SNC: Half of startups had investments canceled due to war

Startup Nation Central (SNC) today released its report, “One Year of Israeli Innovation in War,” which analyzes the impact of the ongoing conflict on Israel’s tech ecosystem, including significant differences across the country’s regions and declining trust in government efforts. Among the report’s most troubling findings are the financial uncertainty created and the disparate impact of the war on different regions of Israel.

Forty-nine percent of Israeli tech companies reported canceling investments due to the war, and only 31% expressed confidence in their ability to raise money next year. Investors shared this cautious view, with 48% seeing a decline in investment activity next year and only 31% expecting an increase.

The report combines macroeconomic analysis of financial indicators with insights from surveys conducted among managers and investors in the Israeli industry, with one survey focusing on partners and senior managers in investment funds and corporations, and another survey focusing on founders and CEOs of technology companies ranging from early-stage startups to publicly listed companies. The report also includes data from the Finder platform.

The crisis is worse in the north.

The worst situation is in northern Israel, the report found, with 69% of tech companies expressing extreme concern about their ability to raise capital in the coming year. Forty percent of companies in this region are considering relocating, either fully or partially, to other locations. The report also found particularly low confidence in the government’s ability to lead recovery efforts. More than 80% of companies across Israel expressed doubts about this ability, as did 74% of investors, who expressed similar concerns about the current government’s ability to help the local ecosystem recover.

However, despite the major challenges, the report also points to signs of resilience in the local tech industry. According to the report, tech companies have raised $7.8 billion since the outbreak of the war, down just 4% from the previous year.

In addition, total M&A deals amounted to $9.6 billion, down slightly from $10.6 billion the previous year. The report found that the overall strength of the local ecosystem was largely supported by the strong performance of the cybersecurity sector as well as companies in advanced stages of growth (startups).

“The strength of Israel’s tech ecosystem is bolstered by the strong performance of the cybersecurity sector and thriving startups,” the report said. “However, early-stage companies have faced more significant challenges, highlighting the disparity in the resilience of the ecosystem as a whole.”

According to the report, investment trends in Israel are similar to those in the United States, despite the region’s complexities. According to PitchBook’s December 2023 and June 2024 reports, the US venture capital market also remains limited, with investors tending to prioritize fundraising rounds led by insiders, as well as expressing uncertainty about the broader market recovery.

The report also points to signs of optimism among some industry players, with more than 50% of companies expressing confidence in their ability to grow over the coming year, and 72% of investors believing in Israeli tech’s ability to continue to thrive despite challenges.

“Israeli technology has demonstrated incredible resilience in the face of prolonged conflict and mounting challenges,” SNC CEO Avi Hasson wrote in the report. “But this resilience cannot be taken for granted. The lack of long-term planning—whether in budget policy, research infrastructure, or future growth engines—creates uncertainty that could undermine our momentum. Now more than ever, the government must act responsibly to ensure that the sector continues to thrive, attract investment, and secure the future of our economy.”

“There is a consensus in the industry. Confidence in the government’s ability to rehabilitate and nurture the tech sector is alarmingly low despite swift and effective measures,” he added. “The current instability is prompting many Israeli companies to reconsider their next steps to ensure their business growth.”

Hasson urged the government to “work to demonstrate its commitment to developing the technology sector, which is essential to protecting the Israeli economy and for the benefit of all its citizens.”

This article was published in Globes, Israeli Business News – en.globes.co.il – on September 12, 2024.

© Copyright Globes Publisher Itonut (1983) Ltd., 2024.