Having spent three energizing yet exhausting days in Israel this past week, one struggles to neatly put the experience in a simple elegant context. Like many countries today, there is extraordinary and somewhat confounding political confusion. There are significant anxieties due to volatile economic conditions. And all of this against a public healthcare crisis that simply will not abate. Maybe one word to capture the zeitgeist of the moment is unrelenting.
Undoubtedly, Israel resides in a neighborhood fraught with conflict, although there are encouraging signs of geopolitical advancements anchored by the Abraham Accords. This framework seeks to (more) normalize relations with the United Arab Emirates (UAE), Bahrain, Morocco and Sudan, with other Arab countries expected to join the fold over the next few years. Since the initial signing, over 500k Israelis have traveled to the UAE in the past two years and there has been an estimated $192 million in trade deals according to an analysis by The Jewish Chronicle. The Israeli Minister of Defense can already point to $791 million in defense exports to the participating countries. Even with this progress, it was fascinating to watch the Morocco – France FIFA World Cup semi-final match at Ben Gurion Airport with several hundred highly partisan Israeli fans on Wednesday night.
But the current political discourse is solely locked now on the rise of the ultranationalist party in the emerging Netanyahu-led Likud party’s coalition, which won the national elections held last month to form the 37th government of Israel, and just this past week secured a 10-day extension to form the new government. Many of my conversations centered on this phenomenon which will likely see the further expansion of settlements, stiffened resistance to Palestinian statehood, and the possible dismantling of judicial oversight. The Knesset, which is the legislature of Israel, has 120 seats and will likely be made up of 12 political parties, each of which secured enough votes to be included – there are another 43 parties which will not have a seat in the Knesset). Unrelenting political chaos.
Interestingly, the public health response to Covid has been nothing short of impressive. When most other countries struggled to manage variant surges (see below at the challenged U.S. responses), Israelis deftly managed to limit the spread of the disease and suffered a modest, yet still tragic, loss of just under 12k lives with a total of 4.75 million cases. By comparison, the U.S. to date has experienced an estimated 1.1 million deaths and 99.6 million reported cases, effectively 3x the fatality rate seen in Israel.
The entrepreneurs I met in the healthcare technology sector were remarkable and unrelentingly enthusiastic and determined. According to Tracxn, there are 867 healthcare technology start-ups in Israel now, underscoring the well-deserved reputation as the “Start-Up Nation,” which was first coined in 2009 to account for the extraordinary Israeli entrepreneurial culture. According to Calcalist, there are 9,484 start-ups in Israel now and approximately half of them have revenues below $10 million. Just under 10% of all Israeli start-ups are in the healthcare technology sector.
One of the wonderful hallmarks, among many, of Israeli healthcare technology entrepreneurs that I witnessed on each of my prior visits (March 2011, June 2014, December 2016) is the unrelenting obsession to solve intractable healthcare problems, often with a very disciplined product-first approach. Obviously, their engineering bona fides are beyond dispute, which colors how many founders view the market opportunities. Given much of the risk healthcare technology investors take is around product / market fit, the promise of deeper collaboration with Israeli founders is to help refine the specific near-term commercial opportunities that have real budgets.
As is the case in most venture capital markets around the world, the Israeli venture investment activity cooled significantly in 2022, tracking to be an estimated $15 billion, well below the 2021 highwater mark of nearly $26 billion. Notwithstanding that, the Israeli venture investment per capita ranks #2 globally as of mid-2022, behind only Singapore, with $506/person invested as compared to Singapore and the U.S. (#3) with $695 and $357, respectively.
The relatively strong exit environment in 2021 with close to $24 billion of exits across 262 deals continues to drive exciting venture capital fund formation. According to the Tel Aviv Stock Exchange, there were 94 IPOs in 2021 which raised nearly $13 billion. While many markets struggled to see new venture funds raised, Israeli-based funds saw a 71% increase over 2021 in the amount of capital raised, reaching €2.9 billion across 28 funds through November 2022. Tracxn estimates that there are 126 accelerators and incubators in Israel to complement the local venture capital industry.
The level of activity is remarkable when one considers the relatively short and challenged history of the capital markets in Israel. It was not much more than 40 years ago when the Israeli economy was in the midst of an absolute desperate financial crisis, triggering a massive Economic Stabilization Plan in 1983 (the 1984 inflation rate was over 370%).
Structural reform and privatization initiatives over the past twenty years have created one of the most robust regional economies with benign inflation and a GDP per capita in 2021 of $51.4k (compared to $69.3k in the U.S. and $23.6k in Saudi Arabia). Israeli unemployment rate as of October 2022 was 4.1%. The total market capitalization of the 549 publicly traded Israeli companies is $216 billion. It is estimated that now 25% of all European IPOs are in Israel and there are significant capital inflows into the market. The push for dual listings has further diversified the investor base of many companies and afforded greater liquidity. Unrelenting capital market successes.
My sincere thanks to Phyllis Gotlib, Flare Capital’s amazing Executive Partner (who spends much of her time in Israel), the entire team at Arkin Holdings (particularly Nir Arkin, Nadav Shimoni – excited about our partnership), the inspirational team at The Peres Center for Peace and Innovation (particularly my friend Chemi Peres), the hardworking team at Google for Startups Israel (what a terrific facility), the tireless8400 Network of leading healthcare technology executives (great breakfast conversation), and the dozen hot start-up founding teams I had the great privilege to hear from (apologies for my unrelenting jet lag).
On the Flying Bridge 