Israel’s tech sector is a critical component of its economy, accounting for 18% of the GDP and nearly half of its exports. The events of October 2023 created immediate challenges, with approximately 15-20% of the tech workforce drafted for military duty. Despite these disruptions, Israel’s high-tech sector, long known for its agility, responded by reorganizing resources, ensuring continuity in global operations, and maintaining investor confidence. 

Private Funding: Staying Strong  

One of the most notable indicators of the tech sector’s resilience is private funding. In the months following the outbreak of war, Israeli companies raised $7.8 billion across 577 rounds. Though this represents a 4% drop from the previous year, it highlights sustained investor confidence despite a broader global decline in tech funding. This funding included several mega rounds exceeding $100 million, a testament to the maturity and continued appeal of Israel’s tech industry, particularly in cybersecurity. 

Mergers and Acquisitions: A Rebounding Market  

M&A activity similarly reflects the ecosystem’s strength, with $9.6 billion in deals completed across 73 events. Though slightly down from $10.6 billion the previous year, the numbers reveal a quick recovery from the immediate impact of the conflict. Sectors such as cybersecurity and health tech led the way, with notable exits like Talon Cyber Security and CartiHeal bringing confidence to global investors. 

Regional Disparities and Relocation  

While the overall picture for Israeli tech remains positive, the war has created significant disparities across different regions of the country. Tech companies in northern Israel have faced greater challenges, with nearly 40% of businesses in the region considering relocation due to heightened security risks. Funding for northern startups has become harder to secure, with 69% of companies in the region expressing concern about future investment prospects. 

Sector-Specific Insights: Cybersecurity, Health Tech, and More  

Israel’s cybersecurity sector continues to shine, attracting significant attention from investors both at home and abroad. Companies like Wiz, which raised nearly $1 billion in one round, exemplify the sector’s strength. Cybersecurity has become a core pillar of the Israeli innovation ecosystem, with nine mega-rounds in this sector alone. 

In health tech, despite workforce shortages and logistical disruptions, companies have continued to innovate and attract capital. Israel’s health tech sector remains robust, with 47 private rounds in the last year. Digital health technologies, medical devices, and AI-driven diagnostics continue to push the sector forward, positioning Israel as a global leader in life sciences innovation. 

U.S. and Israeli Tech Funding Trends Stay Aligned 

One notable observation from the past year is that private funding trends in Israel closely mirrored those in the U.S., despite the regional geopolitical challenges. Both ecosystems experienced declines in investment following the conflict, but their recovery patterns were in sync. For example, by February 2024, Israel’s private funding dropped to 66% of October 2023 levels, while the U.S. experienced a more moderate decline to 88%. However, by May 2024, both countries rebounded, with Israel reaching 152% of October 2023 levels and the U.S. climbing to 128%. This alignment demonstrates that, despite the unique challenges Israel faces, its tech ecosystem continues to perform on par, reinforcing its global competitiveness. 

Challenges Ahead: Uncertainty in Government Support  

Despite the positive developments, there remains significant concern about the Israeli government’s role in the sector’s future growth. An ecosystem survey we conducted in mid-2024 revealed that over 80% of companies doubt the government’s ability to lead the recovery. The absence of a long-term strategy for academic research, budget planning, and innovation infrastructure exacerbates this uncertainty, potentially threatening the sector’s future. 

Nevertheless, the Israeli tech ecosystem remains optimistic: 54% of companies are confident about their ability to expand in the coming year. Additionally, 56% of companies believe in the ecosystem’s resilience, with most investors sharing this optimism. The war has also spurred new forms of innovation, particularly in areas directly impacted by the conflict. From defense technologies to remote work solutions, Israeli startups are pivoting quickly to address both immediate and future challenges. 

As Israeli tech companies navigate these challenges, the world will continue to look to its innovators for bold, impactful solutions.  

The post Israeli Innovation in War: A Year of Resilience   appeared first on Startup Nation Central.

Quantum computers excel at solving problems that are currently intractable for classical computers, such as factoring large numbers (crucial for cryptography), simulating molecular structures (important for drug discovery), and optimizing large-scale systems (like global supply chains or financial markets).  

These capabilities open new frontiers in fields like cryptography, artificial intelligence, and material science, promising breakthroughs that could transform industries and societies. 

Israel’s Quantum Computing Ecosystem   

Israel’s entry into the quantum computing arena is backed by its robust tech sector and dynamic startup culture. The country’s quantum ecosystem, though smaller in scale compared to global giants, is rapidly evolving, with around 20 Israeli companies specializing in quantum computing, primarily focusing on quantum cryptography.

This aligns closely with Israel’s established strengths in cybersecurity. The intersection of quantum computing and cryptography is a critical area where Israel’s expertise in securing data is being applied to quantum technologies. 

Global Context and Israel’s Position   

While Israel’s sector is growing, it’s essential to view its progress within the broader global context. The U.S. leads the charge with significant contributions from tech giants like IBM, Google, and Microsoft. China is not far behind, with massive government investments and pioneering efforts in secure quantum communication via satellites. The EU’s Quantum Flagship initiative, involving countries like Germany, the Netherlands, and France, is also pushing the boundaries of quantum technology. 

Despite Israel’s smaller scale, its impact is notable.

One out of every 300 tech companies in Israel is focused on quantum computing, a stark contrast to the U.S., where the ratio is approximately 1 in 2,000. This highlights the concentrated effort and strategic importance Israel places on this cutting-edge field. 

Strengths of Israel’s Quantum and Cryptography Ecosystem   

Israel’s ecosystem is characterized by several key strengths: 

1. Cybersecurity Expertise: Israel is a global leader in cybersecurity, and this expertise is now being applied to quantum cryptography. Quantum cryptography uses the principles of quantum mechanics to create secure communication channels that are theoretically impervious to hacking. Israeli startups are leveraging their deep knowledge in traditional cryptography to develop quantum-resistant algorithms and protocols, ensuring that data remains secure in a future where quantum computers might break current encryption methods. 
2. Strong Academic and Research Institutions: Israel is home to world-renowned universities and research institutions, such as the Weizmann Institute of Science and the Hebrew University of Jerusalem, which are at the forefront of quantum research. These institutions not only contribute to fundamental research in quantum physics but also foster collaboration with the private sector, translating academic breakthroughs into commercial applications. 
3. Military-Driven Innovation: The Israeli military, particularly its elite intelligence units like Unit 8200, has been a significant incubator for tech talent. Many of Israel’s quantum startups are founded by veterans of these units, who bring a deep understanding of cryptographic techniques and a mission-driven approach to solving complex problems. 
4. Government Support and Funding: The Israeli government has recognized the strategic importance of quantum computing and has initiated programs to support research and development in this field. This includes funding for startups, collaborative research projects, and partnerships with international tech giants. The government’s proactive approach ensures that Israel remains competitive in the global quantum race. 
5. Startup Ecosystem and Global Collaboration: Israel’s startup ecosystem is renowned for its agility and innovation. At Startup Nation Central, we call Israel’s bold and determined approach to technology “impatient Innovation”. In quantum computing, Israeli startups are focusing on niche areas such as quantum cryptography, quantum control systems, and quantum software. These companies are increasingly engaging in international collaborations, partnering with U.S. tech firms, and participating in European Union research projects. This global integration helps Israeli companies to scale their innovations and contribute to the broader quantum computing landscape. 

