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Israeli Startups See 36% Drop in Investment in Third Quarter

Oct 20, 2022

Viola Group, an investment firm, recently published a report, which disclosed that the third quarter of this year saw a 36% drop in investments in startups in Israel, as opposed to the previous quarter.

The total amount of money that Israeli companies managed to raise between July and September of this year was around $2.8 billion.

Drop in numbers

This figure was a prominent drop from the fundraisers in the first and second quarter of the year, which had seen totals of $5.9 billion and $4.4 billion, respectively.

The report was published on Wednesday and it also showed ‘mega’ deals funding round had also seen a year-on-year drop of 69% of more than $100 million in the third quarter.

Earlier rounds had also recorded declines as opposed to a year ago, but they were significantly milder by about 13%.

There was also a 47% drop in ‘growth’ rounds, which usually refer to Series B and Series C investment rounds, of somewhere between $20 million and $50 million.

According to the report, there was a 30% overall drop in the pace of investment as compared to the previous year.

Last year had been a great one, as it had seen Israeli companies raise private capital of a whopping $25.6 billion.

The details

However, it should be noted that tech outfits in Israel are on course to end the year with investment figures higher than 2020, when an annual $10.3 billion had been raised by companies.

This had previously been a record. So far, there have already been investments of about $13 billion in the first three quarters of the year.

The Viola report revealed that there was a 35% drop in investments by foreign VCs in the third quarter, while the funding drop from Israeli VCs was 29% in the same period last year.

Extension rounds also increased in the third quarter of 2022, where funding remains open to allow startups to obtain more money while keeping the same valuation.

They are often considered an indicator of market trouble and provide executives and founders some time to increase their revenue and raise funds in the future when the conditions are more favorable.

Growth-stage companies

Tomer Meridor and Rotem Shacham, the Viola principals, said that after last year’s fundraising environment, there were sufficient funds available for growth-stage companies.

They said that these companies had opted to restructure their budget, or were considering the venture debt alternative in order to delay the fundraising timing and to get a longer runway.

They also said that growth rounds would also see a rise in the tech ecosystem in 2023. A survey had been conducted of about 400 tech employees and 300 founders in Israel last month.

Its results showed that recent months had seen worries about being able to raise funds with a downturn in the market going down.

This is because companies have been able to stretch things a bit and are more focused on generating more revenue in the coming period.

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