31% expecting an increase.
The report combines macroeconomic analysis of financial indicators with insights from surveys conducted among managers and investors in Israeli industry, with one of the surveys focusing on partners and senior managers at investment funds and firms, and another survey focusing on founders and CEOs of tech companies ranging from early stage startups to publicly-traded companies. The report also contains data from the Finder platform.
The crisis is worse in the north
The report found that the worst situation is in northern Israel, where 69% of tech companies expressed major concern about their ability to raise funds in the coming year. 40% of companies in this region are considering transferring their activities, either fully or partly, to other locations. The report also found particularly low confidence in the government's ability to lead recovery efforts. Over 80% of companies throughout Israel expressed doubt about this ability as well as 74% of investors, who expressed similar concerns about the current government's ability to contribute to the recovery of the local ecosystem.
However, despite the major challenges, the report also points to signs of resilience in the local tech industry. According to the report, since the outbreak of the war, $7.8 billion has been raised by tech companies, down just 4% from the previous year.
In addition, mergers and acquisitions transactions deals totaled $9.6 billion, a slight decrease from $10.6 billion the previous year. The report found that the overall strength of the local ecosystem has been largely fueled by the good performance of the cybersecurity sector as well as companies in advanced stages of growth (scale-ups).
The report said, "The strength of Israel’s tech ecosystem is bolstered by the robust performance of the cybersecurity sector and thriving scale-up companies. However, early-stage companies have faced more significant challenges, highlighting a disparity in the ecosystem’s overall resilience."
According to the report, investment trends in Israel are similar to trends in the US, despite the region's complexities. According to the December 2023 and June 2024 PitchBook reports, the US venture capital market also remains limited, with investors tending to prioritize internally led fundraising rounds, as well as expressing uncertainty about a broader market recovery.
The report also indicates signs of optimism among some players in the industry, with over 50% of the companies confident in their ability to grow over the next year, and 72% of investors believing in the ability of Israeli tech to continue to thrive despite the challenges.
SNC CEO Avi Hasson wrote in the report "Israeli tech has shown incredible resilience in the face of prolonged conflict and mounting challenges. But this resilience cannot be taken for granted. The lack of long-term planning - whether in budget policy, research infrastructure, or future growth drivers - creates uncertainty that could undermine our momentum. Now more than ever, the government must act responsibly to ensure the sector continues to thrive, attract investment, and secure the future of our economy."
He added, "There is a consensus in the industry. The confidence in the ability of the government to rehabilitate and nurture the tech sector is worryingly low despite worthwhile and swift actions," and "the current instability is causing many Israeli companies to reconsider their next steps to ensure their business growth."
Hasson urged the government, "To work to demonstrate its commitment to the development of the tech sector, which is the essential thing for protecting the Israeli economy and for the benefit of all of its citizens."
Published by Globes, Israel business news - en.globes.co.il - on September 12, 2024.
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