Startup Nation Central's Mid-2024 Report finds Growth in Mega Rounds and Cybersecurity Overshadowed Israel's Risks

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Jul 18, 2024, 09:00 ET

TEL AVIV, Israel, July 18, 2024 /PRNewswire/ -- Startup Nation Central, a non-profit that promotes the Israeli innovation ecosystem around the world, published a report of the first half of 2024 in Israeli tech, based on data and insights from its ecosystem business-engagement platform, Finder. According to the report, the investment landscape remains robust and dynamic despite Israel's risks. The report presents an ecosystem landscape analysis, including private funding, global comparison, Mergers and Acquisitions (M&A), and public companies' activity. The report also highlights a cross-sectional picture of the most significant sectors of the local ecosystem: Cybersecurity, Fintech & Insurtech, Business Software, Health Tech, and Climate Tech.

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

"The recent risks coupled with the local environment in Israel were overshadowed by growth in mega-rounds and cybersecurity. One might expect the 'Israeli factor' to have a stronger impact on the Israeli tech activity, but the data suggests otherwise," said Startup Nation Central CEO Avi Hasson. "While some investors are hesitant, others are increasing their investments, attracted by high-quality companies and appealing valuations. 'Star' startups in popular sectors continue to secure funding, while early-stage and early-growth companies in less-trending areas face greater funding challenges. Global cyber trends and recent notable investments and M&A activity with companies like WIZ, Palo Alto, CrowdStrike, and more underscore the sector's critical importance and attractiveness to investors and the global cyber sector."

"Private funding in H1 2024 saw a 31% increase, amounting to $5.1 billion, with the Cybersecurity sector playing a crucial role, representing 52% of the private funding. This increased activity is driven by global trends in cybersecurity worldwide," said Yariv Lotan, VP of Digital Products and Data at Startup Nation Central. "This growth underscores the confidence in Israeli tech innovation but should not obscure the challenges of raising capital and growing companies across funding stages. The groundbreaking solutions from Israeli tech are maintaining Israel's status as a global innovation hub, drawing investors seeking high-quality opportunities."

Key findings from the report:

Rebound in Private Funding Driven by Mega Rounds: Private funding in H1 2024 saw a 31% increase compared to H2 2023, amounting to $5.1 billion across 322 rounds. Estimates suggest this figure could reach $6.7 billion when accounting for unreported rounds and undisclosed amounts. Q2 was particularly strong, with funding rising from $1.8 billion in Q1 to $3.3 billion in Q2. Fourteen mega-rounds (above $100 million) contributed $2.8 billion, representing 56% of total private funding, overshadowing weaker sectors and needed funding for many early-stage and mid-stage companies.

Cybersecurity's Increasing Dominance: The Cybersecurity sector played a crucial role in the Israeli tech ecosystem, representing 52% of private funding in H1 2024. This prominence was highlighted by Wiz's record $1 billion round. Additionally, Cybersecurity M&A exits totaled $1.5 billion across 9 deals, accounting for 35% of the 2024 H1 exits.

Examining the global trends in cybersecurity funding reveals a notable divergence between the US and Israel. In 2018, cybersecurity accounted for 20% of the funding in both ecosystems. Over the years, the share in the US declined to approximately 13%, while in Israel, it grew to 25%. By H1 2024, cybersecurity funding in Israel had surged to just over 50%. These trends underscore the sector's critical importance and attractiveness to investors. The consolidation of solutions worldwide has led to an acquisition spree by the sectors leading companies We feel this global competition strongly in our ecosystem because we have a relative advantage in cybersecurity. However, if the ecosystem remains overly dependent on cybersecurity in the long term, it risks missing out on other significant trends and opportunities.

Global Funding Comparison: Israel's private funding growth of 31% in H1 2024 outpaced other regions. The US saw a 28% increase, while Europe and Asia experienced declines of 6% and 18%, respectively. Israel's significant Q2 surge was notable globally, contrasting with more gradual trends elsewhere.

Surge in M&A Exit Activity Despite Low Number of Deals: M&A exits in H1 2024 surged to $4.1 billion with fewer deals, a 70% increase from H2 2023. This marks the highest value since 2018, excluding H2 2021, continuing an upward trend from H1 2023. Notable deals included two exits each exceeding $1 billion. Including all M&A activity, total transactions reached $7.1 billion, aligning with the previous half.

Global Investor Participation is Pivotal: The investment landscape featured 217 active investors, with 54% being Israeli. Global investors participated in rounds accounting for 93% of all funding, a seven-year peak. Leading global investors Insight Partners and NFX Capital each had seven rounds, while Sequoia and Greylock reopened local offices.

Finder Nasdaq Index Signals a 2024 Rebound in Private Funding: The new Finder Equal-Weight (EW) Index, based on Israeli tech companies traded on NASDAQ, has revealed significant trends correlating with Israel's tech ecosystem private funding. Notably, the Finder Nasdaq Index may serve as a forward-looking indicator for Israel's private funding approximately 6-12 months in advance, providing investors and stakeholders with an early warning system to anticipate and prepare for market shifts. A closer look at the index changes reveals significant divergence coinciding with the government's introduction of Judicial Reform, which led to a decline in the index, followed by further underperformance due to the October War. This war-related underperformance narrowed, reaching parity with the NASDAQ EW index by March 2024. However, following S&P's downgrade of Israel's credit rating, the gap widened again, underscoring the geopolitical and economic challenges faced by Israeli tech companies.

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 Start-Up Nation Central (SNC)