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Cyber dominates, M&A soars in Israeli tech’s first quarter

Setting aside regional conflicts, the Israeli tech sector's performance is on par with that of the U.S.,

Illustration of Elbit Systems Naval CMS technology. Credit: Elbit Systems.
Illustration of Elbit Systems Naval CMS technology. Credit: Elbit Systems.

Mergers and acquisitions grew to $2 billion and cybersecurity stood out as a focal point for both investments and capital exits, according to Startup Nation Central’s Q1 tech sector report.

Israeli tech faces numerous challenges, including a global decline in tech investment due largely to higher interest rates. There are also obvious local factors, notes Startup Nation Central, a nonprofit promoting Israeli high-tech on the global stage, in its Q1 2024 report issued on Monday.

Despite the challenges, when setting aside regional conflicts, the Israeli tech sector is on par with that of the U.S., both in the short-term (1-year) and medium-term (5-year) outlooks, according to the report.

“This parallel points to a resilient and adaptable investment climate in Israel, mirroring some of the strengths seen in the U.S. market,” the report said.

Despite a decrease in the total number of funding rounds, there was a 9% increase in private funding to $1.8 billion due to a rise in the average funding round size.

This trend signals a move towards stabilization within the investment sector, according to Startup Nation Central. Total investment is projected to reach $2.3 billion over more than 140 rounds, indicating a sustained recovery momentum.

Cybersecurity funding peaked, reinforcing its strong investor appeal. It featured in four of the six mega-rounds with $846 million in private funding. The sector accounted for nearly 50% of the total ecosystem funding and half the top six exits.

The increased investment is partly due to more attractive valuations, while market demand continues to grow.

Public funding rebounded from the Q4 slump, although the figures remain modest. This is a positive indicator, suggesting cautious but growing investor confidence, the report said.

Climate tech and Agrifood tech made notable comebacks from previous downturns. However, health tech faced declines in both funding amounts and the number of rounds. Fintech and Enterprise IT & Data sectors also saw declines compared to fourth quarter 2023.

The Q1 report is in line with March 31 report issued by Startup Nation Central marking six months since the start of the Gaza War.

The report found that Israel’s high-tech sector has weathered the Hamas onslaught of Oct. 7 and the ensuing war with surprising resilience, especially given the false warnings a year ago that it faced possible collapse from the government’s judicial reform program.

One of the main reasons given for Israeli tech’s strength despite the wartime situation is that the global market it serves was unaffected by the attack and remained just as keen for Israeli tech products as it had been before the Hamas invasion.

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