IATI-RISE report warns on dangers to Israel's tech industry

Startups credit: Shutterstock
Startups credit: Shutterstock

The IATI-RISE report is in almost complete contradiction to yesterday's IVC-LeumiTech report on Israeli startups.

How much has Israel’s tech industry been hurt by the war over the past year? It depends who you ask. This morning the Israel Advanced Technology Industries (IATI), which also represents foreign investors and the Israeli development centers of US companies, together with the RISE Israel policy and research institute, set up by Prof. Eugene Kandel, published a pessimistic study entitled "The State of Israeli High-Tech - In the Shadow of a Year of War." According to the study there has been a 6% fall in venture capital investments in Israeli companies and a sharp fall of about 30% in the number of foreign and Israeli investments over the past year - October 2023-September 2024.

In addition, the study found a trend of investments concentrated in a small number of companies, with in 2024 the ten biggest investments accounting for about half of the total investments. Of particular concern is the figure indicating that 76% of the companies that have raised significant amounts have their headquarters outside of Israel. RISE Israel CEO Uri Gabai warns in the report about the inherent dangers of the current situation. He says, "The war has created a perfect storm that threatens the future of Israeli high-tech. The report we published shows, on the one hand, the flexibility shown by the industry, but also particularly worrying warning signs and trends that have dramatic consequences for its future."

The pessimistic report is in contradiction to the relatively rosy picture published in reports by the Israel Innovation Authority, and IVC-LeumiTech. According to IVC-LeumiTech, investments in Israeli tech grew by 32% in the first nine months of 2024. While the IVC-LeumiTech report indicated a slight decrease in the involvement of foreign investors, the RISE report saw a significant decrease of about 30% in the number of foreign and Israeli investors. The RISE report also points to the concentration of investments in a small number of companies, with most of the companies that have raised significant amounts located abroad.

In addition, RISE reports a fall by Israel in the international AI ranking of Tortoise Media over the past year from seventh to ninth, after Israel was in fifth position back in 2021. In addition, the report found that about half of the companies that raised seed rounds in 2022 are having difficulty raising follow-on rounds.

Gabai summarized the report with recommendations for immediate action. "The Israeli government must present a vision that will give hope to investors and entrepreneurs, outline a responsible economic policy, preserve democratic values and minimize international isolation. As long as current trends continue, Israeli high-tech may find itself in real danger, with significant damage to the country's economy."

The spirit of Gabai's words are in almost complete contradiction to the clean and ceremonial language used by LeumiTech CEO Maya Eisen Zafrir, who said just yesterday, "Israeli high-tech, which continues to operate in the shadow of the war, demonstrates resilience and even maintains an encouraging growth trend compared with 2023. We are happy that along with the big deals, we see a consistent increase in capital raising in the rest of the deals, quarter after quarter, since the beginning of the year. Approaching the anniversary of October 7, we realize how essential Israel's high-tech performance is, embodying the determination and flexibility that characterize Israeli entrepreneurs."

Published by Globes, Israel business news - en.globes.co.il - on October 1, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.

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Startups credit: Shutterstock
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