Preliminary data from the Leumitech and IVC report for the third quarter of the year in the Israeli high-tech sector reveals intriguing insights into the industry's recent performance. While headline figures indicate a significant decline in investments, a closer look reveals encouraging signs of stabilization and recovery.
In the third quarter of 2023, Israeli high-tech companies secured a total of $1.676 billion across 85 transactions. Although this represents a 38% decrease compared to the same period in the previous year, and a 41% decline in the number of transactions, industry analysts point to several reasons for cautious optimism.
Stabilization Amidst Declines
IVC, a prominent research firm, suggests that when considering the trajectory of investments, the situation appears less dire. Total investments for the third quarter declined by only 14% compared to the second quarter of the year, and there was virtually no change compared to the first quarter. Moreover, when factoring out substantial investments exceeding $200 million, such as the $238 million injected into Kaito Networks, the shift in the trend becomes even more pronounced. IVC contends that, "Controlling for huge investments, the third quarter surpasses first-quarter data," adding that the final figures for the quarter are expected to closely resemble second-quarter investment amounts.
Seed Investment Rebound
The report also highlights a noteworthy revival in seed investments, which represent initial funding rounds for startups. For the first time in five consecutive quarters, capital raised in these early-stage rounds showed an increase during the third quarter. Mia Eisen-Zafir, CEO of Leumitech, commented on this development, stating, "The data brings us back to the levels of 2018-2019. Although there is still a decrease in initial investments (early rounds), it is more moderate compared to what we saw in previous quarters."
Global Context and Positive Indicators
This apparent stabilization in the Israeli high-tech sector is not isolated but aligns with trends observed globally. Data from the Crunchbase website indicates that in August 2023, $22 billion was invested worldwide, marking a 19% increase from the previous month. On average, monthly investments have reached $23 billion since the beginning of 2023. While these figures reflect a decline compared to 2022, the recent months suggest a positive trend of stabilization and a slowdown in the decline.
Additionally, the recovery coincides with signs of an opening US IPO market, exemplified by the successful IPO of Arm and anticipated IPOs of Instacart and Klaviyo.
Though challenges persist, the preliminary data from the third quarter of 2023 offers a glimmer of hope for the Israeli high-tech industry, as it exhibits resilience and a potential path to recovery amidst the ongoing fluctuations in the global investment landscape. As industry experts keep a watchful eye on these developments, cautious optimism prevails.