On December 31st, 2019, Forbes released a 5-point article highlighting the trends they expected to see in the Israeli start-up ecosystem for 2020; and it was fairly accurate for the first 2 months of the year. However, as the reader might know, circumstances changed drastically for entrepreneurs and investors alike with the propagation of COVID-19. We are releasing an updated version of the article in hindsight including our insider information based on trends we have come across first-hand.
1) Growth Rounds And IPOs Will Continue To Dominate
Unfortunately, H1 for the ecosystem in terms of IPOs has not been positive. The total value of IPOs in Israel has been the lowest in 6 years as most of the ventures are gearing up and developing strategies to deal with possible future lockdowns and economical fluctuations such as the early months of the year presented. In actual numbers, it showed a decrease of 32% in the total number of IPOs, alongside a decrease of 22% in total value (https://nocamels.com/2020/07/israel-tech-exits-drop-5-8b-h1-2020/). That said, it is not all negatives. The article is expressing a specific focus on IPOs while it is not considering the other half of the coin: smaller successful acquisitions. During H1 2020, the amount and average value for acquisitions below $5b have increased to $112m, the highest in the past six years (https://nocamels.com/2020/07/israel-tech-exits-drop-5-8b-h1-2020/).
2) Pre-Seed is The New Seed
Sabra Capital is focused on companies that are starting to show early traction and have already developed an MVP; for that reason, we see ventures in any stage between pre-seed and A-stage. With that said, the majority of the startups we are in contact with are early stage and either bootstrapped or angel-funded. The ecosystem has, as expected, taking a hit in late February/early March in term of investments with respect to the previous year. While it has become tiresome to have to discuss COVID-19 in every meeting, it is undeniable that the impact of it has been unprecedented and most players in the ecosystem have taken a hit. What is incredible, is the speed of recovery that the ecosystem has shown. Compared to the previous years there has been a stark increase in investments in April, May and June. This resulted in an overall higher flow of investment during H1 of 2020 than in H1 of 2019, despite the difficulties (https://www.vccafe.com/2020/07/03/israeli-venture-capital-funding-in-q2-2020-is-higher-than-the-previous-year-despite-covid-19/).
3) AI, Machine Learning Winners Will Deliver Real Value, Not Just Hype
Israel has always been a cradle for AI-based start-ups, but this is a difficult point to evaluate. In a climate of reduced larger exits, deep tech companies definitely take a hit; but there is a silver lining. This year, Moovit was acquired for approximately $1b by Intel – it shows growth despite the difficult times. AI is a trend that is growing despite its already large pool of subscribers in Israel; time will tell if this point is correct.
4) Digital Health is In, at Last
Pretty much self-explanatory. With the lock-down restrictions and the necessity for online-based consultations, the sector boomed; telemedicine is at an all-time high request for obvious reasons. Alongside digital health, it’s important to notice that medicine-related startups are on the rise, alongside ventures that have used COVID-19 as an adaptive measure. Overall, pretty correct observation in hindsight.
5) NYC-Based Israeli Start-ups Will Produce A New Generation of Israeli Founders
This is a particularly interesting point. The ecosystem definitely puts some degree of emphasis in moving ventures in the US – with several large funds located in New York, it definitely is a prime location for Israeli ventures. However, still due to COVID-19, international travelling and cooperation has become all the more difficult; this has led to the creation of fully online Accelerators and collaboration funds. There is not much data available in regard to the number of activities, but it will definitely be interesting to monitor the activities in this field. Conclusions It’s remarkable how topical some of the points moved forward by Forbes are. Points 2, 3 and 4 have withstood the test of time; despite all difficulties, those are indications of good progress in the face of adversity for the ecosystem at large.