Growth and Investment Trends in Quantum Computing   

The quantum computing sector in Israel has seen significant growth, albeit from a modest base. As of August 2024, Israel had 22 quantum computing startups, with four closures during this period. This growth is impressive when compared to the broader Israeli tech ecosystem, where the number of non-quantum companies has remained relatively stable since 2018. This trend reflects a burgeoning interest and investment in quantum technologies within Israel. 

Private funding for quantum computing in Israel began to rise noticeably in 2020. While the broader tech ecosystem experienced a downturn in 2023, quantum computing showed resilience, with total funding for the sector in 2024 already nearing the 2023 annual total by mid-year. This suggests a strong potential rebound and growing investor confidence in quantum technologies. 

Notable Israeli Quantum Computing Startups   

Israel is home to several pioneering quantum computing startups: 

1. Quantum Machines: Specializes in advanced control systems for quantum computing, offering hardware and software solutions that enable the precise execution of complex quantum algorithms. Their Quantum Orchestration Platform is a critical tool for scaling quantum computing applications in cryptography and machine learning. 

2. Classiq Technologies: Focuses on simplifying quantum software development. Their platform allows developers to design and optimize quantum circuits, bridging the gap between quantum hardware and software. This makes quantum computing more accessible for practical applications in optimization, finance, and drug discovery. 

3. Quantum Source Labs: An R&D company dedicated to developing scalable quantum processors and algorithms. Their work aims to solve complex computational problems in fields like cryptography, material science, and AI, accelerating the transition to quantum-powered solutions. 

The Future of Quantum Computing in Israel   

Israel’s quantum computing sector is poised for significant growth. With a strong foundation in technology and innovation – and a startup culture that thrives on agility and disruption, Israel is well-positioned to become a key player in the global quantum landscape. As Israeli companies continue to invest in quantum technologies and expand their international collaborations, the country is likely to achieve breakthroughs in quantum hardware, software, and applications. This will not only enhance Israel’s standing in the global tech ecosystem but also drive economic growth and innovation across various sectors, including AI, cryptography, and beyond. 

Israel’s journey into quantum computing reflects its broader strategy of leveraging its tech ecosystem to tackle complex global challenges. As the country continues to innovate and forge international partnerships, it is set to play a pivotal role in the future of quantum computing, offering solutions that could reshape industries and drive technological progress globally. 

The post Israel’s Quantum Computing: A New Frontier in Global Tech  appeared first on Startup Nation Central.

Recent investment activity, the rebound of the Finder Nasdaq Index, and M&A activity highlight the resilience and uniqueness of Israeli tech, showcasing groundbreaking solutions and continued global relevance. Innovative technologies, attractive valuations, and global consolidation in the cyber sector contribute to maintaining Israel’s status as a global innovation hub. 

Rebound in Private Funding Driven by Mega Rounds 

Private funding in H1 2024 increased 31% compared to H2 2023, amounting to $5.1 billion raised across 322 rounds. This figure could reach $6.7 billion when accounting for unreported rounds and undisclosed amounts. Q2 was particularly strong, with funding rising from $1.8 billion in Q1 to $3.3 billion in Q2.

Fourteen mega-rounds (above $100 million) contributed $2.8 billion, representing 56% of total private funding, overshadowing weaker sectors and providing much-needed capital for many early and mid-stage companies. This is an increase from 8 mega rounds in H2 2023. This surge was driven by a strong Q2, with reported funding rising from $1.8B in Q1 2024 to $3.3 billion, the highest since Q2 2022. The estimated number of rounds also increased to 362, up from 345 in H2 2023. 

Wiz stands out with a $1 billion round, representing 20% of all private funding. Notably, 8 of these mega-rounds were in the cybersecurity sector. 

H1 2024 will be remembered for the crazy times we live in. As Israel fights on literally all fronts, its startups are experiencing a positive period, where the cyber-security sector, which I focus on as an investor and an active board member, is topping the charts, in both exits and funding rounds. 

The seed arena was only quiet on the surface; behind the stealthiness, things got very busy – it felt like 2021 all over again. The VC supply keeps increasing with new players like Picture Capital, together with new mega funds raised by Team8, and supported by the renewed interest of tier-1 global VCs setting up local presence. H2 will be dominated by AI security stories across funding, dream teams forming, and the first cyber-AI blue and white exits. 

Zohar Alon, Cybersecurity Entrepreneur and Investor

Cybersecurity’s Increasing Dominance 

The Cybersecurity sector played a crucial role in the Israeli tech ecosystem, representing 52% of private funding in H1 2024. This prominence was highlighted by Wiz’s record $1 billion round and significant M&A exits totaling $1.5 billion across nine deals. Cybersecurity funding in Israel surged to over 50%, underscoring the sector’s critical importance and attractiveness to investors. 

However, this growth must be viewed in a global context. The consolidation of solutions worldwide has led to an acquisition spree by companies like Palo Alto Networks and CrowdStrike. Notably, Cisco’s $28 billion takeover of Splunk and discussions about Google potentially acquiring Wiz highlight this trend. This global competition is felt strongly in Israel due to its relative advantage in cybersecurity. However, an overreliance on this sector risks missing out on other significant trends and opportunities. 

Global Funding Comparison 

Israel’s 31% private funding growth in H1 2024 outpaced other regions. The US saw a 28% increase, while Europe and Asia experienced declines of 6% and 18%, respectively. Israel’s significant Q2 surge was notably higher than the more gradual trends observed in the US, Europe, and Asia.  

Despite the incredibly difficult challenges our country is facing, the Israeli tech ecosystem has shown tremendous resilience in 2024, with investment volumes on par or even slightly topping the capital contributed during the first six months of last year. The amazing people of Israel have helped keep the ecosystem intact, uniting during this tragic period. We’ve seen strength and resilience with players worldwide reestablishing or opening offices in Israel.

Local and foreign investors have been active in early and late-stage opportunities, and this momentum is expected to continue into the second half of the year. High-profile M&As and large funding rounds have continued, with new investors entering the Israeli market. We will see a continued focus on cybersecurity and defense tech, and we should prioritize AI talent and know-how, ensuring Israel leads in AI innovation. 

Irit Kahan, Managing Director Goldman Sachs Growth Equity

Boost in M&A Exit Activity Despite Low Number of Deals 

M&A exits in H1 2024 surged to $4.1 billion despite fewer deals, a 70% increase from H2 2023. Aside from H2 2021, this marks the highest value since 2018 and continues the upward trend from H1 2023. Notable deals included two acquisitions exceeding $1 billion each. Total transactions reached $7.1 billion, matching the previous half. The number of M&A rounds rose from 25 in H2 2023. 

