Funding troubles plaguing both veteran and young Israeli startups
Funding troubles plaguing both veteran and young Israeli startups
According to the Start-Up Nation Policy Institute, older startups (established before 2017) and those that raised significant amounts before the war are also having problems raising capital
The war is imposing many difficulties on the high-tech industry in Israel. The Start-Up Nation Policy Institute (SNPI) has revealed that of the 600 capital-raising applications received to one of the emergency funds established to help Israeli companies during the war, about 50% of startups reported difficulty in raising capital, including older startups (established before 2017) and those that raised significant amounts in the past.
Nevertheless, the main victims of the crisis are the young companies, with SNPI data showing that 70% of the companies that said they have been harmed due to the recruitment of key employees to the IDF reserves employ up to 10 people.
Young companies, which are characterized as those that employ up to 10 employees and have raised less than $5 million, report not only difficulties in finding investors but also the suspension of ongoing investment processes, both by foreign and local investors. The most prominent sectors whose activity in Israel has been affected are corporate software and digital health.
A serious blow was also suffered by the foodtech sector, where a significant part of the companies operating in it are young and located in the periphery, mainly in the north. The least affected sectors are cybersecurity, e-commerce, gaming, and electronics.
From the analysis conducted by Danny Biran, a Senior Policy Fellow at SNPI, it appears that more than 20% of the companies reported damage to their activity as a result of the recruitment of employees for the reserves, a similar proportion reported damage to their current activity in Israel. Many companies testify that the cessation of flights by foreign companies to Israel at the beginning of the war created difficulties for them in their daily functioning.
On Tuesday, the Israel Innovation Authority published a survey that indicates a severe capital-raising crisis among young startup companies. According to the survey, which was carried out among 500 entrepreneurs and startup managers last month, 50% of early-stage high-tech companies have enough cash for a period of less than six months, and about 56% of them expect that they will not be able to raise another round of financing.
The authors of the analysis believe that the Innovation Authority's plan to support companies through a route that requires matching capital is not suitable at this time for many companies that encounter the difficulty of establishing relations with an investor or signing an investment agreement with them.
