A new report from the Startup Nation Policy Institute (SNPI) revealed that investments in private high-tech companies in Israel have reached a ten-year low. The study, which covered investments made between January and March, showed that total investments only amounted to $1.7 billion, representing the lowest quarterly result since Q3 2018. This is significantly lower than the $6.7 billion invested during the same period in 2020. The report also noted that only 112 companies raised funds in Q1 2021, representing the lowest number since 2014. If the current trend continues, total annual investment in high-tech companies in Israel is estimated to reach just $6.8 billion, which is a 60% decrease from last year’s figures.
One of the main reasons for the decline is attributed to global economic uncertainty brought about by high-interest rates and inflation. Investors may have been concerned about loss-making technology companies and opted to invest in higher-yielding assets instead. Additionally, large high-tech investment funds have reportedly suffered a significant write-off in value, making it more difficult to raise further capital for investments. The SNPI also suggested that the legal revolution underway may have contributed to the decline in investments.
To mitigate the impact of the economic downturn, the SNPI compared the hiring rates of Silicon Valley and London to those in Israel. The comparison revealed that while investments in Silicon Valley increased slightly during Q1 2021, both Israel and London recorded a decrease. The report explained this by suggesting that during periods of uncertainty, capital tends to flow to the US.
Investments in private high-tech companies in Israel plunged to a decade low – according to data published this morning (Sunday) by the Startup Nation Policy Institute (SNPI).
The study, which summarizes investments in Israeli high-tech between January and March, shows that the volume of investments amounted to only 1.7 billion dollars – the lowest quarterly figure since the third quarter of 2018. For comparison, the volume of investments in start-ups, growth companies and unicorns in the first quarter of last year was on 6.7 billion dollars, and in the first quarter of 2021 it stood at slightly more than 6 billion dollars.
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Considering the fact that 40% of all capital invested in high-tech companies in the first quarter was invested in only three companies – Via, Wiz and Itoro – this is an extremely low figure. Furthermore, Itoro’s turnaround began two years ago, and the investors who were committed to the company as early as 2021 after the IPO was canceled remained in it. Evidence of this is the number of companies that raised in this quarter: their number was only 112, the lowest figure since 2014. For comparison, in the first quarter of last year, 307 companies received private capital raising.
If the current rate of investment continues until the end of the year, the estimated total annual investment will amount to $6.8 billion, a 60% decrease in investment relative to 60% and a 75% decrease relative to investment in 2021.
The impact of the legal revolution
Undoubtedly, behind the plunge in data is the global economic crisis – the high interest rates and inflation – and the specific crisis in high-tech. High interest rates have led huge investors, such as hedge funds and private equity, to divert their investments from loss-making technology companies to higher-yielding assets. In the meantime, the value of the public technology companies was cut, and the large high-tech investment funds – the venture capital funds – suffered a huge write-off in value that made it difficult for them to raise capital for additional investments.
The SNPI claims that even if the impact of the legal revolution cannot be measured, the interviews and conversations it conducted with investors and entrepreneurs show that it had a contribution in the matter.
In order to neutralize the effect of economic stability, the research institute made a comparison between the scope of hiring in Silicon Valley and in London. The comparison shows that while investments in Silicon Valley actually increased slightly in the first quarter, in Israel and London they recorded a decrease.
The institute explains the joint decline for Israel and Britain by saying that in periods of high uncertainty there is a tendency for capital to flow from the rest of the world to the US.