Global Investor Participation is Pivotal 

The Israeli tech investment landscape featured 217 active investors in 2024 H1, 54% of whom are Israeli. Deals typically involve multiple investors, prompting our unique analysis, categorizing rounds into Israeli-only, global-only, and mixed investments. Over the past year, the share of funding from investments solely by Israeli investors has declined, with the median round size rising to $5 million in H1 2024. In contrast, rounds involving Israeli and global investors have significantly higher median sizes, rising to $20.5 million. Global investors’ investments also show substantial rounds, with a median of $5.5 million. These investors participated in rounds accounting for 93% of all funding, a seven-year peak. Leading global investors like Insight Partners and NFX Capital each conducted seven rounds, while Sequoia and Greylock reopened local offices. 

Finder Nasdaq Index Signals Rebound in Private Funding 

The new Finder Equal-Weight (EW) Index, based on Israeli tech companies traded on NASDAQ, revealed significant trends correlating with Israel’s tech ecosystem private funding. The index may be a forward-looking indicator for Israel’s private funding approximately 6-12 months in advance. Changes in the index revealed significant divergence coinciding with the government’s introduction of Judicial Reform and the outbreak of war in October 2023. However, despite these challenges, the index rebounded by March 2024. 

Public Companies and PIPEs 

PIPE (Private Investment in Public Equity) funding increased by 90% to $359 million, maintaining its status as a primary source of investment for public companies amidst a dry IPO market. 

In H1 2024, Israel’s reported private funding growth of 31% stood out globally. The US saw a notable rise of 28%, maintaining its dominant position in the market. Europe experienced a slight decline of 6%, while Asia continued to decline by 18%. Israel’s funding surge, especially in Q2, marked its highest quarterly increase since Q2 2022, contrasting with more gradual trends in other regions. 

H1 2024 Israeli Ecosystem Top Rounds 

The Israeli tech landscape in H1 2024 showed vigorous activity, with 7,158 active companies and 217 active investors. Private funding rose for the first time since H2 2021, reaching $5.1 billion across 322 rounds, driven by Q2’s $3.3 billion surge, the highest since Q2 2022. Public funding remained relatively stable at $825 million.  

Despite a slight decline in active startups, the ecosystem’s overall robust performance highlights enduring confidence in Israel’s tech innovation despite the complexities posed by the war and geopolitical challenges. 

The post H1 2024 Israel Tech Ecosystem: Growth Amidst Challenges  appeared first on Startup Nation Central.

Huang’s view is widely shared. A recent article in Nature proclaimed, “The AI revolution is coming to robots,” noting that nearly every major tech firm with AI expertise is now focused on applying versatile learning algorithms, known as foundation models, to robotics.

Sector Distribution

Israel is a hub for robotics tech companies, boasting 170 pioneering companies across diverse sectors: 33% of these companies focus on Industrial Technologies, 23% on Agrifood Tech, 19% on Health Tech, and 9% on Aerospace and Defense.

While the use of robotics in Industrial and Health Technology is common worldwide, Israel’s unique contribution to Agrifood Technology is rooted in its long-standing tradition of agricultural innovation.

Robotics Tech Companies

Robotics tech is a hotbed of innovation in Israel, with a rapid growth rate outpacing overall company formation. Since 2017, the number of robotics tech companies has grown by 126%, compared to a 107% increase for all companies.

Recent highlights in Israeli robotics include:

• Unlimited Robotics: Raised $5M in seed funding to develop service robots for hospitals, performing tasks like delivering meals and supplies.
• Finally: Emerged from stealth to develop robots for piece picking in online grocery orders.
• XTEND: Raised $40M for its operating system for drones and robots used by IDF soldiers for navigating drones in narrow tunnels.

Other notable companies include:

• Intuition Robotics: Creates AI-driven robotic companions like ElliQ for eldercare, assisting with daily tasks and providing companionship.
• ReWalk Robotics: Specializes in wearable robotic exoskeletons for individuals with spinal cord injuries, with FDA clearance and NASDAQ trading since 2014.
• RGo Robotics: Develops artificial perception technology, enabling mobile robots to understand complex surroundings and operate autonomously.

Private Funding in Robotics

Private Funding by Sectors

Robotics tech companies experienced a funding surge in 2021, with over $500M raised. This dropped to $376M in 2022 and about $100M in 2023. Health Tech and Industrial Technologies received the most funding, although other subcategories also saw investment activity.

Private Funding by Stage

Israeli robotics tech companies are typically in early development stages. About half of the funding recently went to mid-rounds, with 35-40% allocated to early rounds.

Top Funded Companies

The top-funded robotics tech companies in Israel showcase the sector’s diversity:

• Fabric: Raised $310M for fulfillment robots for autonomous warehouses in the retail market.
• Intuitive: Secured $153M for developing robot sensing, mapping, and navigation capabilities.
• Momentis Surgical: Raised $96M for a surgical robot for hysterectomy.
• Airobotics: Secured $83M for autonomous drones.
• Powermat Technologies: Raised $80M for wireless charging of robots.
• Beewise: Secured $80M for autonomous beehives to improve pollination.

For more details, see the Robotics Top-Funded Watchlist.

Main Exits

Most exits in the robotics tech sector have been in Health Tech. Notable exits include:

• Equashield: Merged with Nordic Capital in a $300M deal in 2022 for its automated drug-compounding technology.
• Ecoppia: Listed on TASE in 2020, raising $82M for its robotic solar panel cleaning solutions.

What’s Next

Israel’s robotics tech sector is diverse, with innovations spanning industrial robots, retail and commerce robotics, health and surgical robots, agri-robots, defense tech robots, and home robots for daily tasks. The sector includes robot development and core component innovation, such as software, sensing, and power solutions. A more detailed taxonomy and maturity analysis of this market is needed.

For more information, check out the articles from MSN and Nature.

The post Finder Spotlight: 2024 Israeli Robotics Tech Companies appeared first on Startup Nation Central.

Despite geopolitical tensions and internal challenges, the sector amassed $1.8 billion across 114 funding rounds, marking an increase from the previous quarter. With projections adjusted for undisclosed amounts, total investments are expected to reach $2.3 billion across more than 140 rounds, indicating a trajectory of sustained recovery. 

Private Funding Overview 

In Q1 2024, the Israeli tech ecosystem showcased its stability by amassing $1.8 billion in funding, reflecting an 8.5% increase from Q4 2023. This was driven by a rise in the average funding round size, even as the total number of rounds decreased. Noteworthy developments include: 

• Increased M&A Exits: The quarter witnessed M&A exits reaching $2 billion. 
• Public Funding: Public funding showed signs of recovery, though still modest at under $100 million. 
• Resilience Amidst Conflict: Despite ongoing geopolitical tensions and internal challenges, the tech sector has maintained its innovative momentum. 

