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Startup Nation struggles: Israeli high-tech sees significant funding drop in H1 2023

Israeli startups raised $3.7 billion in the first half of the year, the lowest level since 2018

Israeli high-tech companies raised $3.7 billion in the first half of the year, marking the lowest amount for the first six months of a year since 2018. According to data from the Start-Up Nation Policy Institute (SNPI), this represents a decrease of 31% compared to the second half of 2022 and a 68% decrease from the corresponding period last year.
Investments in Israeli startups in the second quarter totaled $1.7 billion, also the lowest amount since 2018, reflecting a 68% decrease compared to last year. Meanwhile, the U.S. and Europe have experienced an increase of 15% and 34% in investments in the second quarter of the year, respectively, suggesting funding momentum could be changing.
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מתחם BE ALL חלל עבודה הייטק
מתחם BE ALL חלל עבודה הייטק
High-tech work space.
(Photo: Amit Shaal)
The global increase in investments is primarily driven by the interest of venture capital funds and institutional investors in investing in companies focused on AI, including generative AI, AI chips, and other related fields. However, the authors of the SNPI report caution that the AI revolution, particularly generative AI, may not serve as a significant catalyst for establishing startup companies. This is due to the relative ease of implementing and assimilating this technology, with many large organizations already adopting it or demonstrating future integration.
The report also highlights a significant decrease in the number of fundraising rounds in Israeli high-tech, with 103 rounds in the second quarter of 2023 compared to 250 in the corresponding period last year.
During the first half of 2023, there was a notable decrease in the total amount of venture capital investments across various sectors in the Israeli ecosystem. Fintech, data infrastructure, and the IT industry experienced the largest decrease compared to the record-breaking year of 2021. The health sector, including digital health technology companies and bio-pharma, witnessed a similar decrease compared to both 2021 and the previous year. Security technologies, mainly associated with cybersecurity, saw a relatively modest decline compared to last year, while the agrifood-tech sector showed the smallest decrease compared to the median average of 2021.

The SNPI report also highlights a stagnation in the wages of workers in the industry. Although the average rate of increase over the past 10 years was approximately 3.7% per year, the combination of high inflation and reduced wage rises led to stagnant real wages in recent months. It is worth noting that the CBS report, which indicated an increase in March, is based on nominal salaries without considering the dollar exchange rate and inflation.
Professor Eugene Kendall, co-chairman of SNPI, expressed concern about the future of Israel's high-tech industry. "The first median data of this year serves as another warning for those concerned about Israel's economic future. Israeli high-tech may not exist in a decade, even without political instability, and the risk is even greater in the current atmosphere. It is crucial to remember that Israel does not hold a monopoly on wisdom or resources. What Israel possesses is a significant technological advantage that has been diligently built over decades, and it must be safeguarded. To achieve this, a strategy is required, one that outlines a smart policy consistent with its goals and flexible with its tools. There is no time to waste."