HomeIsraelIsrael, Startup Funding Declines 60% in First Three Quarters; M&A Market Surges

Israel, Startup Funding Declines 60% in First Three Quarters; M&A Market Surges

Credit: Tali Talmid

The sixth annual “Trends and Forecasts” conference, held today, presented a comprehensive report summarizing the performance of funds and startups over a challenging year.

Organized by Guy Katsovich, Founding Partner of Fusion Fund and Accelerator Program, in collaboration with Pearl Cohen Zedek Latzer Baratz law firm, the event brought together 200 venture capitalists, angel investors, innovators, and serial entrepreneurs. It centered on assessing the performance of Israeli high-tech companies amidst challenges such as high-interest rates, legal changes, and the recent war, aiming to predict the impact of the ongoing war in 2024.

According to the findings of the report, Asaf Horesh, General Partner at Vintage Investment Fund, there has been a significant decline in the scale of VC fundraising, with only 10 new funds raising a total of 1.4 billion dollars in the first three quarters of 2023. In contrast, 51 funds raised an aggregate amount of 4.5 billion in 2022.

Fundraising volumes have stabilized following the decline, with $500 million raised during the first quarter of 2023. Subsequently, $400 million was raised in the second quarter, and another $500 million in the third quarter. In comparison, 2022 saw fundraising totaling $2 billion in the first quarter, $1.3 billion in the second quarter, $700 million in the third quarter, and $500 million in the fourth quarter.

Consequently, the number of investments in Israeli startups has declined to 319 transactions, totaling $5.4 billion, in contrast to the figures of 694 transactions amounting to $15.7 billion in 2022. There has been a 60% fall in recruitment volumes during the first three quarters of this year compared to the corresponding period last year. In contrast, the US market experienced a 40% decrease from the previous year.

Nevertheless, startup fundraising seems to be stabilizing, with $1.8 billion raised in the first quarter, $2 billion in the second quarter, and another $1.8 billion in the third quarter. This follows a decline from $6.5 billion in the first quarter of 2022 to $5.5 billion in the second quarter, $2.8 billion in the third quarter, and $2.7 billion in the last quarter of 2022.

This year, only three companies have achieved unicorn status: AI21 Labs, BioCatch, and Lendbuzz. This marks a notable contrast to 2022, which saw the announcement of 18 unicorns, and 2021, when 35 unicorns were announced, reflecting a 91% decrease from the previous year.

The exit market and public offering scene in Israel remain stagnant, mirroring trends in the U.S. and Europe.

In contrast, the mergers and acquisitions market in Israel has undergone a remarkable acceleration since hitting a low point in the second quarter of 2022. In the first three quarters of 2023, 27 transactions totaling $4 billion were announced, excluding transactions from the last quarter. The distribution included approximately $1 billion in the first quarter (a 260% increase in transaction value from the last quarter in 2022), $665 million in the second quarter, and $1.4 billion in the third quarter. In comparison, there were 27 mergers and acquisitions in 2022, totaling $3.7 billion. Around 70% of all purchases in 2023 were in the cyber industry due to consolidation.

The Fusion Foundation and Acceleration Program, the organization behind the conference, was established in 2017 by Guy Katsovich and Yair Vardi. In the past year alone, the fund has invested in over 30 Israeli startups in pre-seed and follow-on rounds, aiming to make between 80 to 100 new investments by 2026. The fund is financially supported by Israeli and foreign venture capitalists, venture capital funds, and Influential entrepreneurs.

VCWire

28/12/2023