Impact of Conflict on the Tech Ecosystem 

The Israeli tech ecosystem’s resilience was particularly tested by the conflict that escalated in 2023. Approximately 15-20% of tech workers were drafted in the first month of the war, disrupting normal business operations and leading to a sharp decline in new deals. Many deals were paused or fell through entirely due to the uncertain environment.  

However, Israel’s tech ecosystem is built for resilience. Its culture of problem-solving, risk-taking, and overcoming obstacles in pursuit of scalable solutions has allowed it to adapt quickly and maintain momentum despite these challenges. 

“We think we are ‘hitting the bottom of the market’ in Q1, and the real question is whether we ‘bounce along the bottom’ for the rest of the year or start climbing out in Q2. There is still a fair amount of pain that the industry will take in the coming quarters, yet we are positive there will be a steady rise in funding deals both in dollars and numbers.” 

Avi Eyal, co-Founder & Managing Partner, Entrée Capital 

Top Funding Rounds 

The first quarter of 2024 featured six mega-rounds totaling $716 million, accounting for about 40% of the total private funding. Four of these mega-rounds focused on cybersecurity, highlighting a trend toward investments in established, scalable entities.  

Q1 2024 Israeli tech ecosystem funding highlights include: 

• Cybersecurity Focus: With $846 million invested, this sector represented nearly half the total funding and major exits. 
• Comparison to Previous Quarters: The investment focus has shifted from a diverse range of sectors to a concentrated investment in Cybersecurity. 

Sectorial Dynamics and Challenges 

The varied performance across sectors in Q1 2024 reflects the complex interplay of global and local dynamics affecting investment decisions. Key observations include: 

• Cybersecurity: Continues to attract significant attention, underscoring its critical role in the current investment landscape. 
• Climate Tech and Agrifood Tech: These sectors are witnessing a resurgence after previous downturns. 
• Health Tech, Fintech, and Enterprise IT and Data experienced declines in funding amounts and rounds. 

Israeli Tech: Built on Innovation and Resilience 

The Israeli tech sector is navigating ongoing conflicts and economic downturns, and the impatiently innovative spirit of Israeli startups has been prominently displayed during the national efforts since post-October 7th. 

Companies have shown remarkable adaptability, often managing operations while founders and key personnel served in reserve duty, while others pivoted development to respond to specific pressing needs. This resilience and capability to innovate under pressure are expected to drive the industry’s revival and contribute significantly to broader societal and economic recovery. 

Looking Beyond 2024 

Despite the setbacks of 2023 and a slow start to 2024, there is hope for the future. The resilience and bold innovative spirit that has long defined Israeli startups are anticipated to reignite the sector’s growth. As the ecosystem recalibrates and adapts, there is renewed optimism for 2025 and beyond. 

Israel’s tech ecosystem continues to be a significant player on the global stage, demonstrating adaptability and resilience in the face of adversity. With ongoing investments, even during challenging times, and a strategic focus on quality and scalability, the sector is poised for recovery and continued dominance, particularly in the fields of cybersecurity and AI. 

The post Israeli Tech Q1 2024: Resilient Growth in a Challenging Landscape  appeared first on Startup Nation Central.

Despite these hurdles, recent findings reveal a picture of resilience and continued growth within the tech sector. 

The Israeli Tech Economy Since October 7 

The high-tech sector fuels 14% of Israel’s GDP, contributes 30% to tax revenues, and constitutes 48% of exports. Plus, with the active presence of 450 world-leading multinationals, Israel’s impatient innovators are a main vector of the nation’s economy. 

Following October 7th, the Israeli tech sector faced immediate challenges, including a reduction in workforce availability due to approximately 15% of the workforce being drafted into the war.  Short-term funding gaps emerged, particularly affecting smaller startups with limited financial runways.

Despite these obstacles, the sector has demonstrated remarkable resilience, continuing to attract significant investor interest and venture capital activity. Here is how things have been in the first six months of the war…

Private Investment Rounds 

Since October 7th, the Israeli tech ecosystem has seen 220 private investment rounds, with an estimated $3.1 billion raised.  

The average investment amount during this period was $19 million. A standout investment was the $265 million raised by Next Insurance, backed by two foreign venture capital firms. Regarding sector activity, health tech led with 47 rounds, followed by enterprise software solutions at 42 deals, and security technologies at 39.  

Security technology emerged as the leading sector in funds raised, securing nearly $1.1 billion, while fintech and enterprise software solutions each raised almost $0.5 billion.  

This investment trend in Israel mirrors the downward trend observed in the US, indicating a global adjustment in tech sector investments. 

Mergers and Acquisitions (M&As) 

The sum of M&A transactions since October 7th reached $3.7 billion.  

Two significant M&A deals were finalized, with total acquisition amounts nearing $1 billion. Additionally, nine acquisition deals exceeding $100 million were completed, six of which were in the security technology sector.  

These include acquiring Talon Cyber Security for $625 million, Dig Security, Avalor, and Gem each for $350 million, and Flow Security and Spera Security for $200 million and $130 million, respectively.  

Health tech also saw significant activity, with CartiHeal being acquired for $330 million, contributing to a total M&A value of $425 million in the sector. Enterprise Software Solutions M&As accounted for $240 million. 

New Funds Established 

In response to the war’s impact and to bolster confidence in the Israeli tech ecosystem, over 20 new funds were established, raising $1.7 billion.  

Eleven funds were created to address the urgent funding needs of startups affected by the conflict. Notable new funds include Iron Nation; 1948 Ventures; OurCrowd – Israel Resilience Fund; SYN Ventures – Cybersecurity Seed; Trendlines – Startup Shield SPV; TechShield; and the Google Support Fund. 

Looking Forward: Is Israel Keeping Up? 

Since October 7, the Israeli economy has responded to the challenges posed by the conflict with Hamas. This is a testament to its inherent resilience and global confidence in its continued growth and innovation. 

Despite immediate setbacks, the sector has shown signs of robust activity in private investment rounds, M&A deals, and the establishment of new funds supporting startups during these turbulent times.  

Compared to global trends, especially in the US, Israel’s tech investment landscape shows similar growth and contraction, demonstrating resilience and dynamism. This parallel reinforces Israel’s strong position in the global tech scene, even during geopolitical tensions. 

The Israeli economy’s resilience since October 7 is more than a survival mechanism; it’s a vibrant and dynamic force that continues to drive Israel’s economic success and global tech leadership. 

The post FINDER SPOTLIGHT: Six Months of Israeli Innovation in War  appeared first on Startup Nation Central.

