Photo: The lobby of the Tel Aviv Stock Exchange. Photo: Yaniv Morozovsky via Wikimedia Commons.

CTech – Investments in Israeli high-tech companies fell to $4.5 billion in the second quarter of 2022, a drop of 31% compared to the corresponding quarter last year, a report prepared by investment firm Greenfield Partners seen by Calcalist has shown.

2021 was a record-breaking for local tech, with investments totaling a new high of $26 billion. However, while it was largely expected that a drop would be coming in 2022, few people believed it would be to such an extent, with Greenfield Partners data showing that the number of funding rounds has also fallen, from 135 in the second quarter of 2021 and 132 in the first quarter of 2022, to just 104 in Q2.

One of the most interesting developments has been the slowdown in the number of unicorns raising funds while increasing their valuation. For example, Q2 of 2021 saw the likes of Gong raise at a $7.2 billion valuation, Next Insurance raise at a $4 billion valuation, and Porter raise at a $3 billion valuation. However, only one local unicorn raised funds in the second quarter of this year, with blockchain startup Starkware taking its valuation to $8 billion.

The explanation for this phenomenon is the fear that is gripping many unicorns and their investors who are realizing that they’d have a difficult time in the current market to justify the valuations they received last year. Many of the companies that raised funds at a valuation of over $1 billion in 2021 are currently focusing on retaining their cash reserves and minimizing any unnecessary expense, including by laying off employees despite raising significant sums last year.

According to the Greenfield report, there was a 50% drop in the number of rounds completed by growth companies in Q2. There were 13 rounds of between $50-100 million in the second quarter of the year compared to some 26 in the same quarter of last year.

The report also showed an increase in M&A transactions, with six being completed in April and May, but 11 being announced in June. These deals likely crossed the finish line last month after the acquired companies understood that they wouldn’t be getting any better offers at this time.

According to Shay Grinfeld, Managing Partner at Greenfield Partners, the Q2 data is a testament to the continued trend of a decrease in investment in startups considering the current macro environment and the falls in the public markets.