Should you invest in Israeli tech during the economic downturn?

Panelists talk shift from ‘Start-up Nation’ to ‘Unicorn Country’ at Jerusalem Post Annual Conference.

"From Start-up Nation to Unicorn Country" panel, The Jerusalem Post Annual Conference in New York 2022

With inflation on the rise in a post-COVID-19 economy, investors may be hesitant to act, but according to a team of Israeli experts, now is a good time to invest.

Speaking on Monday at The Jerusalem Post Annual Conference, iAngels founding partner and co-CEO Mor Assia said that “although Wall Street is going through turmoil … and it seems counterintuitive to invest, history shows that the best investor returns, and many of today’s Fortune 500 companies were founded in a down cycle.”

She said that the best companies and the most passionate entrepreneurs are going to get funded even in 2022, although what the market is likely to see is a form of “natural selection,” where only those who are truly committed keep running toward the finish line.

Less than 200 start-ups established since January

For perspective, Israeli start-ups have raised more than $11 billion since the start of 2022, according to Noa Kolp, head of hi-tech for IDB Bank (Discount NY). That is 30% less than the same period the year before.

  iAngels Co-founders and CEOs (from left) Mor Assia and Shelly Hod Moyal at the Jerusalem Post Annual Conference. (credit: MARC ISRAEL SELLEM) iAngels Co-founders and CEOs (from left) Mor Assia and Shelly Hod Moyal at the Jerusalem Post Annual Conference. (credit: MARC ISRAEL SELLEM)

Moreover, according to IVC, only 162 start-ups in Israel were established since January – down 50% from last year and only a third of the number of new start-ups launched during the same period in 2020.

“We do see the market shifting and we see it big time,” Kolp said, which could be hitting entrepreneurs hard after two record years, even during the pandemic. Kolp added that, even in today’s market, good ideas and strong teams can raise funds and nice rounds.

iAngels, for example, executed 56 transactions in 2021, with over 40 companies in its portfolio transacting follow-on rounds, an additional 10 new deals and 13 exits last year, but Assia said many companies raised large rounds in 2021 still on the promise of what they will be able to do.

“Companies who raised funds have to focus now on building and achieving significant milestones so that by their next round, they will have delivered on their promise or be faced with raising at suboptimal terms,” she said, adding that companies will have to be able to show a path to profitability, as this will be the expectation from a future growth fund.

Moreover, if two years ago start-ups could spend as much as they wanted on hiring, building or expanding office space, etc., today an important piece of success is centered on being lean, Kolp said – “being able to extend your runway and survive as much as possible.”

Daniel Damboritz, a partner in the hi-tech area of the Yigal-Arnon law firm, added that companies not only need to differentiate themselves in the marketplace but change the market.

“If the world will not be a different place without your venture, you might raise capital, but you will not be the unicorn we are all aiming for,” he said.

Finally, a fourth panelist, Adam Singolda, the founder of Taboola, explained what he believes makes a company unique: its culture.

“I can copy your brand and pitch your product, but I can never copy your culture,” he said. A successful company is formed when “a small group of people get together and become obsessed.”

Purpose, plan, conviction 

On the other hand, a successful investment happens when it is carried out with purpose, a plan and conviction, iAngels co-founder and co-CEO, Assia’s partner, Shelly Hod Moyal said.

“As a mother of five, I am constantly considering what my children’s future will look like, and how technology will define their lives differently from ours today,” Assia said.

“I see what is happening in Israel every day. When I meet entrepreneurs today, I hear the same sentiment over and over. They are not stopping at soonicorn or unicorn status or merely going public. These milestones are just a stepping stone along their journey to build a company that will truly impact the world and bring about change – that is what really inspires me,” she explained. “We have been very active this past year, but as valuations come down and performance prevails as an indicator of value, we believe the upcoming year will be a vintage to reckon with, and that is exactly what our new fund will be focused on.”