Israel's tech sector shows resilience, but future growth depends on regional stability and responsible government policies, Startup Nation Central reports as October 7 one year mark approaches

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Sep 16, 2024, 11:00 ET

TEL AVIV, Israel, Sept. 16, 2024 /PRNewswire/ -- Startup Nation Central has released its latest report, "One Year of Israeli Innovation in War," presenting a detailed analysis of the impact of the ongoing conflict following October 7^th on Israel's tech ecosystem. Using data from Finder, Startup Nation Central's business intelligence platform, and insights from a survey conducted by Startup Nation Central of tech company leaders and investors, the report provides an in-depth examination of the macro and micro-level dynamics shaping Israel's high-tech sector during this period of adversity.

Avi Hasson, Startup Nation Central CEO (Photo by Miri Davidovitz)

"Israeli tech has shown incredible resilience in the face of prolonged conflict and mounting challenges. But this resilience cannot be taken for granted," said Startup Nation Central CEO Avi Hasson. "However,' The lack of long-term planning – whether in budget policy, research infrastructure, or future growth drivers – creates uncertainty that could undermine our momentum. Now more than ever, the government must act responsibly to ensure the sector continues to thrive, attract investment, and secure the future of our economy."

"Our report shows that despite the challenges, Israeli tech continues to attract significant investments, raising $7.8 billion even during the conflict. While there is cautious optimism, with 54% of companies expecting growth, the sector is still facing significant hurdles," said Startup Nation Central VP of Digital Products and Data, Yariv Lotan. "Funding uncertainty remains a major concern, with 49% of companies experiencing some level of investment cancellations. In addition, regional disparities are evident, with nearly 40% of tech companies in northern Israel considering relocation due to the ongoing conflict. The survey also highlights that over 80% of companies have low confidence in the government's ability to lead recovery efforts. These findings underscore the sector's potential, but also highlight the critical need for strategic planning to overcome the current obstacles."

Key Findings from the Report:

Resilient Private Funding
Despite the ongoing war and global funding challenges, Israel's tech sector raised $7.8 billion across 577 private funding rounds—a small 4% decline from the $8.2 billion recorded in the same period last year. This resilience indicates the continued confidence of investors in the long-term potential of Israel's innovation landscape.

Cybersecurity and Scale-ups Remain Strong
The strength of Israel's tech ecosystem is bolstered by the robust performance of the cybersecurity sector and thriving scale-up companies. However, early-stage companies have faced more significant challenges, highlighting a disparity in the ecosystem's overall resilience.

Robust M&A Activity
Mergers and acquisitions reached $9.6 billion across 73 deals, slightly down from $10.6 billion the previous year. The business software and cybersecurity sectors led this activity, with notable exits such as WalkMe's acquisition by SAP and Run's acquisition by Nvidia.

Israel and U.S. Private Funding Trends Aligned
Private funding trends in Israel closely mirror those of the U.S., with both ecosystems experiencing similar declines after October 2023. Israel's funding levels initially dropped to 66% by February 2024, while the U.S. saw a more moderate decline to 87%. Both ecosystems rebounded by May, with Israel recovering to 152% and the U.S. to 158% of their October levels.

Survey Insights: Business and Investor Sentiment

Investment Uncertainty and Cancellations
While Israel's tech sector demonstrated resilience in 2024, 49% of companies reported experiencing investment cancellations. Only 31% of companies feel confident in their ability to raise funds in the coming year, with investors sharing this cautious outlook.

Challenges Due to the War; Business Continuity Maintained
The conflict has forced 24% of companies to relocate some of their operations, and 44% reported shortages in human capital. Despite these challenges, 54% of companies remain confident in their ability to grow in the coming year, particularly in the cybersecurity and business software sectors.

Optimism for M&A Prospects
While funding uncertainties remain, 37% of investors anticipate an increase in M&A activity, underscoring confidence in the sector's ability to navigate adversity. The health tech sector saw three significant deals totaling over $1.2 billion, further bolstering optimism for growth.

Regional Disparities
Tech companies in northern Israel are facing significant challenges, with nearly 40% considering relocation due to the ongoing conflict, and 69% expressing concerns about their ability to secure adequate funding in the coming year. This underscores the uneven impact of the conflict on different regions within Israel, highlighting a particularly strained environment for northern companies.

Low Confidence in Government Recovery Efforts
Confidence in the Israeli government's ability to lead recovery efforts is low, with over 80% of companies and 74% of investors expressing doubts about the government's role in supporting the sector. This sentiment is particularly pronounced in northern Israel, where over 90% of companies share concerns about government leadership.

For more information and to access the full report, please visit here.

About Startup Nation Central: Startup Nation Central helps global solution seekers tackle complex challenges by giving them frictionless access to the expertise and solutions of Israel's problem solvers - and their bold and determined approach to innovation. We call this Impatient Innovation. Our free business engagement platform, Finder, grants unrestricted access to real-time, updated information and deep business insights into the Israeli tech ecosystem, explore potential opportunities, and forge valuable business connections.

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SOURCE Startup Nation Central