Is there any real justification for the current gloomy tech market?

The world is in a recession. That is what we see and hear everywhere and anywhere we look this year. We are all feeling it in, practically, every aspect of our lives. Financial analysts have listed several factors causing this recession. Some attribute it to the after-effects of the Covid-19 pandemic, others to the Russia-Ukraine war, and some will tell you that it is the global supply chains that have seized up, causing prices to spike worldwide. Other economists are likely to list several other major circumstances causing the recession in what has seemingly brought the markets to tumble, leaving investors puzzled as the value of their investments plummet.

Technology companies have not been skipped over. Valuations of the publicly traded technology companies have collapsed, and Israeli technology companies which had just recently rediscovered the public markets, celebrating multiple glorified IPO’s and SPAC’s at tremendous valuations, were now seeing their valuations sliced and diced.

Daniel Damboritz.

Concerned investors who were unable to capitalize on these IPO’s and SPAC’s, remain holding shares now worth just a fraction of their peak value last year. This has caused a ripple effect in the private markets as well. Financing activity has significantly slowed down, and at times there is a feeling that the only transactions in the market are those that had started prior to the recession. Company acquisitions are also scarce and the number of transactions this year are far and apart from what the market saw last year.

What seems to be interesting is that Israeli companies have managed to maintain the number of new unicorns (startup companies with a valuation of at least $1 billion) as we experienced last year. Surprisingly enough, according to recent published reports, not much has changed for early-stage companies either, and the number of Seed and Series A investments also remains comparable to last year. Yet, the mid-market companies have been suffering and the overall number of mega investment rounds (investments of over $50 million and $100 million) have plunged.

We will leave the analysis as to why early stage and unicorns are doing ok, while mid-market companies are not for another time. But we do want to ask whether there is any real justification for the current gloomy tech market?

In order to answer that question, we want to take a look at Israel and innovation. Israel has always been innovating. That’s how Israel survives. Always a step ahead of the game. Initially, Israeli innovation was mainly focused on getting this small country standing on its feet, and in the recent decades, Israelis have shifted into technology.

Israeli technology companies work tirelessly to improve our lives as well as people’s lives globally. To name some of the fields in which Israeli companies have made major impact - health-tech, food-tech, property-tech, agg-tech, cyber, auto-tech, fin-tech - all support fantastic Israeli innovation.

Innovation is not going to stop. It might be slowing down a little, but no one can imagine a world without these technological advancements. Our lives are simply so much better when entrepreneurs are given an opportunity to innovate. And that’s why we believe innovation and technology is here to stay - investors, sooner rather than later, will go back to funding it.

Daniel Damboritz is a High Tech Partner at Yigal Arnon - Tadmor Levy law firm