IVC-Leumitech: Israeli startup raising down sharply in Q2 2022

Influenced by the collapse in tech share prices, the rise in interest rates, soaring inflation and the fear that the US is entering a recession, the slowdown in investment in Israeli startups has continued for the second successive quarter.

Israeli startups raised $4.12 billion in the second quarter of 2022 in 182 deals, IVC-Leuimtech reports. This sum was 27% down on the preceding quarter of 2022 and 50% down on the fourth quarter of 2021, which was a record in terms of startup investments when $8.2 billion was raised. The amount raised in the second quarter of 2022 was the lowest amount raised by Israeli startups since the fourth quarter of 2020, when $2.9 billion was raised.

Israeli startups raised $9.8 billion in 395 deals in the first half of 2022, down 30% from the second half of 2022, ending a consistent rise since 2016. Nevertheless the $9.8 billion raised in the first half of the year, almost equaled the amount raised in all of 2020, which was a record year.

IVC-Leumitech found that investments from financing rounds of over $100 million in the second quarter of 2022 fell nearly 70% from its peak in the fourth quarter of 2021, and was responsible for most of the decline from the second half of 2021 to the first half of 2022.

In contrast, earlier stage startup performed well in financing rounds in the first half of 2022. The median investment in early round deals increased to $5.6m, which IVC-Leumitech said possibly signaled a change in investor interest to more potentially lucrative investments in early-stage companies rather than the overvalued large growth companies.

66 exits were completed in the first half of 2022, with just nine IPOs (including 2 SPACs) and 56 mergers and acquisitions. Since the exits’ preferences tend, again, toward M&As instead of IPOs, the expected number of M&As deals was higher than last year.

Around 700 new companies were established in 2021 and IVC estimates that 458 companies have been established so far in 2022.

IVC CEO Guy Holzman said, “The first six months of 2022 found Israeli tech at an inflection point between overhyped valuations and the high possibility of global economic depression. With that in mind, the Israeli tech economy did extremely well during the last quarter. The numbers and amounts of deals didn’t change much in historic levels, and the contracted valuations of high growth companies were well adjusted to the trend on Wall Street. It still remains to be seen how the current situation will affect the early stage startups in the following months.”

Leumi-Tech CEO Timor Arbel-Sadras added, “In recent months we have witnessed processes that will eventually lead to healthy economic conduct of the high-tech industry, in respect of multipliers and the focus of companies on growth, alongside operational efficiency and formulating an established business model. Mature companies which will act in accordance with these principles, will overcome the challenges and run successful funding rounds.

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“90% of the fall in raising levels stems from rounds higher than USD 50 million. Funding rounds below USD 50 million remain relatively stable. This figure proves that there are good companies that manage to continue raising money according to their real value. At the same time, reality requires them to make quick changes, including streamlining, in order to maintain their cash on hand for a longer period.

“Demand for technological products continues to be stable in all sectors. The data shows that investors continue to seek young companies, at similar investment levels. For entrepreneurs in the initial stage, this is no doubt an opportunity. They have a good chance of raising funds according to real value, if they can build attractive product-based companies along with a sustainable business model.”

Published by Globes, Israel business news – en.globes.co.il – on July 13, 2022.

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