Start-Up Nation Central’s Mid-2023 Reports Analyzes the Israeli Tech Sector

All the data and insights for Israeli Cybersecurity, Fintech, Enterprise IT & Data, Climate, Health and Agriculture-Food Tech in H2 2023 available now with our sector reports.

In light of instability and a drop in investments:  Start-Up Nation Central’s Mid-2023 Reports Analyzes the Israeli Tech Sector

In-Depth Key Insights into Israeli Tech Cybersecurity, Fintech, Enterprise IT & Data, Climate, Health, and Agriculture-Food Tech

Tel Aviv, August 1, 2023: Start-Up Nation Central, a non-profit that promotes the Israeli innovation ecosystem around the world, published a summary of the first half of 2023 in Israel tech, based on an analysis of data from its comprehensive information platform Finder. The reports present a cross-section picture by sector beginning in 2018 and examine the activity of the six most significant sectors of the local ecosystem: Cybersecurity, Fintech, Enterprise IT & Data, Climate, Health and Agriculture-Food Tech. It is essential to acknowledge the uncertainty in Israel resulting from the recent judicial reform. The ripple effect is already being felt with indicators such as decreased fundraising and fewer emerging Israeli startups. We remain vigilant in our efforts to track and analyze the innovation ecosystem considering these changes.

Key findings include:

Private Funding Hit 5-Year Low: The first half of 2023 saw a substantial drop in private funding, plummeting to $3.9B. This is a 29% decrease from H2 2022, and a level not seen since 2018. Additionally, there was a quarter-on-quarter decrease of 10% from Q1 to Q2 2023. This stark downturn stands in contrast to the relatively stable private funding trends observed in the US, as presented by PitchBook data. Early-stage funding rounds, specifically those under $20m, declined significantly after an initially stable period during 2022.

Investor Participation Plummets to a 9-Year Low: Investor participation in investment rounds has nosedived to the lowest level in the past nine years. H1 2023 activity fell by 53% compared to H1 2022, and 24% compared to H1 2022. Concurrently, a historic shift is underway, with foreign investors seizing the reins, directing more deals than their Israeli counterparts for the first time in a decade. Even in the face of an 11% dip in their participation from H2 2022, these international financiers led 70% more rounds than Israeli investors and initiated 17% more new investments, serving as a steadying force in these uncertain times.

IPOs and M&As Reach New Lows: In the current landscape, the market for initial public offerings (IPOs) has dipped to its lowest since 2018, and mergers and acquisitions activity (M&As) is also at one of the lowest rates in the past decade.

VP of Digital Products, Development, Data and BI, at Start-Up Nation Central, Yariv Lotan, said: “The uncertainty and internal changes in Israel together with global economic changes are prominently expressed in the activity of the Israeli ecosystem and reflect a significant slowing down and an ebb in activity. This sharp drop stands in opposition to the stable trends in funding and venture capital seen in the US. Throughout these reports, we examined the situation on a sector-by-sector basis to highlight the changes in each sector. We will continue to examine the local and global influences and present a comprehensive situation assessment regarding everything happening in Israeli tech.”

The reports examine the activity in different sectors according to several periodical cross sections – annual, semi-annual and by quarter, and provide the most comprehensive information going back to 2018. In addition, each sector highlights the subsectors and public and private investments.

The Fintech sector: Similar to global trends, the total investment in Israel dropped by more than 50% from $6 billion in 2020 to $2.6 billion in 2022. In the first six months, only $545 million were invested in this sector. Despite the drop in investments, it appears that a new wave of companies are succeeding in gaining a foothold by partnering with large strategic partners and leveraging the power of Generative AI, a field with high growth potential. An overview of the fintech sector was done in partnership with Team8. Link to the Fintech report.

The Cybersecurity sector: In the first half of 2023, total private investments in the cyber sector stabilized at $1.05 billion (a 57% decrease compared to the corresponding first half of last year, but similar to the second half of 2022) signaling that the industry may finally be balancing out after a consistent downward trend since the end of 2021. Private and public investments remained stable compared to last year, and the sums in M&A deals even exceeded the previous six months, but the data shows a significant drop in the second quarter of the year compared to the first. An overview of the cybersecurity sector was done in partnership with Samsung NEXT Ventures. Link to the Cybersecurity report.

Enterprise IT & Data sector: There was a 66% drop in total private investments from 1.34 billion dollars in the second half of 2022 to 450 million dollars in the first half of 2023, especially in late-stage funding. Hoewever, in the second quarter of 2023 a rise was seen in early-stage deals, especially in Generative AI companies. An overview of the Enterprise IT & Data sector was done in partnership with TLV Partners. Link to the Enterprise IT & Data report.

Health Tech sector: The total private investments in the first six months of the year reached the lowest level since 2018, only $504 million, a drop of 75% compared to the first half of 2022. Despite a slight increase in investments from the first quarter to the second quarter of 2023, there is a decrease of 42% in the number of rounds. However, there was a surge in public investments in both Pharma and Medical Devices sectors, primarily attributed to two major funding rounds. Link to the Health tech report.

Climate Tech sector: Unlike most other sectors, climate has seen a rise in public and private funding – $900 million compared with $700 million in the second half of 2022. There is still a gap from the peak the sector experienced in the first half of 2022 when investments reached $2.5 billion, both in the number of deals and their valuations, there is reason to be optimistic that the sector will remain resilient relatively resilient to the current market and economic conditions thanks to the urgency for Climate Solutions and the expectation that regulation and corporate commitments for decarbonization will only escalate is driving the Israeli tech ecosystem to channel its creative energy to this sector.  Link to the Climate Tech report.

Agriculture-Food Tech sector: This sector has been sliding downward since the second half of 2022. In the last six months, the deals in this sector reached $200 million, compared to $600 million in the same period last year. Most of the drop was in food tech as many of these startups face challenges in scaling up production and large multinational food companies are becoming more risk-averse due to the macroeconomic slowdown, and investors are hesitant to cover manufacturing scale-up costs. In agri tech, investments in later stages remained stable and investment in the second quarter of 2023 doubled in comparison to the first quarter. Link to the Agri-Food tech report.

Read more about us