Dramatic drop in Seed funding doesn't bode well for future of Israeli tech

Israeli startups raised $7.3 billion in total in 2023, the lowest since 2018 and a 60% decrease from 2022, according to the Start-Up Nation Policy Institute (SNPI). This decline in capital raising in Israel was more pronounced than the global trend, with a 30% decrease being registered in the United States and a 44% fall in Europe. The drop was not only in the amount of money invested but also in the number of companies raising capital. In 2023, only 624 companies secured capital, a sharp decrease from 1,099 in 2022 and the record-setting 1,338 in 2021, indicating a significant industry contraction.

In the last year, there was also a significant 50% decrease in Seed round investments compared to 2022.

Tel Aviv.

In the fourth quarter, during which the war with Hamas broke out, startups raised $1.3 billion in 78 rounds, the lowest since 2017.

Three significant factors contributed to the decline in Israeli high-tech. The first factor was the global economic crisis due to rising interest rates, prompting many investors to shift funds to safer investments. The second significant factor was the Israeli government’s planned judicial coup , causing investors to reconsider investments during uncertain times in Israel. The third factor is the ongoing war since October 7th, creating plenty of question marks for both local and foreign investors.

According to SNPI's analysis, 42% of foreign funds that invested in Israel in 2022 did not return in 2023. This phenomenon is more pronounced compared to the past when only 17% of funds did not reinvest. Among Israeli funds, 32% did not return to invest in 2023, compared to an average of 19% in the past. Many foreign funds are believed to be waiting for stability before reinvesting, while Israeli funds also face challenges, with many opting to wait amid difficulties in raising new funds from foreign investors.

Prof. Eugene Kendall, chairman of SNPI, remarked, “Israeli high-tech is in distress after a particularly difficult year, with a global slowdown, legal reform and the war that has not yet ended. Israel does not have the privilege of relying only on market forces, and risking the decline of the engine of the economy - followed by the economy of Israel as a whole. As in past crises, it must be ensured that high-tech will recover and even emerge stronger from the current crisis, and return to a global leadership position. Today, more than ever, there is a need for a smart, coherent and pro-active government policy. We call on the decision-makers not to ignore the glaring warning signs - and to act immediately to establish a government-wide task force, in cooperation with the high-tech sector and civil society, with the aim of developing and implementing a clear and long-term strategy. Without a joint effort, Israel may find itself deteriorating to a point of no return.”