Main Takeaways: 2023 Israeli Tech Annual Report 

• Private Funding Resilience: Despite economic uncertainties, 2023 Israeli tech private funding in the ecosystem nears $10 billion, with disclosed funding at $7.9 billion, showing stability at 2019 levels but with fewer rounds. 
• Seed Stage Tenacity: Seed stage funding shows minimal impact from the broader funding decline, indicating strong investor interest in early-stage technologies. 
• Public Funding Steadfastness: Public funding remains strong at $1.9 billion, with Health Tech’s public funding doubling, reflecting sustained investor confidence. 
• Foreign Investor Confidence: Increased participation of foreign investors in funding rounds highlights their confidence in Israel’s tech sector’s long-term prospects. 
• M&A Activity – Signs of Rebound: M&A value declined by 25% from last year, but a $1 billion Q4 rebound and Cybersecurity’s $2.8 billion in exits indicate sector growth potential. 
• Cybersecurity: With $1.9 billion in private funding and stable since Q3 2022, the sector sees a smaller decline than the broader ecosystem and notable mega rounds by Wiz and Cato Networks. 
• Health Tech: Experiencing a 53% decrease in private investments to $1.4 billion, Health Tech remains resilient, with Medical Devices stable and significant funding in Pharma and Biomedicine. 
• Climate Tech and Agrifood Tech: Despite a 60% decrease in private funding, these sectors show stability and promise, with Israel leading in sustainable water solutions, alternative proteins, and renewable energies. 

Background 

In 2023, the Israeli high-tech sector navigated significant challenges but showed remarkable resilience. 

With the proposed judicial reform mid-year causing domestic tension, the attack on October 7, and the ensuing war against Hamas – all against a background of global macroeconomic contraction – there have been obvious declines in venture capital investments.

Despite this, Israeli tech companies have maintained business continuity and have shown characteristic agility and creativity in overcoming setbacks. Historically, Israel’s bold and determined approach to tech innovation has enabled the ecosystem not just to overcome challenges, but to thrive.

At Startup Nation Central, we call this Impatient Innovation. 

2023 Israeli Tech Sector Insights

Health Tech 

The Health Tech sector continues to lead the Israeli ecosystem in terms of company count – over 1600 companies, representing 22% of the ecosystem. Private investments in Health Tech decreased 53% from the previous year, amounting to $1.4 billion, slightly lower than the 55% decline observed in the broader ecosystem. The Health Tech sector demonstrated relative resilience in the first 3 quarters of 2023 compared to H2 2022 with around $0.4 billion in private funding per quarter, but there was a drop in Q4. 

Medical Devices is the only subsector in which private funding did not drop and remained stable compared to last year ($447 million). The Pharma and Biomed subsector had the top Health Tech mega-round of the year – Upstream Bio raised $200 million in round B. Mental Health and Rehabilitation ecosystem efforts were impressive, with ~150 startups and growing, and immense collaboration with health organizations agile initiatives.   

58% of the rounds and 52% of the funding came solely from foreign investors (and there were additional rounds/funding in which both foreign and Israeli investors took part). Notably, no Angels were involved in funding this year.  

Climate Tech 

In 2023, Israel’s Climate Tech sector showed notable resilience and adaptability, focusing on carbon tech and energy transition reflecting global climate change mitigation efforts. Although the sector didn’t match early 2022’s peak in deals, it remained poised for growth. The number of companies slightly increased, with total funding at $0.9 billion, across 127 funding rounds. As opposed to the general downward trend, funding in the Carbon Tech sub-sector increased this year by 55% to $190 million. 
 
This period saw the sector expand with new accelerators, innovation centers, and incubators, indicating the local entrepreneurial and VC community’s confidence in climate tech’s long-term prospects. Amidst increasing urgency for climate solutions and regulatory shifts towards decarbonization, Israel’s tech ecosystem continues to drive forward with innovative impactful climate tech solutions. 

AgriFood Tech 

In 2023, Israel’s Agriculture & Food Tech sector showcased resilience amidst global economic and local challenges, with an increased focus on cellular agriculture, automation, and alternative proteins. This shift mirrors global trends in consumer preferences and food supply needs. 
 
The sector maintained a stable number of companies, but funding rounds decreased to 76 from 97 in 2022. Despite the overall decline in total funding, funding of Water and Irrigation companies nearly tripled and reached $138 million, accounting for 40% of the sector’s private funding. 
 
Many of the Israeli startups are now transitioning to growth phases, concentrating on commercialization and market expansion, setting the foundation for future substantial growth. The integration of advanced agricultural technologies, along with Israel’s entrepreneurial ecosystem, poises the Agriculture & Food Tech sector for ongoing success and innovative breakthroughs. 

Cybersecurity 

The Cybersecurity industry in Israel continues to be the strongest with the highest amount of private funding this year ($1.9 billion) as well as the highest average amount per round ($27 million). 

The decrease in the total amount in 2023 compared to 2022 is lower than the general ecosystem (45% in Cybersecurity vs. 55% overall). When comparing H2 this year to H2 last year, it went down by only 12.5% and the average amount per round did not change. Overall, the sector has been quite stable since Q3 2022. 

A Cybersecurity company raised the top round this year in the Israeli ecosystem – Wiz – which raised $300 million at the beginning of the year in round D. Another notable round by a Cybersecurity company was Cato Networks round G amounting to $238 million. 

Enterprise, IT and Data

In the Enterprise IT and Data sector, there was a 58% decrease in the private funding amount invested between 2022 and 2023. However, the decrease between H2 2022 and H2 2023 was only 14% and Q4 was higher this year than last year by 17% ($404 million compared to $346 million). The average amount per round also grew in the second half of 2023 to $28 million, which is 36% higher than the second half of 2022.   

4 companies in the sector had mega rounds this year in advanced funding stages: AI21 raised in total of $208 million in round C, HiBob raised $150 million in round D, VAST Data raised $118 million in round E, and Tomorrow.io raised $109 million in round E. 

Fintech 

The Fintech sector experienced a 57% decrease in private funding this year compared to the previous year, which aligns with the overall ecosystem trend. Despite the war, Q4 was relatively quite strong in Fintech with nearly $0.4 billion in private funding accounting for a third of the entire private funding this year and only 7% down compared to Q4 2022. A big portion of Q4 funding is attributed to Next Insurance which raised $265 million in an F round. Another notable investment round was in Q1, in which eToro raised $250 million.  

76% of the rounds (in which the type was disclosed) in 2023 were early rounds (up to A) and only 8% of the rounds were mid-stage rounds (B or C). In 66% of the rounds, foreign investors were involved compared to last year, which was 55%.

2024 Israeli Tech Economic Outlook 

We surveyed investment firms and corporate leaders active in the Israeli tech ecosystem to understand the industry’s expectations for the future, following a very turbulent year. It covered topics related to resiliency, recovery, investment and exit trends, and other activities in Israel. The survey was conducted at the end of November 2023 and was completed by 123 professionals.

Overall, respondents were optimistic about Israel’s resilience and ability to overcome challenges and expect the startup nation’s tech economy to remain stable or grow in 2024. Tech sector trends predict that AI and Cybersecurity will continue to lead this year, with Defense Tech gaining traction. For impact sectors such as Agrifood, Health, and Climate Tech, Israel is expected to continue leading global efforts to meet shared challenges with scalable tech solutions.

