While the impact of macro market conditions on the global venture ecosystem has dominated headlines and conversations since February, it occurred to me a few weeks ago that I hadn’t heard anything about Israel. No huge layoff perils — but no eye-popping mega-rounds either. Was no news good news? I decided to find out.
In the first half of 2022, more than $9.1 billion was invested into startups in Israel, according to the IVC Research Center. This marks a notable drop from the $12.4 billion invested in H2 2021, and it’s also a 17% decline from H1 2021.
At the same time, though, the country minted 20 new unicorns, which is down from 26 in H1 2021 but up from 16 in H2 2021. Plus, according to layoff tracking site Layoffs.fyi, there have only been 17 reported instances of startup layoffs this year.
So while the venture scene in Israel mirrors the same funding pullback as other geographies, it seems to be doing so with fewer negative outcomes. I spoke with a few investors on the ground to find the root of this disconnect, and they described a startup culture that’s vastly different from that of the U.S. — meaning the numbers make sense.
For one, all of the investors told TechCrunch that companies in Israel have traditionally been scrappier and used to working with less, so if it doesn’t seem like a good environment to raise in, many of them have the reserves to sit out this period of volatility.
“I think a lot of companies are sitting on a fair amount of capital,” Avi Eyal, a co-founder and managing partner at Entrée Capital, said. “From our perspective, on average, the companies in our fund have got somewhere around 20 months of cash.”
But local investors said that the main reason we aren’t hearing about Israel’s woes is as much about its startup culture as it is chutzpah — defined as extreme self-confidence — as one investor put it.
“Founders generally have the tendency to persevere,” Shelly Hod Moyal, a co-founder of iAngels, told TechCrunch. “This is of course generalizing, but we have seen this characteristic trait in Israeli entrepreneurs before, by avoiding giving up and closing a company. We haven’t come to the conclusion that it’s a good thing or a bad thing. They can go on and on and raise another round but that doesn’t necessarily lead to success of that product or entrepreneur.”
Dekel Persi, a co-founder and managing partner of TPY Capital, added that the Israeli market thinks about failure in a very different way than other startup ecosystems. He said that companies are much more conscious of their reputation, adding that if a startup was going to conduct layoffs, it likely wouldn’t announce it and would try to place employees into new roles if possible before making the cut.
“How they behave will impact their ability to hire talent or to raise the next capital — they are very conscious of their reputation,” Persi said.
Eyal added that this culture around failure also impacts how a founder or company rebounds. He said that while in the U.S. it’s normal for a founder to fail and bounce back relatively quickly — ahem, Adam Neumann — that isn’t really the case in Israel.
The market also isn’t as reactive. All the investors TechCrunch spoke to said that they think Israel will catch up with the broader slowdown in a quarter or two because its market generally lags behind. Startup layoffs in the country back that up, too. Of the 17 reported layoffs this year, all but four happened in June or later, compared to the U.S., when cuts started happening in February and March.
“That is generally a theme that applies to economics in Israel — let’s wait a quarter and see if this is a real thing or just a hiccup,” Eyal said. “Now I think there is a realization that it is a real thing and they are probably starting to act on it.”
While the future of where the market is headed isn’t clear, it will be interesting to see if waiting to react to the changing conditions works in the country’s favor or against it.