Investment in Israeli startups has picked up significantly after a sharp decline lower than a 12 months ago on account of Hamas attacks and Israel’s response.
Funding for Israeli startups fell in the fourth quarter of last 12 months as uncertainty grew along with rising tensions and violence. But lower than a 12 months later, with tensions in the region still high, enterprise capital funding for VC-backed firms has picked up again — and is even showing some signs of growth.
In the second quarter of this 12 months, funding for startups in the region (startups headquartered in the country) was slightly below $1 billion, based on Crunchbase data. Funding in the region hasn’t reached $1 billion or more since the third quarter of last 12 months, when startups raised a staggering $1.6 billion. In fact, funding in the second quarter was all but dead, even with the numbers coming in from Q2 2023.
Just after the end of the third quarter, the region was gripped by violence, and startup funding barely reached $500 million.
However, the country has seen two consecutive quarters of funding growth, with the current quarter expected to bring in just over $1 billion.
Not what you think
These numbers are interesting for several reasons, not the least of which is the proven fact that conflict is still ongoing in the region.
Still, startups were apparently still capable of secure money — in some cases, a lot of it. The largest rounds this 12 months for VC-backed startups in Israel include:
- In June WSighteca company that makes ultrasound devices for image-guided acoustic surgery, raised $150 million in a private equity funding round.
- In April, an Israeli AI chip maker Hello secured a Series C extension value $120 million from $136 million, giving it unicorn status in 2021.
- Downloadwhich uses artificial intelligence to power real-time dynamic pricing in the airline industry, raised $90 million in a Series B round in June.
- At last, MagnusMetalwhich creates digital casting solutions for metal alloys, raised $74 million in a Series B round in April.
It is noteworthy that none of those rounds concerned the industry most associated with the startup scene in Israel – cybersecurity.
In fact, based on Crunchbase dataVC-backed cybersecurity startups raised just $66 million in total in the second quarter, while other sectors like enterprise software and — in fact — generative AI stepped up their fundraising efforts.
The largest round of cyber funding raised by an Israeli startup in Q2 went to a browser security firm Layer Xwhich raised $26 million. In the current third quarter, the cloud security company CTERA has already raised $80 million.
There is more
In addition to those unexpected circumstances, it is also value noting that Asia is at its lowest point in nearly a decade in terms of enterprise capital funding, meaning that Israeli startups are bucking one other trend.
Finally, while dollar amounts are rising, deal flow stays low for the region, with only about 50 to 60 rounds announced each quarter. Early last 12 months and even before, deal flow for the region was typically around 120 to 130 funding rounds announced each quarter.
These numbers suggest that Israeli startups are receiving large and medium-sized funding rounds to compensate for the lower variety of closed rounds, but perhaps seed and very early-stage firms are struggling to boost money — which could pose a future problem for the overall health of the startup ecosystem in the region.
Still, the resilience of Israel’s enterprise and startup industry is striking given all the things else that’s still going on in the region. When the fighting broke out, investors and founders insisted that the region’s entrepreneurial spirit and innovation would endure.
The numbers seem to verify that these words are prophetic in nature.
Methodology
Companies are considered to be domiciled in Israel only if their registered office is still in Israel. Companies founded in Israel that have since moved their registered office elsewhere are not included in this data.