Avi Eyal, co-Founder & Managing Partner, Entrée Capital

Much of 2023 was marked by economic uncertainty globally, with rising interest rates, geopolitical tensions, and, in the Israel context, the horrific attack by Hamas and other Iranian proxies on October 7. For much of the year, the social environment was depressed, given internal societal struggles and a highly divisive government. The war, while uniting much of the country temporarily, has had an immediate effect on all sectors of the economy. The high-tech market has probably been one of the least affected. However, the mobilization had some immediate short-term challenges. Naturally, in much smaller early-stage teams (typically under 10), the percentage is much larger as founders being mobilized creates a much bigger effect on the business. By January 2024, most staff had been able to return to work, and businesses were ‘back to normal’ in as much as one can use the term for a country at war. Yet, with the War and the ‘back to protest’ by some, the feeling is that there is around a 10% overhang weighing on Israel funding versus North America and Europe.

In the last month of 2023 and running into 2024, we have seen a marked improvement in the global macro environment, which has positively impacted the Israeli portfolio (given the full dependency on foreign markets for revenue and growth). We think we are ‘hitting the bottom of the market’ in Q1, and the real question is whether we ‘bounce along the bottom’ for the rest of the year or start climbing out in Q2. There is still a fair amount of pain that the industry will take in the coming quarters, yet we are positive there will be a steady rise in funding deals (dollars and number).

Anat Tila Cherni, Co-Founder and Managing Partner, Aristagora (Japan)

2023 was a turbulent year for Israel and the tech sector. Pressures from global macroeconomic factors alongside domestic political turmoil, the atrocities of October 7th, and the war in Gaza have impacted fundraising throughout the year.

We saw a steady decline in the number and amounts of financing rounds and a sharper decline in Q4, with the peak around the war in Gaza. While uncertainty remains the keyword for the coming months, Q1 2024 showed signs of early recovery. Although the number of private funding rounds is still relatively low (114), the funding amount went up compared to Q4 2023. In addition, while operational continuity was a challenge immediately following the beginning of the war, in Q1, we witnessed tech companies returning to normal business routine with either employees coming back from reserves or new recruitments.​

There is a question mark regarding the continuity of the foreign capital inflow for investments in Israeli startups. As a Japanese LP-based fund, we are motivated by the support Israel receives from the Japanese government. This support has a substantial impact on the legitimacy of business-making between Japan and Israel.

Earlier this quarter, Aristagora VC co-hosted the 5th annual Big in Japan Conference, which brings together the Japanese and Israeli tech and investment communities, where on the one hand showcased the desire of the Japanese investment community to keep the warm business relations with Israel and, on the other hand, the lack of physical presence of many of the Japanese corporates was felt. While global and Japanese investments in Israeli tech may go “under the radar” or even suffer a slowdown in the coming quarters due to the continuity of the war, we are positive that the interest in Israeli tech will remain strong.

Gigi Levy-Weiss, General Partner, NFX

In 2024, the Israeli startup ecosystem faces a pivotal moment, darkened by the ongoing war, geopolitical tensions, internal political conflicts, and polarization. The ecosystem faced initial challenges with the judiciary revolution initiated in early 2023, which were amplified with the impact of the October 7th terror attack and the subsequent war. Sadly, These have rendered 2023 – and 2024 – an almost lost year for Israel’s technology sector in general and for new startups in particular. This setback is particularly poignant amidst the rapid development of AI technologies worldwide—a field burgeoning with new startups and opportunities. Israel’s losses in 2023 and a slow start in 2024 risk diminishing its originally predicted dominant position in this new technological revolution. Generally, Israel has managed to be a leader in almost every technological evolution in the last few decades, but this does not seem to be the case now with AI. ​

2024 doesn’t seem to have started much better. The current environment is characterized by cautious investor sentiment, with a noticeable decline in foreign investments and venture capital, echoing the challenges of past years. Even those investments made are predominantly later-stage investments in emerging winners, and new company formation is at a 20-year low. The optimism that once defined Israel’s tech landscape now contends with the reality of becoming less dominant in the face of the global AI boom. This is a major challenge growing by the day. ​

However, I am optimistic that looking beyond 2024, there’s a silver lining. The resilience and innovative spirit that have long defined Israeli startups and were very visible in how Israeli founders managed their companies through the war (many in reserve service) are anticipated to reignite the sector’s growth. As the ecosystem recalibrates and adapts to the evolving landscape, there’s renewed optimism for 2025 and beyond – especially if internal conflicts will calm down. The expectation is that with the required geopolitical and internal stability and some strategic adjustments, Israel’s tech industry will not only recover but also reclaim its position at the forefront of technological innovation, especially in AI. This forward-looking perspective underlines my belief in the enduring potential of Israeli startups to navigate current challenges and emerge stronger in the global arena and why we continue to invest aggressively even through the war. ​

Last thing – I am super proud of the prominent role the Israeli tech sector took in the national recovery efforts post-October 7th. The expectation is that the ecosystem’s innovative capacity will drive the revival of the industry and contribute significantly to broader societal and economic recovery. 

Chen Linchevski, Co-Founder, Iron Nation

At Iron Nation, we have received 767 applications to date. 433 of the companies have raised more than $1 million each, and in total, applicants have raised more than $4.2 billion. The best companies in popular verticals continue to attract VC investors from Israel and abroad. Companies in less trending verticals, such as medical, climate, deep tech, and especially those with hardware-software solutions, which previously relied on smaller funds, vertical-specific double bottom line funds, strategics, and angels, are now experiencing significant difficulty. These investors are now unable or unwilling to take the additional investment risk in Israel.

As time passes, we see more and more A+ and B companies that have developed great deep technology entering a stressful situation. Many are on the verge of significant revenues but lack sufficient funding to execute these potential agreements. Those companies that would be success stories and are critical for the vertical diversity of Israel’s high-tech ecosystem are facing significant funding challenges to continue and thrive.