Heading into 2024, the Israeli tech ecosystem faces significant challenges, but the ecosystem’s bedrock of innovation, global partnership, and proven resilience will steer it through uncertainties and toward a continued growth trajectory;  Israel remains an innovation hub and an ecosystem with significant investment opportunities.

The post 2023 Israeli Tech Annual Report  appeared first on Startup Nation Central.

As global interconnectedness makes the world smaller, the perspective of public and private entities worldwide must get bigger – especially when it comes to meeting pressing, shared challenges. Governments are increasingly prioritizing the United Nations’ Sustainability Development Goals and, simultaneously, corporations are shifting focus to environmental, social, and governance, accelerating the search for tech solutions to attain net zero, ensure user privacy, and protect digital assets. 

Across every industry and in every region, responsible industry and sustainable resource management are increasingly guiding goals and values. 

The vibrant, concentrated nature of the Israeli innovation ecosystem, with over 7300 tech startups and capital investment of $15.5B, is a global leader in innovative technology. Even after the challenging financial conditions of 2022, Israel is the ideal place for both public and private entities the world over to find innovative solutions to their critical challenges and business needs. Collaboration and knowledge-sharing with the Israeli innovation ecosystem have the potential to provide vital solutions to global challenges and pressing business needs.

The hurdle to overcome is discovery: How can an entity searching for a solution pinpoint the Israeli tech startup with exactly what it needs?

The need for innovation in addressing global challenges

We are facing global challenges on a scale that humanity has never seen before. Climate change is on the brink of making our world a much less liveable place, there are painful gaps in healthcare access, and water and food insecurity threatens millions. In addition, interconnectedness also creates opportunities for security breaches and cyber-attacks. 

These challenges call for novel responses and human creativity is being called upon to develop advanced technology and find effective ways to apply it. The climate, health, and agrifood – as well as the cyber and fintech sectors – reflect the effort being put into innovating scalable solutions to these challenges.

Yariv Lotan, VP Product, Development and Data at Start-Up Nation Central, explains how the ecosystem has the potential to bridge these gaps:

“At Start-Up Nation Central, we have spent years mapping the entire Israeli startup ecosystem, focusing on sectors where we can contribute to bridging the gap between developing a product and getting it in front of the right clients or investors. This gap is particularly apparent in impact industries such as agrifood Tech where Israel has a significant advantage but there are challenges to securing investments, launching POCs, and going to market with a sustainable and scalable roadmap.”

Israeli Innovation: A Gift to the World

Israel’s early days presented an immediate need for ingenuity and determination. Survival depended on meeting a myriad of challenges: feeding a growing population in a land with vast tracts of desert, physical and diplomatic isolation, building an effective healthcare system from the ground up, and more. The innovation and commitment required forged Israel’s national character and have carried through to the present day, playing a major role in Israel’s transformation into the startup nation.

Throughout its 75-year history, Israel has taken its innovative spirit and made it a foundational part of relationship-building with global entities. Today’s world is deeply connected, building and reinforcing cooperation through knowledge sharing and business collaboration on increasingly larger scales. Israel’s innovative prowess brings significant value to global relationships and partnerships, positioning the small country as a source of tech and expertise. 

The challenge is in delivery: How can global stakeholders searching for help access the solutions available in the Israeli innovation ecosystem? It’s not simple.

The obstacles facing early-stage Israeli tech startups

Solutions to global challenges tend to be less monetizable than other tech sectors such as cyber or fintech. This means that ideas or products that could change the world for the better may struggle to secure funding – if there is no fleshed-out POC, most VCs will be reluctant to invest. Climate tech, for example, has notably fewer accelerators and VCs dedicated to it than many other industries, likewise for other impact sectors. 

Even in the more ‘mainstream’ tech sectors such as fintech and cyber tech, it can be tough for early-stage companies to get their tech to the world and attract the right partners or investors to scale their offerings. Plus, even startups that have received funding and made it past earlier stages will likely only make an impact globally if they are acquired or contracted by a multinational corporation (MNC). 

Left to chance, it is very unlikely that these companies will succeed – and the scalable, high-value tech products they have developed won’t make it to market. So the question is: how can founders approach MNC leadership effectively? How can they develop a proof of concept that demonstrates go-to-market potential? And how can MNCs and investors hone in on the products they need and initiate contact with the startups?

Start-up Nation Finder opens the door

Creating an engagement platform for the Israeli innovation ecosystem is one of the core aims of the Israeli non-profit, Start-Up Nation Central (SNC). SNC creates business connections between relevant Israeli startups and global players who are looking to access high-quality innovation. 

Eight years ago, SNC realized the need for an independently accessible startup database that would map the entire Israeli tech ecosystem and provide a platform for discovery and connection. Start-up Nation Finder has grown rapidly from its inception, encompassing – at the time of publication – 7000+ Israeli tech startups, 850+ investors, 400+ multinationals, and 375+ hubs. 

Yariv explains how Finder facilitates business engagement and deal flow with Israeli startups: 

“In today’s dynamic business landscape, innovation is the key to success. Startup nation solutions have revolutionized industries worldwide, and accessing these cutting-edge ideas and technologies is crucial for global stakeholders. This is where Start-Up Nation Finder, the groundbreaking SaaS platform for innovation ecosystem engagement, comes into play. With its powerful features and user-friendly interface, Finder empowers businesses to tap into the limitless potential of Israel’s tech solutions. Finder’s Dealflow Desktop, Ecosystem Storytelling, and Marketplace Network can revolutionize the way you discover and engage with innovative startups.”

Overcoming the obstacles by facilitating ecosystem access

Productive connections between startups and investors, R&D labs and accelerators, fledging companies, and MNCs, all depend on a streamlined process to discover and investigate relevant players in the Israeli innovation ecosystem. These connections would be propelled by access to comprehensive and up-to-date information about startups and other players in the ecosystem.

Ideally, all of these features would be available in one intuitive, easy-to-navigate platform. The right kind of platform would also enable communication within the system itself, to accelerate the journey from interest to collaboration. Finder answers this need and offers a range of features to support global engagement with the Israeli startup ecosystem:

1. Dealflow Desktop: Unleash Business Insights and Personalized Tools

Start-Up Nation Finder’s Dealflow Desktop provides an unparalleled experience for global stakeholders seeking valuable business insights. By leveraging advanced algorithms and machine learning, this personalized tool enables users to identify and evaluate high-potential startups that align with their specific needs and interests. No more endless hours of manual research; Finder streamlines the process, saving you time and effort. Whether you are an investor, corporation, or accelerator, Finder’s Dealflow Desktop is your gateway to a world of innovation.

2. Ecosystem Storytelling: Amplify the Voice of the Ecosystem

Innovation thrives on effective communication, and Finder’s Ecosystem Storytelling feature is designed to do just that. It serves as a narrative and content channel, presenting the inspiring stories and achievements of startups within the ecosystem. By showcasing these success stories, Finder amplifies the voice of the ecosystem, giving startups the recognition they deserve while inspiring others to take part. Think of it as a TEDx finder-like asset, where ideas, experiences, and expertise converge to shape the future of innovation.

