While recent months have seen a recovery in Israel’s technology sector, with notable acquisitions and investment rounds, experts in the sector warn that this recovery may be risky and unsustainable in the long term, according to a report published by the Israeli newspaper Globes.
Since the beginning of 2024, 11 Israeli companies have been acquired for a total of $2.1 billion, a large portion of which comes from the cybersecurity sector, according to Globes.
Although these deals are considered high-profile, Globes saw that the overall picture is still mixed.
Total investment in Israel’s technology sector is expected to range between $2.5 billion and $3 billion for the second quarter of 2024, an increase from last year’s quarterly average of $1.7 billion. However, this improvement hides underlying challenges, according to Globes.
Capital concentration and economic inequalities
Globes notes that among the big concerns is the concentration of capital among a select few, which could distort the overall landscape of the Israeli technology sector. Four companies alone – Wicca, Sierra, Island, and Waze – have collectively raised $1.6 billion in recent months.
Uri Gabbay, CEO of Rise Israel, says that although these numbers are encouraging, they represent a skewed distribution of funds.
Gabbay points out in an interview with Globes that the majority of technology companies, which do not belong to this elite group, were able to raise only $600 million combined.
Doubts about the sustainability of the recovery
The platform indicates that doubts about the recovery of the technology sector are still in the air due to its reliance on a small number of financing rounds and large acquisitions, which may not be an indication of the health of the broader sector.
According to Rise Israel, the Israeli technology sector is not immune to global economic pressures. Investments in private technology companies globally are still low, with Israel witnessing a sharp decline compared to the United States and Europe, according to the organization.
The organization attributes this in part to the huge investments required for the AI revolution, which has diverted capital towards the big tech giants and away from startups not directly involved in AI.
Dual economy
In Gabbay’s view, Israel’s tech sector is divided into two distinct economies: one made up of “industry stars” who attract significant investment and media attention, and the other made up of all the other companies competing for a shrinking pool of available funds, he told Globes. This division may increase vulnerabilities, especially for small and medium-sized startups.
Experts such as Assaf Horace of Vintage Investment Partners and Dr. Assaf Batir of RISE are cautious about the current trajectory of the sector.
They warn – according to Globes – that while some companies are showing strong growth, many others face an uncertain future, especially as previous financing begins to dwindle.
Figures about the sector
Technology sector exports in Israel declined by 7.8% during the last quarter of last year, with the Palestinian resistance launching Operation Al-Aqsa Flood, to 4.1 billion shekels ($1.1 billion), according to data issued by the Israeli Central Bureau of Statistics.
After being called the land of emerging technology, Israel is witnessing an aversion to one of the most important types of foreign investors, who are called “angel investors.”
Over the course of 30 years, Israel has strengthened its position as a global capital for emerging companies, especially in the technology sector, and has become a destination for those seeking internationalization, but this reality has changed rapidly in 2023 according to the “Angel Investors” index.
The “Angel Investors” index is a measure of the country’s attractiveness in the startup industry, and shows the number of investors who pump their own money into startup companies in vital sectors, led by technology.