Even without the ongoing war and other regional conflicts, last year was a relatively tough one for Israel's tech industry. But this isn't just an issue for Israeli-based companies: 2023 as a whole has seen the tech industry shrink, with a wave of layoffs reported at companies at all levels around the world.
That said, global trends often feel like they're centered in Israel, especially in areas that have always been seen as bright spots in the country's economy and culture, so the tech sector may seem to have stumbled more than others during an already turbulent time.
However, this is not always the case.
While many viewed 2023 as a “lost year” for tech growth, the reality is that the tech industry has remained remarkably resilient through the obstacles it faced throughout the year. Of course, the year brought unprecedented challenges that no one could have predicted. Similarly, potential growth in the critical fourth quarter of 2023 was undoubtedly halted in the aftermath of October 7th, as companies across Israel had to realign their priorities and operational capabilities.
But what some see as an obstacle, others see as an opportunity, and that's exactly what's happened at many tech companies across the country.
As we approach the halfway point of 2024, a more optimistic outlook is emerging for Israel's tech industry. A venture capital fund with a number of successful projects in Israel has looked into the numbers to back up this optimistic outlook.
In a recent report, Next47 released an extensive research overview detailing the continued growth and resilience of Israel's tech ecosystem. With a particular focus on the startups and scaleups that continue to underpin Israel's position as an innovation leader, Moshe Zilberstein, Partner at Next47, highlights exemplary milestones in the sector over the past year from a VC perspective.
Mergers and Acquisitions Help Israeli Tech Companies
Mergers and acquisitions in general appear to be a major contributor to the continued thriving of Israeli technology companies. Next47 reports that 90 deals have been completed with a total value of more than $14 billion. Business operations across the tech sector have generated hundreds of millions of dollars in revenue. Similarly, the report highlights numerous examples of Israeli startups that have exited for nine-figure amounts, most of which were founded just under five years ago.
The tech ecosystem is constantly ebbs and flows in terms of which sectors and growth mechanisms get attention. For example, while AI remains a key sector that consistently receives attention and support from VC funds and angel investors, there has been a noticeable shift towards data security and enterprise-focused startups.
The Next47 report also highlights a shift in this trend in recent large funding rounds: a series of nine-figure funding rounds have seen hundreds of millions of dollars of capital flow into Israeli startups in these niche sectors. Standouts here, of course, are Wiz and VAST Data, which reached valuations of $12 billion and $9.1 billion, respectively. VAST Data is part of Next47's portfolio, and the VC's continued support of enterprise-focused startups is a hallmark of its ongoing investment activity in Israel.
This kind of bird's-eye view, which only a VC with long-standing ties to Israel like Next47 can provide, sheds light on how the tech sector is constantly shifting priorities and strategies to weather challenging times. It also helps paint a more realistic picture of the realities of startups and the shifts that could shape the future of tech innovation in Israel. To stay ahead of the curve, it's essential to keep your ears open.
Of course, not every startup or niche within the tech industry is thriving all the time, but reports like this one illustrate what the Israeli tech sector does best and point to emerging trends that are impacting innovation beyond Israel’s borders.
Similarly, Next47 concludes its report by highlighting that many Israeli companies are “graduating” from the startup stage and stepping into the position of leaders and acquirers themselves, rather than waiting to be acquired. With rumors of an IPO boom, we may see even more Israeli companies go public in the near future, further solidifying their position as cornerstones of the tech sector.
While it would be naive to pretend that Israel's tech industry hasn't faced many challenges over the past 12 months, and especially beyond October 2023, it's also worth noting how tech leaders have been able to regain momentum. As venture capital firms such as Next47 continue to back innovative projects in Israel, the country's tech industry will likely continue into its next chapter of prosperity.