3. Marketplace Network: Your Gateway to the Start-Up Nation Innovation Network

Start-Up Nation Finder’s Marketplace Network is a vibrant community of startups, investors, corporations, and industry experts from the ecosystem. By joining this powerful network, you gain unparalleled access to a wealth of resources, connections, and opportunities. Whether you are looking to invest, partner, or collaborate, Finder’s Marketplace Network serves as the ultimate facilitator, bridging the gap between startups and global stakeholders.

4. Enhancing Ecosystem Impact: Acquire Users and Deliver Personalized Business Value

Finder goes beyond being a mere platform; it strives to improve ecosystem impact by acquiring registered and active users and delivering personalized business value. With its intuitive interface and powerful features, Finder creates an environment where startups thrive, investors find lucrative opportunities, and corporations discover cutting-edge solutions. By fostering collaboration and facilitating meaningful connections, Finder is driving the growth and success of the local ecosystem on a global scale.

But it’s not just about discovery and engagement. 

The industry data collected by Finder is an added benefit, delivering live insights, trends, and takeaways from the ecosystem. Start-Up Nation Central leverages these vast amounts of data to produce reports with real-time industry insights for the benefit of all ecosystem members:

“In the realm of innovation, Start-Up Nation Finder stands out as a game-changer for global stakeholders seeking startup nation solutions. By using Finder, you not only gain access to an unparalleled pool of innovative startups but also contribute to the growth and success of the Israeli ecosystem.”

The post Start-Up Nation Finder: How Global Stakeholders Zero in on Start-Up Nation Solutions appeared first on Startup Nation Central.

Keep reading for an overview of our H1 2023 Tech Reports.

Private Funding Hits 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. 

The decline in private funding has raised concerns within the tech ecosystem, impacting startups’ growth and innovation prospects. 

Investor Participation Plummets to a 9-Year Low 

Investor participation in investment rounds nosedived to the lowest level in the past nine years in H1 2023, experiencing a 53% decrease compared to H1 2022 and a 24% decrease 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. 

The significant decrease in investor participation poses challenges for startups seeking funding and growth opportunities.  

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. This decline indicates caution among investors and businesses in navigating economic uncertainties. The decrease in IPOs and M&As calls for a data-focused analysis of the factors driving this trend.  

Two Sectors Exhibit Initial Resilience 

Despite the economic turbulence, the cybersecurity and climate tech sectors have demonstrated resilience in private funding, maintaining consistent performance levels between H1 2023 and H2 2022. 

The resilience of these two sectors provides valuable insights into their growth strategies and the key factors contributing to their stability.  

H1 2023 Fintech Sector Insights 

The total investments in Israel’s fintech sector took a significant hit, plummeting by over 50% from $6 billion in 2021 to $2.6 billion in 2022. Unfortunately, the downward trend continues into 2023, with investments reaching only $545 million. However, amidst these challenges, the adoption of generative AI offers promising opportunities within financial services. 

The integration of generative AI in fintech holds significant promise, particularly in task automation and data analysis. While the sector faces headwinds due to the macroeconomic slowdown, startups have the chance to collaborate with established financial players. 

H1 2023 Climate Tech Sector Insights 

The global climate tech sector has proven its resilience, with the Israeli climate tech sector experiencing funding growth in H1 2023 compared to the previous six months. The urgency for climate solutions and escalating regulatory and corporate commitments for decarbonization continue to drive innovation in this domain. 

Israel’s recognition as a market leader in food & land use and sustainable water solutions, as well as in solar energy, geothermal energy, and alternative proteins, positions the country at the forefront of climate tech innovation. With the growing focus on climate innovation, more Israeli entrepreneurs are leveraging their skillset to make a significant impact in this sector. 

The sector’s expansion is further supported by initiatives like Start-Up Nation Central’s Climate Solution Prize, empowering changemakers and awarding top researchers and innovative companies driving breakthrough climate tech solutions. 

H1 2023 Health Tech Sector Insights 

The health tech sector experienced a sharp decline, reaching the lowest level of private investments since 2018, with only $504 million in H1 2023—a staggering 74% decrease compared to H1 2022. However, despite these challenges, health tech startups continue to be a significant part of the Israeli tech ecosystem. 

While the current economic environment poses obstacles, health tech remains a beacon of hope in addressing global health challenges. Early-stage companies represent a considerable portion of private funding rounds, indicating the potential for startups to make a positive impact in this sector. 

With digital health leading the subsector, decision support systems and medical devices developing treatment & therapeutics are key areas of focus for health tech innovation.

H1 2023 Agriculture-Food Tech Sector Insights 

Israel’s agrifood tech sector stands out as a leading force in innovation and sustainability, garnering global attention and significant investments. Collaboration between academia, industry, and government has played a vital role in the sector’s growth, fostering cutting-edge research and development. 

The food tech domain has seen a surge in startups focusing on novel ingredients and alternative protein sources. Despite challenges in scaling up production, regulatory limitations are gradually easing, providing room for investor confidence to grow in the second half of 2023.

In the agriculture tech sector, advanced funding rounds have contributed to stability in Q2, with companies like N-Drip securing significant investments. The strategic attraction of agri-investors to the sector showcases the potential for startups to leverage collaborations with industry players to achieve sustainable growth. 

H1 2023 Enterprise IT and Data Infrastructure Sector Insights 

The enterprise IT and data infrastructure sector showed improvement in Q2 compared to Q1, with a significant rise in early-stage deal flow. Dozens of generative AI companies are actively fundraising, presenting promising opportunities within this domain. 

Generative AI’s rising interest indicates a shift in companies’ data infrastructure strategies, aiming to implement Large Language Models (LLMs) within their organizations. The need for new data infrastructure tools to ensure LLM readiness is spurring innovation in compliance, privacy, and security.

H1 2023 Cybertech Sector Insights 

The cybersecurity sector has shown relative robustness, maintaining stability in both private and public investments, with M&A activities surpassing the previous half. However, data indicates a slight dip in investments in Q2 compared to Q1, warranting further exploration to understand the dynamics fully. 

Over the past three years, the sector has faced growing challenges due to the sophistication of malicious actors and the emergence of new attack vectors. Cybersecurity remains a top priority for many enterprises, with operational efficiency driving spending and startups focused on ARR growth. 

While certain subsectors may experience shifts in investor interest, opportunities lie in areas such as AI security, security automation, and security solution consolidation.

From Crisis to Opportunity 

Israel’s tech ecosystem faced a challenging landscape in H1 2023, with notable declines in private funding and investor participation. However, sectors like cybersecurity and climate tech display resilience, providing potential growth opportunities. Fintech, health tech, agriculture-food tech, enterprise IT, and data infrastructure sectors also present various challenges and prospects for recovery. 

The post H1 2023 Tech Reports: Navigating Uncertainty in Israel’s Innovation Ecosystem  appeared first on Startup Nation Central.

