Investments in Israel’s high tech industry plummeted in 2022, falling by nearly 50% compared to the previous year, according to a report released Tuesday morning.
According to an analysis done by Start-Up Nation Central and the SNPI think tank, the total volume of investment in 2022 plummeted by almost one-half (43%) – from an unprecedented USD 27 billion in 2021 to some USD 15.5 billion in the past year.
“A multi-year perspective shows that 2021 and not 2022 was the exceptional year in the Israeli high tech industry,” said Start-Up Nation Central’s CEO Avi Hasson.
“The unrealistic quantum leap in investments, market cap, and transaction multiples in 2021 corrected itself in 2022, and alongside global macroeconomic trends, there was a markedly significant decline in investments, particularly in the second half-year of 2022.”
The sharp decline in tech investments comes amid a broader post-COVID global economic slowdown, the report noted, and the fall in high tech investments is not unique to Israel.
By comparison, investments in Silicon Valley high tech companies declined by 40%. The overall number of funding rounds in 2022 also declined to 826 compared to 1,103 rounds in the previous year.
In light of 2022’s financial market downturn, the decline in total investments for most types of funding rounds is not surprising; what is surprising is the seed investments recorded an increase in 2022.
Seed investment in Israeli startups in 2022 increased by 22% compared to 2021, or from USD 1.3 to 1.6 billion. These figures are especially surprising when we take into account the decrease in the number of startups that would presumably have led to a decline in the total value of seed round investment.
Two factors contributed to the rise in seed rounds. The first is the shift from late-stage investment to earlier stages. Investors who traditionally invested only in later stage companies are investing at earlier stages in company life cycles. This avoids the need for fund raising in ‘down round’ later.
The second factor contributing to the rise in the number of seed rounds is the increase in the number of investors per round. Between 2019 and 2022, the average number of investors in each round at this stage almost doubled. The most significant increase occurred in 2022 when on average one additional investor was added to each round compared to 2021, bringing the rate to 3.5 participants per round.