Venture Funding To Israeli Startups Bounces Back

Venture funding to Israel-based startups has bounced back significantly after nosediving less than a year ago after the Hamas attacks and the Israeli response.

Funding to Israeli startups sank in Q4 last year as uncertainty swirled with the rise of tensions and violence. However, less than a year later and with tensions in the region still at a fever pitch, venture funding to VC-backed companies has picked back up — and even shows some signs of getting strong.

In the second quarter of this year, funding to startups in the region (startups with headquarters in the country) landed just under $1 billion, per Crunchbase data. Funding in the region had not hit $1 billion or more since Q3 of last year, when startups took in a staggering $1.6 billion. In fact, Q2 funding was nearly dead even with Q2 2023 numbers.

Soon after Q3 ended, violence hit the region and funding to startups barely managed to get to $500 million.

However, the country has seen two consecutive quarters of an uptick in funding, and the current quarter is on pace to be slightly more than $1 billion.

Not what you think

The dollar numbers are interesting on several different levels — not the least of which is the fact conflict is still raging in the region.

Despite that, startups seemingly have still been able to secure money — a lot of it in some cases. The largest rounds this year to VC-backed startups in Israel include:

In June, InSightec, a developer of ultrasound technology devices for image-guided acoustic surgery, raised a $150 million private equity round.
In April, Israel-based AI chipmaker Hailo locked up a $120 million extension of its $136 million Series C that minted it a unicorn back in 2021.
Fetcherr, which uses AI to help with real-time dynamic pricing in the airline industry, raised a $90 million Series B in June.
Finally, MagnusMetal, which creates digital casting solutions for metal alloys, locked up a $74 million Series B in April.

What’s eye-catching about those rounds is that none fall into the industry most associated with the Israel startup scene — cybersecurity.

In fact per Crunchbase data, VC-backed cybersecurity startups only raised $66 million total in Q2, as other sectors such as enterprise software and — of course — generative AI stepped up their fundraising efforts.

The largest cyber round raised by an Israeli startup in Q2 went to browser security firm LayerX, which raised $26 million. In the current third quarter, cloud security company CTERA already has raised an $80 million round.

There’s more

Along with those unexpected circumstances, it is also important to note Asia is at a near decade low for venture funding — meaning Israeli startups are bucking another trend.

Finally, while dollar figures are rising, deal flow remains low for the region, with only about 50 to 60 rounds being announced each quarter. Early last year and even before, deal flow for the region normally was around 120 to 130 funding rounds announced every quarter.

Those numbers indicate that Israeli startups are seeing big and medium-range rounds to help make up for fewer rounds closing, but perhaps seed and very early-stage firms are having trouble securing cash — which could pose problems in the future for the overall health of the region’s startup ecosystem.

Nevertheless, the resiliency of the venture and startup industry in Israel is eye-catching considering everything still going on in the region. When the fighting broke out, investors and founders alike all insisted the entrepreneurial spirit and innovation of the region would continue.

The numbers seem to make those words prophetic.

Methodology

Companies are considered Israel-based only if their headquarters are still in Israel. Israel-founded companies that have since moved headquarters elsewhere are not included in this data.