Start-Up Nation Finder is a discovery and engagement platform for connecting the Israeli innovation ecosystem with the world. The industry data collected by Finder enables precise analysis of market conditions, delivering live insights, trends, and takeaways from the ecosystem. Start-Up Nation Central leverages these vast amounts of data to produce reports with real-time industry insights for the benefit of all ecosystem members. 

Every business quarter, Finder offers snapshot reports for major tech sectors in the Israeli ecosystem, providing valuable insights based on data analysis and expertise and giving a comprehensive overview of the latest trends and developments.  

Keep reading for the main takeaways from our Q1 2023 Israeli Tech Sector Reports or access all of the full reports here. 

Q1 2023 FINTECH 

In 2023, the Fintech industry is facing new realities. The higher cost of capital jeopardizes business models that rely on cheap cash, meaning that consumer and business credit models are suffering from higher numbers of defaults and lower disposable income/spending. 

Q1 of 2023 was de facto a flat QoQ in terms of number of deals and volume, adjusted for the $250M eToro deal. This represents an ~80% decrease from the peak of the market in H2 2022. While this sounds like a significant dip, it is consistent with global macroeconomic trends.  

One of the strengths of the Israeli fintech ecosystem is its diversification across subsectors and the agility of founders to pursue new innovative domains. While the bar for success is higher and the market has become more selective, there is huge potential for fintech.   

Gaps in legacy industries are ripe for disruption by leveraging financial services (vertical fintech/embedded finance) – and the era of AI-everywhere is starting to demonstrate a material impact across the financial innovation stack. 

Q1 2023 CYBERSECURITY TECH

Assessing the performance of the Q1 2023 Israeli cybersecurity investment landscape is sobering, but the outlook remains hopeful. Following the extraordinary peak of 2021 and stark decline of 2022, investor interest in cybersecurity innovation this quarter remained high.  

Malicious actors are increasingly sophisticated in their assaults, underlining the importance of prioritizing security. This quarter’s data shows that investors are still betting on groundbreaking cyber technology and want to see a consolidation of capabilities in one solution that resolves multiple problems.  

Consolidation has also become an operative word on the M&A front. Since 2022, acquisitions have become a potential safety net for startups affected by the economic downturn. Decreased valuations make it difficult to raise follow-on rounds while startups that previously raised capital at high valuations without backing it up with ARR (Annually Recurring Revenue) and real customer traction are in trouble. Large vendors determined to expand their offerings are acquiring these struggling companies.  

If Q1 is any indication, cybersecurity will remain a top-quartile investment sector. 

Q1 2023 HEALTH TECH

Amid increasing global health challenges and financial slowdowns, the Health Tech sector is rapidly shifting. Workforce shortages, workload imbalances, burnout, the need for cost reduction, and healthcare equity are among the key challenges facing the health industry – with savvy founders poised to make an impact.  

In 2022, the Health Tech sector raised $2B in funding, representing a relatively modest decline of 27% compared to 2021. While the sector comprises over 1,600 companies, it ranked fourth in terms of the amount invested by tech sector.  

In Q1 2023, Israeli Health Tech investment declined with only $226M in equity invested across 33 rounds, a nearly 50% decrease from Q4 2022 and a 70% decrease compared to the first quarter of 2022.  

Two clusters of companies stood out in terms of private capital raised, namely digital decision support and treatment therapeutic medical devices. Additionally, artificial intelligence technology is a growing and leading core innovation, accounting for over 58% of companies and 61% of deals.  

We anticipate a continued increase in the use of artificial intelligence, big data, and machine learning technologies across all three subsectors – digital health, medical devices, and pharma. 

Q1 2023 CLIMATE TECH 

Following record-breaking venture activity in 2021 and the first half of 2022, global VC investments in Climate Tech cooled as part of a global macro slowdown. In 2023, the first quarter of the year showed a relative improvement in the overall sum of investments in Climate Tech compared to the last quarter of 2022 – primarily thanks to funds raised in the public markets.  

Climate Tech winners in the first quarter come from a range of subsectors, including sustainable materials, solutions to food waste, and nuclear energy. Recognizing the opportunity, more new startups are developing deep-tech solutions to climate challenges.  

We expect the sector to be relatively resilient to the global downturn compared to other sectors in part due to the urgency for climate solutions and the expectation that regulation and corporate commitments for decarbonization will necessitate the rapid rollout of these solutions. 

Israel is a recognized leader in food & land use and sustainable water solutions. With the growing global focus on climate innovation, Israeli entrepreneurs are leveraging their skillset to innovate additional climate tech domains. Start-Up Nation Central supports the growth of the ecosystem by providing access to transparent and quality data on the sector and creating business opportunities for multinational corporations, investors, and government leaders to engage with the Israeli entrepreneurship community. 

Q1 2023 ENTERPRISE TECH 

The Enterprise IT and Data Infrastructure tech sector faces ongoing challenges. With a fragile global economy, protracted sales cycles, and spending constraints, Israeli companies are adapting to demonstrate value delivery to customers and prioritizing profitability. 

While IPO and M&A activity has been muted so far in 2023, the market shift to measured growth and funding slowdown provides vast opportunities for acquirers.  

Although the IPO pipeline is robust with the window effectively shut for several quarters, many companies may further delay going public until 2024 due to macroeconomic uncertainties and optimism that multiples will climb back above 5-year averages by next year.  

Q1 2023 AGRICULTURE-FOOD TECH

The land of milk and honey continues to pioneer and innovate Agriculture-Food technologies and science, tackling the most critical global challenges. 

Following an outstanding 2022 followed by a global macroeconomic slowdown, Q1 2023 for the Israeli Agriculture-Food sector has been challenging overall. In terms of investments, as well as average deal size, Q1 2023 has reached an all-time low, however, the number of investments has only decreased slightly – investor interest remains high, and company roadmap milestones are being met.  

Food – Israeli food startups are continuously sprouting groundbreaking scientific advancements that enable supportive solutions for cultivated foods, novel ingredients, and packaging subsectors.  

Agriculture – Autonomous and robotic solutions as well as data-based digital tools for both farmers and ecosystem stakeholders have gained the confidence of investors, proving that both the value offering and product market fit of these solutions are recognized.  

When analyzing the emerging subsectors within the Agriculture-Food sector, and the supporting underlying technologies, we remain confident that the ecosystem is positioned to grow.  

From livestock and crops, bee & pollination solutions, functional foods, novel ingredients, and alternative proteins, the Agriculture-Food Tech sector is reinventing traditional industries, and as such, is facing unique challenges. This is where Start-Up Nation Central steps in to support the ecosystem as a whole and especially the start-ups. 

We connect more than 100 global entities to Israeli startups every year. In addition, we map monitor, and assist companies of all kinds and at all stages to facilitate market access. 

Special thanks to our guest contributors 

Omry Ben David, General Partner, Viola Ventures​
Daniel Aronovitz, Principal, Insight Partners​
Ofer Schreiber, Senior Partner, YL Ventures​

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