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Will Israel’s Tech Funding continue to grow in 2019?

No doubt, Israeli tech funding saw another year of strong activity.

Per IVC Research Center and ZAG S&W 2018 Tech Funding Report, the dominant trend in the industry in 2018 was investors’ focus on a smaller number of companies and higher amounts. The effect of mega-rounds—also called “Softbank effect”/ “Preemptive Roundseffect” or “Supergiant roundseffect” –is well noted in Israeli tech: there were 24 mega-rounds (over $50 million) in 2018, reaching 31% of the total funding and pushing the figure to $6.47 billion, more than double the amount for 2013.

Israel’s share is just a fraction of the worldwide mega-round phenomenon, with the US leading the trend. A smaller number of winners took the bounty, which means things are looking less rosy for the majority. As a matter of fact, lower range deals, below $5m, accounted for less than 10% of overall capital investments during 2018, in 352 deals, with amounts similar to 2013 (page 16). In other words, nearly 60% of the transactions over the last year received less than 10% of the overall funding.

The economics of this situation—a kind of “Pareto Principle” for start-ups—will work as long as money keeps flowing. However, this behavior also raises tough questions about what will happen when the music stops? A closer look at the current global economy leaves room for concern regarding local funding resources over the next 12 months.

First on the list of troubling portends is the US interest rate hike, which has already led to dramatic effects on Wall Street. Next, is US–China relations and other global trade conflicts and last is the fear of a global economic meltdown.

All these could negatively affect the level of allocated funding to alternative asset classes in general and the allocations to the Israeli tech in particular. It is easy to imagine a scenario where 2019 will not meet the levels we have seen in 2018. However, barring a 2008 kind of black swan on the horizon, local available funding will not stumble too much either.