Is political unrest taking a toll on Israeli startups?

2 min read


VC investment has declined further in Israel than it has globally, report finds

Now that the first half of 2023 is officially behind us, we are going to get a flurry of data on VC investment around the world. This will allow us to paint a global picture and zoom in on countries where specific factors might be at play.

Today, we are looking at Israel by way of a new report from Israeli VC firm Viola. It offers data on how much capital Israeli startups raised in H1 and how that compares to previous years. But its authors also venture a few hypotheses on the reasons behind this decline.

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Both on my mind and on Viola’s, of course, is the political crisis Israel finds itself in since the beginning of 2023.

After the Netanyahu government announced its intent to overhaul the country’s judicial system and balance of powers, a series of anti-government protests have continued across the country.

Israel’s tech ecosystem didn’t stay out of the political unrest; entrepreneurs and investors have become key players behind anti-government protests. And more generally, concerns have emerged on the damage that could be done to the country’s economy, of which the tech sector accounts for a significant part.

With this in mind, let’s look at the data compiled by Viola to see how VC investment into Israel fared this year so far — unfavorably — and what might explain its decline.

It’s not looking good

With a provisional tally of $3.2 billion for the first half of the year, funding activity in Israel dropped by 73% compared to the same period in 2022, IVC data shows.

Subscribe to TechCrunch+PitchBook data interpreted by Viola reveals a 50% year-on-year decline globally, meaning that Israel fared worse than the rest of the world. And $3.2 billion is also less than Israeli tallies in years prior to 2022.

Unsurprisingly, Israeli startups raised less in the first six months of this year than in the same period of 2021 ($13 billion). In the country, like elsewhere, 2021 was an outlier. But H1 2023 also falls short of H1 2020’s $5.7 billion total. It also fails to meet pre-pandemic levels; in H1 2018 and H1 2019, Israeli startups collectively raised $3.7 billion and $4.7 billion, respectively.

Breaking down the data by stage reveals that the latest and largest rounds are the most affected. The amount of capital that Israeli startups raised through mega-rounds fell by 80% compared to the first half of 2022; growth rounds amounted to 71% less year-on-year; and early-stage rounds saw a 56% decline.


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