Number of angels active in Israel tech investment down 75%

Fallen angels credit: Unsplash
Fallen angels credit: Unsplash

In 2023, there were just 61 angel investors active in Israel compared with 251 in 2022, Startup Nation Central reports.

Israel's tech industry is undergoing a tough crisis, which is expressed in lower investments, layoffs, the collapse in fast-growing startups, cuts in benefits and more. It began with the global economic crisis caused by rising inflation, but continued last year even when the rest of the world saw signs of recovery. Early stage startups have been hit hard by the trend and this is reflected in the difficulties in founding new companies and the obstacles in raising funds for them.

One of the main aspects of the crisis is the drastic decline in the number of angel investors operating in Israel, according to data provided by Startup Nation Central, which is now being reported for the first time. While in the past these investors made up one of the major and most important cadre for newly founded startups, today the trend is changing.

In 2023, there were just 61 angel investors active in Israel compared with 251 in 2022, a fall of more than 75%. In 2021, almost 300 angel investors were active in Israel, meaning that the number has fallen nearly 80% in the past two years.

Angel is a nickname for private investors,, who are investing from their own capital, mainly in early stage companies, in pre-seed and seed financing rounds, often for equity in the company and a percentage of future profits. Angel investors sometimes work in groups and incorporate for an investment in a company and sometimes they personally approach ventures and propose an investment, while on other occasions startups approach them.

The decline in the number of angel investors active in Israel comes despite a legislative amendment designed to attract them to the country's companies. In July 2023, the Knesset approved the "Angels Law", or in its full name - the Law for the Encouragement of Knowledge-Intensive Industry, which grants, among other things, a tax credit to private investors who make investments in early stage startups. The Israel Tax Authority and the Ministry of Finance say these benefits are to encourage private investment, especially from strategic investors who have experience in the tech market, meaning - angels. Judging by the data presented by Startup Nation Central, the law is far from achieving its aim.

The prominent figures on the Israeli landscape

The angels presented on Finder, the business information platform of Startup Nation Central, are mainly serial investors - all of them Israeli or people living in Israel, with a history of investments and at least one investment per year.

In recent years, the Israeli angels community has been joined by a growing group of entrepreneurs who have earned money in the companies they founded, either by selling the company or shares of the company in secondary deals, and beginning to invest their capital.

The number of angel investors in Israel began to jump in 2010 and by 2019 there were 166 active angel investors in the country and by 2021 the number had risen to 297.

"There are some things that unite angels," explains Danny Biran, senior policy fellow at RISE (formerly Startup Nation Policy Institute). "Angels almost always invest in early rounds. They invest smaller amounts than funds for example but it is built so that as the company progresses it can raise money and in more advanced stages, it can raise money from venture capital funds."

The well-known names on Israel's angel investors scene include Zohar Gillon, who has more than 30 years of investments in Israeli ventures. In 2019 he told "Globes" how he started out as an angel and explained that if he agrees to invest in a certain venture, then he "Leads the round. In such a case I put in at least half the total money in the round that is usually a pre-seed investment in today's terms."

Another well-known figure is Yossi Vardi, a veteran and major angel investor whose investments over the years have included Similarweb, and Mirabilis, which brought ICQ to the world.

"Young" angel investors on the local scene include people like Ofer Ben-Noon, cofounder of Talon Cyber Security, which was acquired in November 2023 by cybersecurity giant Palo Alto Networks for an estimated $625 million. Another prominent young angel investor is Shai Morag, a cofounder of Israeli cybersecurity company Ermetic, whicxh was sold last year to US company Tenable for an estimated amount of more than $250 million.

In the global arena, angel investors include PayPal founder Peter Thiel, Silicon Valley veteran Mark Anderson and Netscape founder Tim Draper, a third-generation Silicon Valley investor, and a serial investor in unicorns over the years like Tesla, Skype and Hotmail.

"In the past the angels bring the funds"

In September 2023, the Global Business Angels Network (GBAN) met in Melbourne, Australia. During the conference, angel investors from around the world met and discussed the various trends of 2023 in their area of activity. They focused on changing the emphasis, especially in the US market.

Scott Fox, CEO of The American Startup Council, which, among other things, is an incubator for young companies and a channel for many investors, including angels, told the conference, "The US has witnessed the emergence of several venture capital funds that have shifted the focus of their activities towards investments in early-stage companies." Fox stressed that this change had created a situation where traditional angel groups were competing with venture capital funds for deals.

In Israel, 10D venture capital fund general partner Itay Rand says that the first buds of this trend can be seen. "When I started out in this world seven or eight years ago, an entrepreneurs would go to an angel in the early stages of the company or with a concept, and they in their turn would connect them to a fund that maybe wanted to take the round. In other words, the angel were an important connecting link. An interesting change that we see today in Israel is that angels come to funds and say that they will only enter if the fund invests, and not the other way around."

Dan Amiga, who cofounded Israeli cybersecurity startup Island, and is an angel investor himself, was one of the first investors in Israeli startup Axis Security, which was acquired last year by HPE for $500 million. He tells "Globes," "Today, teams that are strong teams, can directly go and get the initial investment from venture capital funds. There are almost no pre-seed rounds for good teams. They immediately succeed in raising a seed round. In the past, the angels were the ones bringing the funds, but this situation has changed."

"There is no boss who needs explanations"

Rand says, "I think that angels as investors have major value but in contrast to the funds, for example, they are much more sensitive to the mood. Referring to the number of angels, which jumped in the "bubble years", 2020-2021, he says, "In our fund there was not a single deal in those years that did not involve at least two angel entrepreneurs. The feeling was that the number of angels jumped in those years by double or more."

Rand lists a number of factors that keep the angels away today, all of them unsurprising. It began with the global crisis in the tech industry, continued with the internal struggle and the rift in Israel last year around the changes in the judicial system, and now the war. "All these factors affected and affect angel investors first of all. They don't have a boss who needs explanations provided for why they do or don't make investments, unlike in funds. While we in funds are committed to the business, we have investor and we need to continue working for them, regardless our personal appetite. With the angels it's the complete opposite. There are some I haven't heard from for six months."

Venture capitalist Eden Shochat, a partner in the Aleph early stage venture capital fund, echoes these sentiments. He tells "Globes" that despite the tough global interest rate environment, which impacted negatively on the amount of investment in 2023, "The general feeling of uncertainty is unique to Israel, and this began around the judicial reform."

"FOMO is weaker than in the past"

"One of the biggest differences from the bubble period in Israeli tech is the length of time it takes to close a round. The rounds take much longer," Itamar Sher, founder and CEO of Seal Security, an early stage cybersecurity startup, tells Globes. "A different dynamic has been created between angels and funds. FOMO, the fear of missing out, is a little less strong than it was in 2021."

He adds, "It also affects many other aspects related to the angels themselves. For example, the composition of the round. If you look back, the list of participants in each round was very long. Today the number is significantly smaller."

Sher continues, "Over the last year, the number of angels has declined significantly, this from my perspective as well as that of other entrepreneurs I talk to, who are at the same stage or a stage before."

Published by Globes, Israel business news - - on March 5, 2024.

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

Fallen angels credit: Unsplash
Fallen angels credit: Unsplash
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