Israel's Tech Prowess Outstrips Its Capital Markets
Translated & summarized from Calcalist by baba
Israel's high-tech sector attracts significant foreign investment, but its domestic capital markets are underdeveloped, according to a panel at the TECH1 conference. Approximately 70% of tech funding comes from abroad, with investors seeking specific structures and liquidity. While areas like AI and cybersecurity show promise, Israeli companies are urged to explore diverse funding options like venture debt as IPO markets remain challenging. Experts predict continued growth in AI and defense tech, with biotechnology also noted as a future growth area.
The story in 5 lines · by baba
- 70% of capital invested in Israeli high-tech comes from global investors, highlighting a gap in domestic capital markets.
- Foreign investors are eager for Israeli innovation, especially in cybersecurity, defense, and AI, according to Citi Israel CEO.
- Hercules Capital has committed over $1.5 billion in Israeli investments over the past two years.
- Israeli companies are exploring venture debt and other financing options due to distant IPO markets.
- Experts predict continued growth in AI, cybersecurity, and defense technologies in the coming years.
Israel is a global technology powerhouse, but its capital markets lag behind, according to a panel discussion at the TECH1 conference in Tel Aviv. "Israel is a technology superpower, but it is not a capital market," summarized panel moderator Nir Nezer of Talos Global. He noted that over the past 10 to 15 years, approximately 70% of the capital invested in Israeli high-tech originated from global investors.
Neil Cornick, CEO of Citi Israel, stated that this reliance reflects strong demand, with foreign investors eager for Israeli innovation, particularly in cybersecurity, defense, and artificial intelligence. Citi's largest innovation center is located in Israel, employing nearly 300 people. Cornick highlighted that these investors seek suitable capital structures, liquidity, currency risk management, and proof of international collaboration capabilities.
Gal Marom, who manages the private investments team at Phoenix Finances, expressed surprise at the high level of foreign involvement observed in November 2023. Phoenix, managing around 700 billion shekels, invests about 30% of its private equity and venture capital in technology. He observed a convergence between venture capital and buyout fund strategies, with holding companies acquiring and consolidating service firms around AI, and large buyout funds integrating AI into their existing portfolios.
Ella-Tamar Adanan, a senior manager at Hercules Capital, reported a significant increase in activity, with Hercules committing over $1.5 billion in Israeli investments over the past two years, including a $200 million investment in a cybersecurity firm recently. She explained that Israeli companies traditionally relied on equity and bank loans, but venture debt is a crucial tool, especially when IPO markets are distant. Hercules finances secondary market deals and acquisitions, noting that continuous equity raises can become prohibitively expensive for companies with substantial recurring revenue.
Looking ahead, Cornick anticipates continued growth in AI, security, cybersecurity, and defense technologies, while Marom favors biotechnology. Adanan expressed a more cautious outlook on AI, noting that Israel is "trying to catch up" and lacks companies on the scale of OpenAI or Anthropic.
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