Israel’s high-tech industry, the growth and export engine of the country’s economy, is going through a difficult period. Statistics indicate that more start-ups are struggling to raise funds, while older companies are downsizing.
The lastup website, which monitors the Israeli high-tech industry, reports that from March 2022 until the beginning of the current month, more than 5,700 employees lost their jobs. 15% of those laid off were employed by cybersecurity companies, 12% by SaaS companies, 10% content and media and 9% fintech.
The Central Bureau of Statistics reported in late October that the job vacancy rate in the high-tech industry fell to 6.8% by the end of the third quarter of this year. This represents a decrease of 11% compared to the second quarter of 2022 and a decrease of 22% compared to the first quarter. Vacancies in other sectors of the economy are stable and there is even an increase in demand for employees in the hotel and restaurant sectors as well as in the culture and leisure sectors.
Signs of contraction are also apparent in funding. Based on a recent report released by the business data and information source company, IVC, and the Leumi Group’s high-tech banking arm, LeumiTech, during the third quarter of 2022, Israeli high-tech companies raised $2.57 billion in 143 rounds. This amount represents a 38% decrease compared to Q2 2022 and a 55% decrease compared to Q3 2021. The number of rounds also decreased, but less sharply – 22% and 16% compared to Q2 2022 and Q3 2021, respectively.
The report, “Israeli Tech Review Q3/2022,” shows a general downward trend, in line with the global slowdown. So far in 2022, $12.3 billion has been raised in 538 deals. Although this was the second highest number of deals for this period since 2015, the amount represented only 48% of the capital raised for the whole of 2021. Ofer Shoshan, venture capital partner of the platform OurCrowd investment, told Al-Monitor that in recent months, investors have been focusing more on “safer bets”, i.e. late-stage companies, rather than seed investments.
But the difficulties affect technology companies at all stages, including unicorns, which are very sensitive to global capital markets. In the first nine months of 2022, fundraising deals by these companies, with a market value of $1 billion or more, stood at 34 compared to 66 in the same period of 2021. Thanks to these deals, Israeli unicorns raised $7.824 billion, down 9.5% from the first nine months of 2021.
“There is no reason to think that the crisis has reached its bottom,” Navot Volk, founder and CEO of Twang, told Al-Monitor. The big losers in the current crisis are fintech and e-commerce companies, he said, and in 2023, Volk predicts the crisis will deepen and companies will have to cut spending further.
Shoshan agrees that the end of the crisis is not imminent. “As long as interest rates rise, high-tech companies are affected and their value falls. No quick fix for at least the end of 2023,” he noted.