Moving into the second quarter of 2023, the question marks that characterized the beginning of this turbulent year, are becoming more and more like exclamation marks. The fog may still hover over the Israel’s tech industry, but the challenges are clearer. As we enter Passover season, "Globes" sat down with tech company CEOs to better understand their challenges in 2023: what motivates them and what needs to be done to ensure that new investments will keep coming?
Ran Cohen is a partner in the Amit, Pollak, Matalon & Co.’s Hi-Tech & Venture Capital and M&A Practice
Worldwide economic instability combined with the current political situation following proposed judicial reform legislation in Israel has led to uncertainty regarding the future of investments in Israel, specifically in Israel’s high-tech industry. Despite the reservations of many, we are not witnessing a dramatic influence on early-stage investments; and we can expect a successful year for early-stage companies.
Unfortunately, we cannot say the same about more mature companies faced with the consequences of having raised capital at an extremely high valuation before the crisis began and which are now looking for financing. The best solution for such companies is using SAFE/Convertible Loan agreements that will currently allow them to avoid massive dilution. Another trend that we see more of is the return of Venture Lending as an alternative financing solution for growth companies. Last, but not least, we expect more M&A transactions with the sole purpose of purchasing IP or Acquihire transactions.
Adi Weitzhandler, co-founder at Valoo, a secondary platform for shares in private companies
As we move further into 2023, the process of valuing private tech companies presents a challenging situation. In a period of increasing capital costs, inaccurate valuations can have significant consequences on returns. Valuation inaccuracies can make the difference between exceptional returns and loss, especially for tech companies.
Valuing a private company differs fundamentally from valuing a public company as investors do not have access to immediate reports, defined multiples, industry margins, benchmarks, published analysis, and public comparable data points. Therefore, investors must use other tools and methods to analyze the value of the shares they hold or seek to purchase.
In today's market, IPOs are expected to take longer, and revenue and its growth rate have become the primary factors for valuing tech companies. Total and forecasted revenue are key indicators for estimating a company's value and should be evaluated with the year-over-year growth factor. Additionally, investors must assess long-term sustainability, profitability forecast under the best and worst-case scenarios, the company's exit strategy, and multiples comparisons.
By leveraging these tools, investors can make informed decisions based on data and take advantage of the opportunities this time has to offer. In the world of private tech companies, accurate valuation is more important than ever, and investors who can successfully navigate these turbulent times will reap the rewards.
Adi Ikan, CEO and co-founder of Veriti The cybersecurity scene in Israel has become a worldwide hub for expertise and innovation, which is outstanding. Being located close to the industry's most successful entrepreneurs and companies gives a huge advantage in terms of knowledge and experience. It's one of the best places to establish a venture and tackle challenges along the way, especially given how mature the ecosystem is. Moreover, working with Israeli customers is also highly beneficial, as they bring substantial expertise and provide us with valuable feedback.
However, despite the advantages of being part of Israel's cybersecurity scene, our geographical distance from the US can present challenges when it comes to GTM. To overcome this obstacle and succeed, we need to stay engaged with the industry and the field and ensure our ideas align with reality. From the outset, we've been focused on evaluating how our ideas fit with what's happening in the real world.
The key is to balance the benefits of being part of this unique community while still being in the field as much as possible. This way, we can continue to grow and expand while staying connected to the industry’s pulse.
Dganit Vered, CEO of Smart Agro
Three months of turbulence in the Israeli economy has had some effect on Israel’s AgriTech and Food tech startup ecosystem. Israel is a world leader in these areas. The Israeli presence at the World Agritech and Food tech summit in San Francisco was significant and powerful. So far, we have seen the beginning of an impact on fundraising from non-Israeli funds, stating that they are waiting for political stability or asking companies to invest in their non-Israeli entities.
Also, companies’ valuations, in general, did not go down significantly as the Agritech companies were priced according to their performance before the world economic setback, the financial opportunities of investing in Israeli Agritech and Food tech companies are still attractive, and I believe the investments will continue. Solutions for the climate crisis and for feeding the world are in high demand.
Gal Ringel, CEO and co-founder of Mine
One of the biggest challenges Israeli high-tech companies face today is the high employee turnover. When all companies invest massively in employee experience and employee branding, the sentiment growing among employees in this eco-system is that ‘the neighbors’ grass is always greener.' Too bad that on more occasions than one, this is not the case in reality. At Mine, we give our employees real influence, and each knows they impact the product and company dramatically. That is how we maintain a minimal turnover.
Yinnon Dolev, Head of Sompo Digital Lab Israel & Europe
A challenge the Israeli tech sector is facing is maintaining its position as a top innovation hub for the world. Other countries are catching up by investing in talent and building local tech ecosystems. Given that there is a shortage of skilled workers in certain areas of the high-tech industry it is imperative that education in STEM subjects should be accelerated. For example, encouraging more girls as well as minorities to take engineering and computer sciences programs in high school.
The political environment in the country is another challenge the Israeli tech ecosystem is facing. Israel has always been a business-friendly country that maintained its stability even in times of war, but in recent months, a general sense of uncertainty exists. The implications of this situation are something that policy makers should take into consideration as they plan the future of the Israeli economy.
Anna Moshe, Partner, Chair of the IL Emerging Companies & Venture Capital Practice Group at Pearl Cohen law firm
The only "beneficiary" of the war in Europe seem to be the state of Israel, to which in the last year more than 70,000 immigrants arrived from Russia, Belarus, and the Ukraine.
The majority of these immigrants are less than 40 years old, highly educated, eager to build their new home in Israel and many of them hope to find their place in Israel’s tech industry.
These immigrants’ only problem is the lack of social assets in Israel- they have not served in the army with us, they have not attended universities in Israel and their social media does not interact with ours. Moreover, as there are so many immigrants, they tend to "close ranks" and spend time together.
So, what is the Mission/Challenges of Israeli high tech for 2023? Integrate as many immigrants as possible into our high-tech system, enabling access to our social assets, smashing the ex-Soviet "type casting".
Have the banking system allow investors from post-Soviet countries transfer their funds to accommodate local needs of investment and allow them to act from their new home- Israel.
Published by Globes, Israel business news - en.globes.co.il - on April 9, 2023.
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