Post-pandemic, has the tech bubble burst?

It seems strange to say it, but technology is having a turbulent time. Darlings during the pandemic, technology companies’ pandemic boom has hit a post-pandemic bump. 2022 was a really rough year for tech amid global unrest, supply chain issues and soaring inflation. Google, Amazon, Meta and Microsoft have all made significant layoffs.

Jon Medved, founder and CEO of OurCrowd, the online venture investing platform that has backed over 400 tech startups. He says: “There has been a definite downturn in tech activity, especially in the investment realm, due to the deep retrenchment in tech stocks that are traded on public exchanges such as NASDAQ, which was down in 2022 by 33 percent. Startups are doing a little worse in terms of their valuations because private companies ultimately follow the public trends by measuring themselves against what are called ‘Comparables’ – the companies that you can compare their performance to. And with comparables down as a broad group, this is causing a significant drop in overall tech valuations, mostly in the later stage investment rounds.”

Even Israel – the ‘start-up nation’ and one of the world’s leading tech hubs – has struggled. Last year, exits of Israeli tech companies plunged 54 per cent to their lowest level in eight years amid global stock market volatility, while according to reports released by Start-Up Nation Central (SNC), SNPI, IVC, and LeumiTech, the total volume of investment in 2022 dropped from an unprecedented $27 billion in 2021 to $15.5 billion in the past year.

Yet Medved, who has been on the startup scene since 1994, isn’t too concerned. “In Israel we were down a little over 40 per cent from 2021 to 2022 in terms of dollars invested, from $26 billion to about $16 billion, according to recent data. However, given that in 2020 there was only $10 billion invested, the fact there was $16 billion in 2022 is actually okay. The overall Israeli tech ecosystem has been hit by layoffs and some significant degree of spending cuts and companies attempting to stretch out their runway, but the tech activity here is broad, active and very exciting in a whole range of sectors including Climate, Cybersecurity, Fintech, Semiconductors and Space.”

However, Medved acknowledges that there is a generation of Israeli VCs and founders facing a hard time for the first time. “Since 2008 people were largely riding an upward trajectory with a momentary blip at the beginning of the pandemic.”

Medved has seen it all before – in 2008, 2000 and even 1987, and reflects: “One must remember that financial activity is cyclical and if you want to enjoy the uphill climb you have to take what comes afterwards, which is inevitably a downturn too. People should tighten their belts, get used to it, suck it up and continue to look at the long term, which is very rosy for the innovation and technology sectors.”

The American, now living in Israel, believes now is an opportune time for investors to up bargains. “Companies are on sale. It’s a very happy hunting season for investors who have adequate reserves and are looking for deals.”

Next week (Feb 15th) OurCrowd is hosting its Global Investor Summit in Jerusalem – the largest investor event in the Middle East – bringing together angels, unicorns and business leaders from around the world to showcase the best of Israel’s startup technology.

Raising – and hanging on to – money is a particular challenge for startups. “Running out of money can be absolutely fatal,” says Medved. “If you hit the wall and have no reserves and you can’t raise money you must close your company and investors get what we refer to as ‘an egg’ or ‘a big zero’. We have been urging our portfolio companies to make sure they are extending their runways by cutting their burn rates. The easiest money they can raise is the money they save. They are the masters of their own destiny and they can make it through these tough times with spending less. But unfortunately, people just can’t do it by cutting. They have to raise money and today is a difficult environment in which to do so, but if they have the right pitch, the right results, the right strategy, and talk to the right investors, then they can raise capital. Yes it’s going to be at a lower valuation than if you raised it a half a year or year ago but now money is a lot better than money in the future.”

Areas that are looking particularly fruitful this year include climate, energy tech and artificial intelligence (AI). “You don’t have to be a rocket scientist to figure out that this is the most important trend of our time. AI is affecting every area of human endeavour whether it’s agriculture, finance, health care or commerce, and we are very blessed that Israel is one of the top five countries in the world in terms of its skill, knowledge and depth of technology based in the AI arena. I believe this will attract lots of investment in the coming years.”

summit.OurCrowd.com