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With attractive valuations and immense growth potential, the Israeli tech ecosystem remains resilient—no matter the circumstances.��

Since October 2023, Israeli technology has defied expectations, performing exceptionally well despite mounting challenges. However, in light of uncertainty due to the prolonged conflict and the current Israeli government's economic policy, the tech sector’s resilience is not guaranteed. The absence of long-term government planning around budget policy, academic research infrastructure, and future growth drivers poses a risk to the sector’s role as Israel’s economic engine. ��
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Our investment data and survey results show that while the tech ecosystem continues to attract investments and generate activity despite uncertainty, there is a consensus within the industry: confidence in the government’s ability to rehabilitate and foster the sector is low despite the commendable and swift actions taken by the Israeli Innovation Authority. This is causing many Israeli companies to reconsider their next steps in securing business growth.  ��
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To sustain the current momentum and maintain the trust of foreign investors, the government must act and demonstrate its commitment to developing the tech sector. This is vital for safeguarding Israel’s economy for the benefit of all its citizens. ��

Despite current challenges, there is room for optimism, Israel continues to draw investors seeking bold, determined solutions to global challenges. With attractive valuations and immense growth potential, the Israeli tech ecosystem remains resilient—no matter the circumstances.��

Investment stable, so far��

Despite the war in Israel, private funding remains in line with the prior year. Since October 2023, the Israeli tech ecosystem accumulated a total of  $10.1 billion in private funding across 740 rounds of fundraising. This small decline from $8.2 billion in the 11 months prior to October—despite the conflict and global downturn in tech funding—represents the resilience of Israel’s tech sector. ��

The average investment amount was $21 million, the highest since 2021, and the median amount $8.5 million, an all-time high. Leading sectors were health tech and life sciences with 123 rounds, business software with 101 rounds, and cybersecurity with 92 rounds.��

Comparing private funding trends in Israel and in the US since October 2023 shows that the two countries have similar patterns. However, when funding in the US increases, Israel’s funding rises even more, and when US funding declines, Israel’s decreases more significantly.��

After October 2023, both Israel and the US saw a decline in private funding, with Israel experiencing a sharper drop to 66% of October 2023 levels by February 2024, while the US saw a more moderate decline to 83%. However, by May 2024, both countries had rebounded significantly, with Israel reaching 152% and the US 128% of their October 2023 levels. Towards July 2024, both countries again experienced a reduction in private funding.��

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The Israeli tech ecosystem saw 18 mega rounds (above $100 million) from October 2023 compared to 19 mega rounds for the same period the previous year. These mega rounds accounted for 46% of total private funding compared to 37% the year before. This high ratio of mega rounds to all rounds indicates that more established companies are a greater economic contributor than seed and early-stage investments. ��

Cloud security startup, Wiz stands out with a nearly $1 billion round, representing 13% of all private funding. Notably, nine of these mega rounds were in the cybersecurity sector.��

Since the beginning of the war, Israeli tech Mergers and Acquisitions (M&A) reached $9.6 billion across 73 events, slightly down from $10.6 billion across 108 events for the same timeframe the previous year. Despite an initial slowdown, the market rebounded in the latter half of 2023, particularly with exits. Notably, two large M&A deals—Resident by Ashley Home and WalkMe by SAP—totaled $2.5 billion.��

The business software sector led with $3.4 billion in M&A activity, including major deals such as WalkMe’s acquisition by SAP, Run:AI’s acquisition by Nvidia for $700 million, and Priority Software’s acquisition by Blackstone for $400 million.��

Cybersecurity followed closely with $3.3 billion, dominated by exits, while the health tech sector saw significant activity with three mega deals totaling over $1.2 billion.��

Business and investor confidence��

In mid-August 2024, Startup Nation Central conducted a comprehensive survey to understand the current sentiments, challenges, and outlook of Israel’s high-tech ecosystem one year since October 7. ​This survey was essential to capture the perspectives of both high-tech companies and investors, providing valuable insights into how the sector is navigating these turbulent times. ​A total of 230 high-tech companies, sourced from our Finder database, and 49 active investors participated in the survey.��

Firstly, due to the war, companies experienced human capital shortage and investment cancellations, and 24% have shifted some of their operations within or outside of Israel to adapt to the ongoing challenges. To further mitigate risks, 32% of companies are considering relocating some of their operations abroad. Regarding human capital, 44% of companies have faced moderate to significant shortages. Finally, 36% of companies experienced over 25% investment cancellations. ��
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The sentiment among the companies is mixed with some concerns around the ability to raise funds and grow: 54% of companies are confident in their ability to grow in the upcoming year. Business software and cybersecurity companies are more confident in their ability to grow (72% and 65% respectively), while health tech and agrifood tech companies are less confident (45% and 40% respectively). Only 31% of companies are feeling confident in their ability to raise funds in the upcoming year. ��

Investors’ sentiment is also mixed with a more positive outlook on M&As.Of investors, 51% project investments to remain stable or increase, which is relatively consistent with the last survey conducted nine months ago. Initial Public Offering (IPO) projections also remained consistent, while M&A projections became more optimistic, with 55% and 81% of investors excepting IPOs and M&As, respectively, to remain stable or increase. ��

There is low confidence in the government’s ability to lead the recovery: 82% of companies reported not receiving any support due to the war. Eighty percent of all companies and 74% of investors are concerned about the government’s ability to lead recovery efforts. ��

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Despite the challenges there is continued confidence in the Israeli ecosystem’s resilience: 56% of companies and 72% of investors are confident in the ecosystem’s ability to deliver despite the challenging circumstance. Eighty-two percent of investors believe the global image of the Israeli ecosystem’s resilience is still positive or neutral. ��

Companies based in the north are facing bigger challenges: a sub-survey sent only to about 60 tech companies based in the north (close to the borders) shows that only 45% are fully operational and 41% had to relocate their operations. Of those, 20% that relocated will not return and 70% still do not know. Only 43% report that they received government support, and the confidence in the government’s ability to lead economic recovery stands at less than 10%.��

Tech companies close to the fighting were already sparse before October 7 and are now facing challenges much more severe than in the center. As the tech industry is an important driver for economic growth and prosperity, the impact of the war on it will have an effect on the region as a whole and on Israel’s ability to recover.����

This article is based on the report, “Startup Nation Central: One Year of Israeli Innovation in War,” reprinted courtesy of Startup Nation Central.

The views represented in this piece are those of the author and do not express the official position of �������ϲ�.����