A study published Tuesday by the Start-Up Nation Policy Institute (SNPI) think tank and Start-Up Nation Center showed a “serious decline” in investments in the cyber sector, and in Israel’s high-tech sector.
According to the report, the total volume of high-tech sector investment in 2022 plummeted by almost one-half, according to the report, from an unprecedented $27 billion in 2021 to some $15.5 billion in the past year.
But the phenomenon is not unique to Israel; for the sake of comparison, investments in Silicon Valley high-tech companies declined by 40 percent. The overall number of funding rounds in 2022 also declined to 826 compared to 1,103 rounds in the previous year.
Last year Israeli tech companies and foreign development centers in Israel laid off some 8,000 employees, and since the start of 2023, at least another 500 tech workers have lost their jobs thus far, with hundreds more expected to be laid off this month, according to the “Lestartup” website.
Seed Investments Rose
Nevertheless, all is not grim: seed investments recorded an increase in 2022. Seed investment in Israeli startups in 2022 increased by 22 percent compared to 2021, or from $1.3 to 1.6 billion.
Two factors contributed to the rise in seed rounds, according to the report. The first is the shift from late-stage investment to earlier stages: Investors who traditionally invested only in later stage companies are investing at earlier stages in company life cycles.
The second factor is the increase in the number of investors per round. Between 2019 and 2022, the average number of investors in each round at this stage almost doubled. The most significant increase occurred in 2022 when on average one additional investor was added to each round compared to 2021, bringing the rate to 3.5 participants per round.
Cyber Suffered Biggest Decline
Additional analysis of the data focused on companies in five key sectors: Cyber, Fintech, ClimateTech, AgriFood-Tech, and Life Sciences and Health.
Multi-year analysis of overall funding shows the total amount of funding in the cyber sector declined by more than 60 percent between 2021 and 2022, while there was a comparable decline of 42 percent in the entire ecosystem during this same period.
In fact, in comparison to 2021, a decline was recorded across all but the AgriFood-Tech sector, both in the number of funding rounds and the overall investment amount.
There was a 24 percent average decrease in the number of funding rounds and a 40 percent decrease in the overall investment amount.
Only the AgriFood-Tech sector displayed a degree of stability with an increase in the number of funding rounds and the overall number of transactions stable compared to 2021.
Nonetheless, the number of funding rounds – which may actually be a more significant figure – remained stable in comparison to 2021.
Most Prominent Local & Foreign Investors
The 2022 data showed the most active locally-based investors in Israel were the OurCrowd and Viola VC funds, investing in 84 and 47 startups respectively. They are followed by Pitango, which invested in 21 startups.
The leading foreign VCs operating in the Israeli ecosystem were Insight Partners, funding 40 startups, and the giant investment firm Tiger Global Management, which only began operating in Israel in 2019 and invested in 26 startups last year.