The start-ups raise funds according to a lower value than previous fundraisings

In the first half of 2022, only 90% of the startups raised investments according to a higher company value than the previous fundraisings, compared to 96% last year

One of the clear signs of a high-tech crisis is decrease in value of a company that raised money. A company that raises at a value lower than the value at which it raised in the past has run into a real crisis, sometimes even through no fault of its own. The significance of the recruitment at a low value is a decrease in the holdings of all shareholders, employees, founders and investors.

Over the years there have been very few cases of a decrease in the value of the companies in recruitments. This year, a completely different picture emerges: in the first half of 2022, Israel recorded a significant decrease in the number of recruitments with an increasing company value and a slight increase in the number of recruitments with a decreasing value. In the first half of 2022, 90% of the raisings were in an increasing value compared to 96% last year and 9% of the raisings were in a decreasing value compared to 4% last year. These data come from a survey conducted by the Shobulat law firm in collaboration with the Fenwick & West LLP law firm.

The survey also shows that there is a decrease in the number of recruitments in the late stages which were the hit of 2021. According to the survey, in the first half of 2022 there was a significant increase in recruitments in early rounds and a decrease in recruitment rounds in late stages.

In view of the insecurity in the markets, companies in growth stages that are now seeking to raise funds are forced to face extremely difficult fundraising conditions such as a decrease in the value of the company and a demand from investors to protect the value they invested in. Also in Silicon Valley, recruitments with a decreasing value were recorded for the first time, but in a smaller amount.

“What you are seeing now is a first look at what is expected in the coming months. A few deals were made at the beginning of 2022, but these rounds have not yet been affected by the dimensions of the change,” says attorney Lior Aviram, a partner in Shabulat. In the first half of 2022. I estimate that already in the next survey that will examine the second half of the year we will see the impact and there will be a greater decrease in the value of the companies.”

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Adv. Lior Aviram is a partner in the Sheblat law firm

(Photography: Oren Dai )

According to Aviram, many of those who decide to invest protect as much as they can the value they invested in by setting conditions. “We have been in crisis periods similar to this one and in the past we have seen a decrease of many tens of percent in the value of the companies,” he says. “In our estimation, there will be a decrease in the value of companies in Israel according to what happened in Nasdaq. This will be reflected in the results of the following medians. In the short term, there will be a shift of money from investing in early stages to investing in late stages because it is relatively safe. The technology is more solid than any previous crisis, but in the meantime we will see significant value decreases.”