Israeli Tech Sector Thrives Amidst Global Challenges, Funding Stabilizes At 2019 Levels

The Israeli tech sector remained robust in 2023 despite global macroeconomic challenges, despite civil unrest over proposed judicial reform that embroiled Israel for the first nine months, and despite the war with Hamas that dominated the final three months.

So concludes an annual report on Israel’s technology sector released by Startup Nation Central, a nonprofit connecting global solution seekers with Israel’s innovators. The report, based on data and insights from the organization’s Finder business-engagement platform, anticipates that private funding for Israeli tech in 2023 will reach nearly $10 billion, factoring in undisclosed rounds and historical patterns of delays in publishing rounds. The disclosed funding currently stands at $7.9 billion.

“This resilience is further emphasized as funding levels stabilize to 2019 levels, albeit with fewer rounds, indicating a more discerning yet strong investment environment,” the report states.

Public funding amounted to about $1.9 billion, which “has contracted yet remained robust, indicating enduring investor confidence and a market capable of weathering financial ebbs and flows. Health tech’s doubling in public funding compared to the previous year is a highlight, showcasing the sector’s strong recovery and investor interest.”

In notable contrast to the broader market, seed stage rounds were significantly less impacted by the funding decline that significantly affected A and B rounds. The report shows that while mergers and acquisitions declined by 25% in value from the previous year, M&A exits rebounded and reached $1 billion in Q4. Cybersecurity stands out with M&A exits surging to $2.8 billion.

Cybersecurity is Israel’s top-performing tech sector in general, securing an average funding round amount of $27 million in 2023 – a decrease of 45% compared to the broader ecosystem’s 55% decline from 2022. This included two mega-rounds: Wiz raising $300 million and Cato Networks securing $238 million.

The health-tech sector, with over 1,600 companies, saw a 53% decrease in private investments to $1.4 billion. In climate and agri-food tech, despite a 60% decrease in private funding compared to last year, the report found a period of stability in investments from Q2 2022 through Q3 2023.

“AI, cybersecurity, and defense tech are predicted to continue their upward trend,” commented Startup Nation Central VP of Digital Products and Data Yariv Lotan.

Lotan also noted that in 2024, 88% of multinational corporations “plan to either sustain or grow their presence in Israel, indicating continued confidence in the ecosystem.”

said The IVC-LeumiTech Israeli Tech Review 2023, released today, while adding the following insights:

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• The Israeli high-tech capital raising median has shown stability over the year. Early-stage amounts totaled $220 million, relatively high compared to the figures from the past few years due to two large deals in seed rounds.
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• The war in Gaza did not scare off foreign investors, and their participation share in funding Israeli tech companies has increased. Nine cybersecurity funding rounds succeeded in attracting $1.85b. Five companies with deals over $100m each accounted for the lion’s share of the funding for 2023.

“Looking to 2024, the outlook is cautious but optimistic,” said Startup Nation Central CEO Avi Hasson.

“We hope the ecosystem’s bedrock of innovation, global partnership, and proven resilience will steer it through uncertainty toward a continued growth trajectory. With investments in Israel leveled down to 2019 numbers, the main challenge is attracting investment to the Israeli tech ecosystem and preserving human capital – Israel’s most significant asset,” Hasson concluded.

Produced in association with ISRAEL21c