Is the tech crisis over?

Unicorns Credit: Avon Dissanayake Shutterstock
Unicorns Credit: Avon Dissanayake Shutterstock

Four Israeli startups raised nearly $700 million combined this week but indications are it could still be too premature to pronounce the end of the crisis.

On Tuesday and Wednesday, four Israeli startups announced the completion of financing rounds of $100 million or more. On Tuesday, Israeli chipmaker Pliops and short term tourism rental platform Guesty announced raises of $100 million and $170 million respectively. Yesterday, networking software company DriveNets and human resources technology platform HiBob raised $262 million and $150 million respectively.

Four huge financing rounds in the midst of what has been defined as a severe tech crisis, in which most of the headlines about startups have been about layoffs. Yet the past few days have been reminiscent of 2021 when cheap money flowed non-stop into Israeli startups. Does this week herald the end of the crisis or at least a turning point towards better times, or is it still too premature for such optimism.

Huge financing rounds of over $100 million were one of the outstanding characteristics of 2021, a record years for Israeli techs in general and startups in particular. In the fourth quarter of 2021, there were at least 25 financing rounds by Israeli startups, according to IVC. The fall in the number of these mega financing rounds is representative of the tech slowdown in 2022, with 14 such mega financing rounds in the first quarter of the year and 13 in the second quarter. Moreover, the mega financing rounds in the fourth quarter of 2022 were much larger, often in excess of $300 million - something which hasn't been seen in 2022 at all.

Even this week's four huge financing rounds still don't reflect a substantial change in the trend. These four funding announcements came after not a single Israeli startup raised $100 million in July - a drought that was only broken at the start of August when Talon Cyber Security raised $100 million. So far there have been only five mega financing rounds in the first half of the third quarter, which is a slower pace than the previous quarters of 2022.

In fact three of the financing rounds announced this week - Pilops, DriveNets and HiBob - were officially closed in July, but the companies preferred to make the announcement in August for public relations reasons. "We thought that we would be the only ones announcing a financing round in late August and would receive all the attention but we were probably wrong," said one of the CEOs.

In all four of the mega financing rounds announced this week the valuation of the startups rose compared with their previous financing round. However, the rises in valuation were more modest than those we were used to in 2021, when companies often saw their valuations double and even triple within six months. In contrast, HiBob's valuation rose from $1.65 billion to $2.45 billion within 10 months - very good but not close to the step rises in valuation in 2021.

Nevertheless, the mega financing rounds this week still represent a notable trend. While in 2021 practically every startup with a vision and promise could raise funds, 2022 has created larger discrimination between companies. Venture capital funds still have large amounts of money that they have raise from investors and are searching for worthy startups. But they are in less of a hurry to invest and much more cautious than last year and are carefully selecting only the best companies.

This trend will create a pattern that will probably continue throughout the current tech crisis, which is still far from over. Companies with exceptional growth and strong efficiency data will continue to raise money and hire employees. On the other hand, companies with medium and weak data, those that do not meet the new high standards, will have difficulty obtaining financing and will have to shed employees, be sold or even closed down.

Published by Globes, Israel business news - en.globes.co.il - on August 18, 2022.

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

Unicorns Credit: Avon Dissanayake Shutterstock
Unicorns Credit: Avon Dissanayake Shutterstock
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