Executive Summary
Resilient Growth In A Challenging Landscape
Once again, Israeli innovation has proven resilient. No matter what. Amid increasing regional instability and challenging global circumstances, Israel’s investment landscape achieved modest growth in Q1 2024 compared to Q4 2023.
Private Funding Gains
There was a 9% increase in private funding to $1.8 billion across 114 rounds, propelled by a rise in the average funding round size despite a decrease in the total number of rounds. This trend signals a solid move towards stabilization within the investment sector. After adjustments for undisclosed amounts, projected total investments are expected to reach $2.3 billion over more than 140 rounds, indicating a sustained recovery momentum.
Ecosystem Parity with the US
When setting aside regional conflicts, the Israeli ecosystem’s performance aligns with that of the US, both in the short-term (1-year) and medium-term (5-year) outlooks. This parallel points to a resilient and adaptable investment climate in Israel, mirroring some of the strengths seen in the US market.
M&A Activity Soars
Mergers and acquisitions grew to $2 billion, with four companies acquired for over $200 million each, marking the most active M&A quarter since Q1 2022.
Investor Focus on Quality and Scale
The quarter was notable for six mega-rounds totaling $716 million, alongside a continued decrease in the number of rounds. This trend highlights investors’ preference for quality and scalability in their investments.
Cybersecurity Dominance
Cybersecurity stood out as a focal point for both investments and exits, featuring four of the six mega-rounds with $846 million in private funding. This sector alone accounted for nearly 50% of the total ecosystem funding and half the top six exits. The increased investment is partly due to more attractive valuations, while market demand continues to grow among customers and acquirers. Furthermore, M&A activity has been particularly strong, fueled by a spree of horizontal acquisitions among the two major players, underscoring the sector’s critical role and appeal in the current investment landscape.
Public Funding Rebound
Public funding rebounded from the Q4 slump, although the figures remain modest. This is a positive indicator, suggesting cautious but growing investor confidence.
Sectorial Dynamics
The quarter revealed diverse sector performance;
Cybersecurity funding peaked, reinforcing its strong investor appeal.
Climate tech and Agrifood tech made notable comebacks from previous downturns.
However, Health tech faced declines in both funding amounts and the number of rounds. Similarly, the Fintech and Enterprise IT & Data sectors saw reductions compared to the final quarter of 2023.
Global Context
Global venture capital investments have faced headwinds due to higher interest rates, challenges in raising new funds, and a preference for less risky investment opportunities. These challenges are further intensified by local risk factors and geopolitical uncertainties, presenting a complex backdrop for the resilient Israeli tech ecosystem.
Yariv Lotan, VP of Digital Products, Development, Data and Insights
israeltrade.org.au 