Israeli Tech Sector Faces Drastic Decline in Angel Investor Participation
Israel’s tech ecosystem, once booming with innovation and investment, is currently experiencing a significant crisis. This downturn is highlighted by a staggering decrease in angel investors, which is crucial for early-stage startups looking to get off the ground. In 2023, the active angel investors in Israel numbered merely 61, a sharp decline from the 251 active in 2022, reports emerge from Startup Nation Central.
The tech industry in Israel began facing challenges amidst the global economic crisis, triggered by rising inflation. This hardship persisted into the following year, despite other regions showing signs of recuperation. The situation has been particularly rough on early-stage startups, impacting both the formation of new companies and their efforts to secure funding.
Traditionally, angel investors have played a pivotal role in Israel’s startup scene by providing essential pre-seed and seed financing to nascent companies. These private investors, who offer capital from their own resources in exchange for equity and a stake in future profits, have seen their numbers plummet nearly 80% over the past two years.
In July 2023, the Knesset passed the “Angels Law”, aimed at bolstering investments in early-stage startups by offering tax credits to private investors. However, data from Startup Nation Central suggests that this initiative has not met its objectives, as the decline in angel investor activity continues.
Historically, the angel investor community in Israel has been comprised of serial investors and successful entrepreneurs who chose to reinvest their earnings into the next generation of Israeli tech ventures. These investors are known for their strategic involvement in startups, often leading funding rounds and providing critical early support. Among the notable investors are figures like Zohar Gillon, Yossi Vardi, and a newer generation of angels such as Ofer Ben-Noon and Shai Morag, who have made significant contributions through their investments.
Interestingly, a shift has been noticed in the investment landscape, with more venture capital funds now entering the early-stage funding space. This change is starting to shape the dynamics between angel investors and venture capital funds, with the former increasingly partnering with the latter to secure investments.
Despite the challenging environment, there remains a recognition of the unique value angel investors bring to the startup ecosystem. However, the current economic and political uncertainties, both globally and within Israel, have led to a more cautious approach from these individual investors. Unlike venture capital funds, which operate with a commitment to their investors, angel investors have the flexibility to adjust their activities based on the prevailing environment.
As Israel’s tech industry grapples with these issues, the decrease in angel investing activity signals a notable shift. The need for stability and supportive policies is more critical than ever to ensure the continued growth and innovation within this vital sector of the Israeli economy.
