Israeli startups face funding crunch as nearly half must raise capital in early 2025
Israeli startups face funding crunch as nearly half must raise capital in early 2025
A new report warns that 657 startups will need to secure funding soon, with 431 requiring immediate capital to survive.
Can three major capital raises announced last weekend signal a turning point for the high-tech market? Unicorns Rapyd, Island, and Safe Superintelligence—each with Israeli ties—are in talks to raise hundreds of millions of dollars at valuations ranging from $4.5 billion to $20 billion.
Fintech unicorn Rapyd is set to raise $300 million, though at a drastically reduced valuation of $3.5 billion—65% lower than its last $10 billion valuation in 2021. Secure browser company Island, on the other hand, is seeing its valuation climb to $4.5 billion. Meanwhile, Safe Superintelligence, the AI venture led by Ilya Sutskever, is seeking an extraordinary $20 billion valuation—despite not yet having a functioning product. While each case is unique, some view these raises as signs of a renewed appetite for tech investments after three years of stagnation following the 2021 bubble burst.
A new report by research firm PitchBook, released on Tuesday, supports this outlook. It suggests that the inflated valuation barrier that kept investors away from mature tech companies in recent years is collapsing. According to PitchBook, 2025 will be an active year for venture investments. Several factors are driving this shift: companies are running out of cash and can no longer delay fundraising, investors are eager to back AI startups, Wall Street has been on a months-long rally, and further interest rate cuts are expected.
A separate report on Israeli high-tech, obtained by Calcalist, echoes these findings. According to the Israeli Startup Insights report by Poalim Tech, startup Dealigence and VC firm Greenfield, the first quarter of 2025 will be a critical turning point for the Israeli startup ecosystem. The report reveals that 657 out of 1,530 analyzed startups will need to raise capital in early 2025, putting the industry at a sensitive juncture. Only 289 startups are in a “safe zone” due to recent fundraising, while 431 companies—28% of the ecosystem—require immediate capital. An additional 15% must begin fundraising in Q1 to secure financing before mid-year, meaning nearly half of Israeli startups will need funding in the coming months.
The report is based on a comprehensive industry-wide analysis rather than a traditional sample study. It compiles data from LinkedIn and online databases using an AI-driven research engine developed by Dealigence. The findings cover 1,530 Israeli startups employing 127,000 people—nearly a third of the high-tech sector. The remaining workforce is split between multinational tech giants and publicly traded Israeli companies.
One key trend highlighted in the report is that mature companies, despite having raised significant capital in the past, now face urgent financing needs. Many have resisted new funding rounds to avoid down rounds—funding at a lower valuation than previous rounds—after the post-2021 downturn. According to PitchBook, 2024 saw a record number of such down rounds, affecting 26% of capital raises among mature companies. This trend is expected to continue into 2025, particularly for firms that postponed fundraising to avoid valuation cuts.
Israeli unicorns were particularly exposed to inflated valuations during the boom years, often exceeding those of Silicon Valley peers. Rapyd, for example, last raised capital in August 2021 and has since avoided new funding to maintain its previous $10 billion valuation—an unsustainable figure from an era of near-zero interest rates. Unlike publicly traded firms, private startups are only revalued when they raise capital. By delaying funding, companies and investors can artificially preserve valuations set in vastly different economic conditions.
According to the new report, 38% of Israeli startups have not announced a capital raise in over 36 months—an extraordinary figure, but one that aligns with global trends. PitchBook’s latest data also shows that the average time between funding rounds for mature startups has increased to two years, up from about 18 months previously. In earlier-stage startups, the gap has widened from one year to 16 months.
Gidi Shalom Bendor, CEO and founder of S Cube at IBI Capital, which specializes in high-tech company valuations, believes there is an enormous amount of capital looking for investment opportunities. He predicts that continued interest rate cuts in the U.S. will drive further demand for venture capital and startup investments. However, he warns that Israel still faces geopolitical uncertainty, which created a disconnect between the local and U.S. markets last year.
One sector that highlights this gap is AI. According to PitchBook, 46% of all U.S. startup funding in 2024 went to AI companies, which accounted for 30% of all venture deals. Israel has not yet seen the same level of AI-driven investment, but the need for capital, combined with Wall Street’s sustained bull run and expected rate cuts, could shift the dynamic in 2025.
The private equity market often lags behind public markets. When the Nasdaq and S&P 500 began falling in late 2021, private equity firms initially remained active, only feeling the downturn about six months later. Now, after a record-breaking 2024 for U.S. stock markets, many expect private market activity to follow suit. The IPO window, which was expected to reopen in 2024 but was delayed, is now likely to see movement in 2025. As investors anticipate exit opportunities for mature startups, they may become more willing to back new rounds of funding.
Recent layoffs at Israeli companies such as AppsFlyer and Moon Active are not necessarily signs of distress but rather strategic cost-cutting ahead of IPOs or private equity rounds. Despite the turmoil of 2024, the Dealigence report found that employment in Israeli startups actually increased by 4.6%, adding 4,500 new jobs—90% of which came from cybersecurity and enterprise software firms.
Of course, these predictions depend on geopolitical stability. If the ceasefire between Israel and Hamas holds and the war ends, investor confidence could return, bringing back capital that has been sidelined since the political turmoil of 2021. After years of hesitation, the long-awaited resurgence of high-tech funding may finally be underway.
